Fintech-Traditional Bank Pairings Are Based on Mutual Need, Not Trust, Insiders Say
Du Chuan | Song Yikang
DATE:  Aug 25 2017
/ SOURCE:  Yicai
Fintech-Traditional Bank Pairings Are Based on Mutual Need, Not Trust, Insiders Say Fintech-Traditional Bank Pairings Are Based on Mutual Need, Not Trust, Insiders Say

(Yicai Global) Aug. 25 -- China's online finance companies were once a disruptive force in the traditional banking industry, but partnerships between the two sectors are beginning to form.

China's four leading state-owned banks, the 'big four' and four dominant internet firms, known collectively as BATJ, have all undertaken partnerships recently:

  • Bank of China Co. [SHA:601988] and Tencent Holdings Ltd. [HKG:0700]
  • Industrial and Commercial Bank of China Co. [SHA:601398] and JD.Com Inc. [NASDAQ:JD]
  • Agricultural Bank of China Co. [SHA:601288] and Baidu Inc. [NASDAQ:BIDU]
  • China Construction Bank Corp. [SHA:601328] and Alibaba Group Holding Ltd. [NYSE:BABA]

The pairs actually began cooperating even before the conclusion of formal deals, and BATJ started to cooperate with smaller institutions before teaming up with the larger banks. Though the group has come up with 30 or so joint initiatives to cover a diverse range of businesses, few have actually been put into practice.

The groupings appear to be business alliances against one another, but the timing of the deals is merely coincidence, several bank and fintech executives told Yicai Global.

"We're surprised by the efficiency of the big banks," said Xie Jinsheng, head of JD.Com's fintech division. The cooperation between JD.Com and ICBC involves 15 departments, but the talks only lasted about two months. "The bank has very strong internal coordination and executive capabilities; it's not the inefficient, sprawling organization it appears to be."

Tightened policies were the trigger for fintech companies to pair up with traditional banks, while the latter looked to benefit from cutting-edge technology.

Hua Xia Bank [SHA:600015] also decided to cooperate with Tencent because "first and foremost, [the bank] can benefit from Tencent's traffic and data," said Wang Hanming, the lender's chief information officer.

"Furthermore, Huaxia wants to integrate its products into Tencent's application scenarios, and the deal will allow us to use its latest technology and findings to significantly improve out fintech service and support capacities," he added.

Elaborating on the reasons why fintech firms partnered up with traditional banks, Wang suggested they need to find outlets for their data, traffic, users and other resources in order to scale up their businesses. Banks can offer the credit, capital and risk management that they need.

"In future, the competitiveness of banks' financial services and products will largely depend on their command of Big Data, cloud computing and artificial intelligence technologies," said Shu Mei, a researcher at Alibaba's Ant Financial Business School. "Banks urgently need basic-level technology and data integrated with the professional capabilities of fintech firms."

"Reforming finance with the internet is a future trend; internet firms and traditional institutions should be competitors and partners at the same time," Yin Jianfeng, deputy head at the National Financial Innovation Laboratory, said.

Despite teaming up, BATJ and the big four don't completely trust each other, insiders said.

For example, after JD.Com released a credit card in partnership with CITIC Bank, it was only granted access to cardholders' behavior, such as purchases and credit records, after loans were granted, said Ou Li, head of JD.Com's consumer finance decision.

"The bank won't give us data about overdue loan repayments," he continued. "Banks have different policies on data security and transaction information. We respect their policies and more importantly, they need to comply with regulatory requirements."

Information security is a key factor in cooperation between fintech firms and banks, but a clear definition regarding the ownership of digital assets is still absent in laws, said Li Jianjun, dean of the Central University of Finance and Economics' School of Finance.

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Keywords:   MSCI,Banks,Alibaba,TENCENT,JD.com,Baidu,Strategic Cooperation