China Retailers Bet Big On Online Banking Service

Chinese Webgiant Baidu has obtained regulatory approval to establish a direct-banking firm that will operate online, bringing fresh challenges to consumer transactions in China.


Chinese Web-giant Baidu has obtained regulatory approval to establish, in collaboration with China Citic Bank, a direct-banking firm named Baixin Bank that will operate online rather than through brick-and-mortar outlets.

The green light came early in January, more than a year after the retailer applied to authorities for the license. Often referred to as the “Chinese Google,” Baidu—the fourth-most-trafficked website in the world—is the last of China’s three top Internet giants to enter the banking sector, after rivals Tencent and Alibaba founded their own private online banks in 2015. “Retailers need to find a new profit-growth point to ensure sustainable growth,” says University of Macau’s professor of finance Maggie Fu. “One of the key strategies is to move from the current low-value-added industry to high-value-added industries such as financial services.”

Contrary to Tencent and Alibaba, which went on their own, Baidu chose to collaborate with an established banking organization—Citic, which has over $676 billion worth of assets under management—to gain from each company’s expertise. “The major benefit of such a model is that it could combine the traditional bank’s advantages in risk control and product development with the Internet company’s strength in big data to provide tailor-made financial services to the customers,” says Fu.

While it can be difficult to achieve synergies if the partners have different corporate cultures, Fu adds, the impact of such services can be tremendous given China’s high Internet penetration rate and limited banking access. “Traditional banks have not satisfied
the financial needs of the long-tail ‘grass-roots’ class for a long time.”

Retailers’ foray into financial services is shaking up an industry dominated by big state banks. More than 20 Chinese lenders have already followed, launching their own online units. “Traditional banks,” says Fu, “can be in peril if they do not harness the power of technology.” 

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