Banks are not normally the floggers of kettles and smartphones, duvets and leather shoes. But China Construction Bank, the world’s second-largest lender by market value, is undeterred by convention.
Half a year ago CCB launched an online mall, buy.ccb.com, in a move akin to HSBC directly taking on Amazon.
While a few western banks such as Bank of America have launched internet shopping portals linked to major retailers, CCB’s ambition goes well beyond that. It wants to become a fully fledged ecommerce site that is home to thousands of vendors, big and small.
CCB’s move is a highly unusual strategic decision for a bank, and highlights two new facts of life in China’s banking sector. First, the country’s banks, long coddled by the government, suddenly find themselves in a fiercely competitive landscape. Second, the fight for control of “big data” is heating up in China as banks seek to marshal as much information as they can about their clients.
“We have to keep customers on our platform, otherwise the space that we occupy in the value chain and the service chain will be squeezed narrower and narrower,” a CCB executive responsible for electronic banking told the Financial Times.
The opening shot in the battle was fired five years ago not by a banker but by an internet pioneer. In an address to a business forum, Jack Ma, founder of China’s largest ecommerce company Alibaba, criticised banks for their reluctance to lend to small and medium-sized businesses.
“If banks don’t change, we will change banks,” he said.
Mr Ma started out by co-operating with banks. Backed by CCB, he launched AliLoan in 2007, a lending programme focused on small companies.
The idea was to combine strengths. Alibaba had reams of information about its users and had pieced together detailed credit records for them. CCB was sitting on heaps of money and was hungry for good borrowers, but was wary of the risks of lending to small businesses with no credit histories.
This co-operation came to an end in 2011 when the agreement between Alibaba and CCB expired and was not renewed. People familiar with the partnership say Alibaba realised how valuable its store of credit data were for banks and demanded a bigger cut of lending profits.
The biggest point of contention for CCB, though, was not money, but rather the way it was being sidelined in the ecommerce business. That had become an extremely lucrative terrain, with online transactions increasing 30 per cent to Rmb5.9tn ($947bn) in 2011.
“We made lots of attempts to capture some of this market, but in the end all the data about our clients and their transaction behaviour was in the hands of third parties,” the CCB electronic banking executive says.
The former partners struck out independently, Alibaba using its own funds to lend via its AliFinance website and CCB launching its own ecommerce site.
The race is on to see which one will be successful in breaking into the other’s territory: Alibaba as a lender or CCB as a shopping platform.
Alibaba has a head start. By mid-2012 it had extended Rmb28bn in loans to more than 130,000 small businesses. In the six months since its founding, CCB says its ecommerce site has registered 10,000 stores and has hosted Rmb3.5bn in transactions.
An executive in the tech industry says he believes Alibaba has a lead over CCB because as an ecommerce platform it is closer to small businesses. “Whether it’s ecommerce or financial, the key is data. The players that have the best data will win,” he says
Alibaba declined to comment.
Other banks are not waiting for the results of CCB’s foray into ecommerce. Bank of Communications, China’s fifth-biggest listed lender, opened an online shopping mall in September. Industrial and Commercial Bank of China, Bank of China and China Minsheng Bank are all believed to be looking at launching similar websites.
“Competition is very severe now for Chinese banks, and information about clients is the key for their competitiveness,” said May Yan, an analyst with Barclays. “Big banks actually have an advantage because they already have a very big database.”
Yet ecommerce will not come easily. Chinese banks are largely state-owned and have long been protected by the government from competition in their core lending businesses. In online shopping they are up against internet companies that hail from the private sector and have been some of China’s most innovative enterprises over the past decade.
“Big banks will be constrained by the system,” says Zhang Meng of Analysys, a Beijing-based internet research firm. “They will not have the same innovation, market savviness and service standards as the privately run ecommerce platforms.”