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China – Online-Only ‘WeBank’ Service Faces Competition From Alibaba Incumbent, Says Expert.

8 January, 2015

 

Legal News & Analysis – Asia Pacific – China – Banking & Finance

 

China’s new online-only banking service ‘WeBank’ faces stiff competition from traditional banks as well as from a rival “advanced payment service” run by e-commerce giant Alibaba that Chinese customers have been using as a de facto online bank, an expert has said.

 

WeBank became operational on Sunday following a earlier government-backed initiative to expand the number of private banks in China. Internet giant Tencent has a 30% stake in WeBank, according to a report by news agency AFP.

 

Online banking in China has the support of the Chinese government, which sees internet banking as helping to reform financial services in the country, according to the report.

 

Hong Kong-based technology law expert Paul Haswell of Pinsent Masons said that internet giant Alibaba has already been operating a de facto online bank in China for some time, through its Alipay platform.

 

Although Alipay is “an advanced payment service” similar to PayPal, many customers have been using the service “as if it is a private bank”, Haswell said. He said Tencent’s new ‘WeBank’ service is likely to attract small business customers and “the very large sector of Chinese society who favour online services as well as those who have waning confidence in the Chinese state-owned banks”.

 

“Use of online services has exploded in China, and the prospect of an online private bank which appears independent from state control is likely to be appealing,” Haswell said.

 

However, whilst WeBank is revolutionary in being online-only, that does not mean that it escapes the regulation associated with traditional banks, Haswell said. He said it remains to be seen how heavily that regulation will be applied.

 

“WeBank follows the same naming approach as WeChat – Tencent’s instant messaging service,” Haswell said. “WeChat came under fire when users discovered that its messages were being censored and monitored by the Chinese government. Therefore it’ll be interesting so see what sort of controls apply in practice, rather than on paper, to WeBank, and how their customers react.”

 

Pinsent Masons

 

For further information, please contact:

 

Michael Isaacs, Partner, Pinsent Masons

michael.isaacs@pinsentmasons.com

 

John Salmon, Partner, Pinsent Masons

john.salmon@pinsentmasons.com

 

Homegrown Banking & Finance Law Firms in China 

 

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