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Alibaba’s New Credit Service Challenges Banks
Published on: 2013-03-14
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altStarting in April, Alibaba will allow users to use credit of up to CNY 5,000 to pay for purchases in the same way they would with an ordinary credit card. The new service gives opportunities for some banks, but may bring great competition to others.
AliFinance, the financial arm of the Chinese e-commerce giant Alibaba, will begin offering a credit payment service to its 80 million users in April. The news has sent a ripple through China’s banking industry.
According to AliFinance, the service will allow users to use credit of up to CNY 5,000 to pay for purchases in the same way they would with an ordinary credit card. The credit limit will be based on users’ record on Taobao and Tmall.
“Our business section has been discussing this for several days,” said a marketing department general manager at a joint-stock bank. “If Alibaba chooses to run the service on its own or only cooperate with a few banks, those banks left out will face a direct challenge.”
On Mar 6, AliFinance said that it will cooperate with other banks to run the service. China Merchants Bank and Ping An Bank have already showed interest and have set meetings with AliFinance.
What concerns banks most is the for-profit model. In Alibaba’s plan, merchants who sign agreements to use the service will pay a 1 percent service fee on credit payments. The banks will get their share from this 1 percent. 
Traditional banks are weighing their options while internet companies like AliFinance, Tencent and 360buy Jingdong Mall are all preparing to jump into the micro-loan business. 
“Internet companies get into the financial industry for two reasons,” a Tencent senior executive told the EO. “First, we need to find ‘new cakes’ outside the crowded internet. Second, the financial industry is starting to open up, yet some companies still enjoy monopoly profits. Internet companies have a great chance to flourish if we can just bring our advantages into full play.” 
A senior executive in the banking industry told the EO that Alibaba’s move wasn’t a surprise. “We realized Alibaba had the capability to run a credit card service two or three years ago,” he said. “We’ve been digging into our own data and preparing for it for a long time.” 
Some have speculated that Alibaba may eventually go one step further and open its own bank. Chairman and CEO Jack Ma denied this, but the banking industry executive says it may not be up to him.
“It’s the capital making the decision, not the CEO,” he said. “The market is open. We welcome competitors like Alibaba. We only hope Alibaba can compete with the banks as a financial institution. There will be nothing to complain about as long as it’s a fair game.”   
By Lan Binzhen (蓝彬珍) and Chi Youlei (迟有雷)
Mar 11, 2013
Translated by Chi Yi 
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