Digital players and banks are going head to head on the mainland as they seek to enter each other's business world to woo consumers.

The worlds of e-commerce and banking are quickly colliding in China as the two sides race to enter each other's realm.

Several digital players have been encroaching on bank turf of late. Last month, Tencent Holdings' WeBank, China's first online bank, opened for business. In November, Gome Electrical Appliances Holding announced it had taken a 5.7 per cent stake in Huishang Bank Corp to boost its financial services platform. Alibaba Group Holding's private bank is set to launch in the first half of this year.

At the same time, some of the nation's largest financial institutions such as China Construction Bank Corp and Industrial and Commercial Bank of China, through a partnership with Ping An Insurance (Group), have rolled out comprehensive mall-like e-commerce platforms similar to Alibaba's business-to-consumer online marketplace Tmall.

The idea of a banking-e-commerce union has been around for a while. David Zhao, the founder of online fashion retailer Shangpin, was a pioneer. In 2004, he helped launch and operate e-stores of several domestic banks.

Most Chinese consumers expect discounts for goods bought on the internet, a notion that still plagues retailers. Zhao navigated that low social trust as well as authenticity problems by appealing to banks' platinum credit card members. The banks gave shoppers the confidence that they were receiving authentic and quality goods.

"When there was the big boom in flash sales in 2010, since we had all these strategic partners in banks - Construction Bank, Minsheng Bank and Huaxia Bank - we launched as a shopping site for bank clients," said Shangpin's vice-president of global business development Claire Chung.

In 2012, Shangpin transitioned to a full-priced online retailer, one of the rare sites other than Tmall, that is able to sell expensive branded designer goods such as Sergio Rossi, Lanvin and Kenzo at full price to consumers.

Although there is ample opportunity for banks to move in on e-commerce, it is not as easy the other way around, according to Christopher Harvey, Deloitte's managing director and financial services global leader. "The one big difference between a luxury retail store and a bank is that a bank is regulated," he said.

"The big challenge e-commerce platforms have is that there is no real consumer protection built in from a financial perspective," said Tim Pagett, Deloitte China's chief financial services industry leader. "If I have 100,000 yuan (HK$124,000) in my Alibaba account and if for whatever reason Alipay collapses, that money is gone. Whereas, if a bank collapses, the state-owned banks would step in and rescue it. There's a depositary protection scheme."

Jiang Jianqing, the chairman of ICBC, the world's largest bank by market cap, told an Asian financial forum last month the pace of China's internet development and innovation had surprised many other countries.

ICBC's online shopping platform, in operation for a year, had hit 70 billion yuan in transactions, Jiang said.

"Innovation reform is being encouraged, big achievements have been made and a lot of e-commerce players have entered the finance sector in the past few years," he said. "There will be competition and challenges for us but there are things we can learn.

"Banks have not been conservative at all. Banks were the first users of computers. Some 86 per cent of our business is done online and very soon it will reach 90 per cent. One-third of bank customers don't come to banks all year round. They use internet and other electronic services."

Joe Chen, the chief strategy officer at WeBank, said banks should be strategising to own the e-commerce space rather than relying on third parties.

"Beyond just selling yourself to Apple and Google, you can actually own the utility and expand the concept of the utility to different areas," Chen said. "Or on the other side, if you expand your frame of reference, you can try to get into the consumer's daily life.

"Build your products and services around consumer's daily lives. I think this offers a lot of possibilities for banks."

Although the possibilities are still not so well-defined at the moment, certain trends are evident.

"I haven't seen the banks going the same way in China as in other parts of the world, but retailers getting into banking is happening everywhere," Harvey said. "Clearly, they are a challenger and the government is supporting it. The premier [Li Keqiang] doesn't show up at the opening of WeBank for nothing."

Yet, banks are in a position to return the fire. "You've got corporate customers who are looking for distribution channels and you've got retail customers who are looking for purchases so they use their platform to match up two parts of their customers," said Pagett. "In an almost perverse way, banks are potentially in a position in where they could disrupt the e-commerce companies."

Source: http://www.scmp.com/business/banking-finance/article/1698952/chinas-e-commerce-firms-and-banks-fight-market-share

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