Over the last few years, Internet companies Tencent Holdings and Alibaba Group Holding have been competing with each other in online financial services. Recently, Alibaba released a new version of its online payment platform Alipay, which shares many similarities with Tencent's WeChat payment service. This year, the two companies have been pushing ahead on plans to launch online banks. Analysts suggested Internet companies have already been aware of the great potential of the online financial services, as the growing use of Internet platforms and the increased data and analytics capabilities would enable financial services providers to expand their user bases.

Photo: CFP

Photo: CFP

Three months ago, a 37-year-old company owner surnamed Tian applied for a 300,000 yuan ($48,166) loan through Ant Financial Services Group, the financial arm of Chinese e-commerce giant Alibaba Group Holding.

It took three days for the online financial services provider to approve Tian's application, lending him 190,000 yuan.

"It's much more convenient than bank lending, which usually takes about a month or longer," Tian said, noting that small and medium-sized enterprises (SMEs) could benefit more from online financial services, as traditional banks always have tightened lending standards, especially for SMEs.

Ant Financial introduced a credit-scoring service called Sesame Credit in January, which leverages the big data technology and customer behavior analytics from Alibaba's e-commerce platforms to generate individual credit scores for consumers and small business owners, according to Alibaba's website. These ratings provide lenders, merchants and other companies with a reliable tool for assessing their customers' creditworthiness.

Running two companies in Yichang, Central China's Hubei Province, Tian said he has been using Alibaba's online marketplace Taobao for almost 10 years.

"Ant Financial evaluated my credit via a so-called Sesame Credit, including my online shopping and payment data," he told the Global Times Sunday.

Alibaba's major rival - Tencent Holdings - also has its eye on online financial services. It launched its payment platform Tenpay back in 2005, which received a license from the People's Bank of China (PBC) in May 2011 for offering payment services.

By the end of 2011, Tenpay had 190 million registered users. Later on, Tencent's social messaging app WeChat also introduced a payment service in an effort to commercialize the app, the Xinhua News Agency reported in June 2013.

Alipay vs WeChat Wallet

Ant Financial announced Wednesday it would upgrade Alibaba's third-party ­payment platform Alipay by adding location and social networking features, according to a document that Ant Financial sent to the Global Times Thursday.

The new Alipay will allow users to find locations of nearby restaurants via a so-called Merchant tab and message other people via a Friend tab, according to the document.

However, Alipay's new features will likely to closely follow ones that WeChat introduced in 2013, said Liu Dingding, an analyst from Beijing-based Internet intelligence agency Sootoo.

"WeChat's payment functions have been largely promoted by providing the local life services and by social networking," Liu told the Global Times Sunday. "For example, Chinese taxi-hailing service Didi Dache has been spending a lot in subsidizing hailing taxis on the WeChat platform."

Third-party mobile payment gross merchandise volume (GMV) increased about 139 percent in the first quarter of 2015 compared to the same period in 2014, according to data released by iResearch in June.

Alipay accounted for 77 percent of the third-party payment market by GMV, while Tenpay had just 14 percent. Both companies have benefited from tapping their large user bases to promote their payment services.

For example, Alibaba and Tencent both rallied users to try their online payment services by handing out more than 600 million yuan in cash and coupons through a digital hongbao giveaway during the Spring Festival holidays in 2015, Liu said. Hongbao are the cash-filled red envelopes that Chinese give to each other as gifts during holidays.

More than 100 million people participated in the hongbao-grabbing activity on Alipay Wallet, according to media reports. Tencent's WeChat handled more than 1 billion hongbao transactions on the New Year's Eve in 2015 alone.

At the end of June, Alibaba and Ant Financial announced they will invest in the country's fast-growing local services industry, which grew 42.8 percent year-on-year in 2014 in terms of transaction volume, according to the data released by the Beijing-based market research firm iResearch in February.

Analysts have predicted that the online-to-offline (O2O) local services industry will continue to be a major battleground for Alibaba and Tencent. 

Alipay will become more like WeChat's payment service in the near future because both companies have noticed that they can grow their user bases by providing O2O local services with the help of social networking, Liu said.

MYBank vs WeBank

Along with its third-party payment platform, Tencent has shown interest in banking services. The company, along with a number of independent partners, established a privately owned commercial bank called WeBank in Shenzhen, South China's Guangdong Province, according to Tencent's annual report in March. Tencent and its partners invested 900 million yuan in WeBank. Tencent owns a 30 percent stake in the bank, filings show.

Alibaba launched its online bank, MYBank, in June. The bank aims to provide financial solutions to rural consumers and small businesses, according to the company's website.

"MYBank will soon open to the public, and we'll combine Ant Financial's micro-lending subsidiary - Ant Micro Loan - with the bank," said a person close to the matter who refused to be named.

He noted that the online-only business model would eliminate large expenses associated with maintaining traditional brick-and-mortar bank branches, which should make issuing smaller loans profitable.

Ant Micro Loan has lent more than 400 billion yuan to more than 1.6 million small businesses since 2010, according to Alibaba's website. And the lender's bad debt ratio stands at less than 1.5 percent, which is low for the banking industry.

The Chinese banking sector's non-performing loans (NPLs) grew to 1.43 trillion yuan and its bad loan rate rose to 1.6 percent by the end of 2014, the Xinhua News Agency reported in May, citing a report from the China Banking Regulatory Commission (CBRC).

For the first half of 2014, Agriculture Bank of China reported a NPL ratio of 3.18 percent in the wholesale and retail industry and 3.15 percent in the manufacturing industry, according to a PricewaterhouseCoopers report on the 2015 outlook Chinese banks in January.

Compared to the WeBank, Ant Financial's ability to process big data has already been highlighted by its financial products, such as Yu'ebao, Liu said. Yu'ebao's total assets reached 574.1 billion yuan in the second quarter of 2015, up 33 billion yuan compared with the previous quarter, according to media reports in July.

"MYBank will use big data analysis to develop and tailor financial services for SMEs and individuals. It evaluates the credit history of smaller enterprises to calculate lending risks," the bank's governor Yu Shengfa was quoted as saying in a document that Ant Financial sent to the Global Times Sunday.

Ant Financial has several advantages over Tencent in providing online financial services, said Wang Weidong, analyst from iResearch.

"Alibaba's financial arm can also benefit from its marketplace's database while Tencent is much more focused on strengthening social networking," Wang told the Global Times Sunday.

The company owner Tian said he expects MYBank will give him more access to financing, so it "is likely to become a real bank for us [SMEs]."