Why Baidu Is Well-Positioned To Monetize FinTech In China

  • Competition among the Chinese Internet conglomerate trio intensifies.
  • After Tencent and Alibaba opened online banks, Baidu partners with Citic to open a digital-only bank.
  • Baidu bank could offer some services offline using Citic.
  • Baidu is well-positioned to penetrate the global FinTech market.

The competition among China’s three biggest tech-conglomerates Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU), and Tencent is increasing and expanding outside the traditional technology field. The three compete to dominate the Chinese market in software, Internet services, social media, and many more but, lately, started to step outside of their comfort zone and invest in adjacent markets. The competition among the three Chinese reached new highs when the three giants invested billions of dollars in supporting ride-hailing service providers, and now, they are moving into the financial services market.

Two months ago, in September, all the three companies invested large amounts of money in the evolving Chinese ride-hailing market. Baidu invested $1.2B in Uber to support its penetration into China, while Alibaba and Tencent merged their ride-hailing start-up to form Didi Kuaidi and to inject $3B into the new company. Alibaba and Tencent also invested another $200M in the U.S.-based app Lyft to increase its global ride-hailing presence and compete with Uber worldwide.

At the beginning of the year, Tencent opened the first Chinese private online-only bank called WeBank, a reference to the company’s popular instant messaging app WeChat. The new online-only bank was headquartered in Shenzhen, targeting individuals and small businesses. In June, Alibaba opened MYbank, targeting small and micro-enterprises in rural areas with no access to physical bank branches. Same as WeBank, MYbank will also be a fully digital financial institution with an online-only service “not for the rich, but for the little guys” said Eric Jing, president of Ant Financial — the Alibaba affiliate backing the bank.

Opening financial institutions became a feasible plan when the Chinese banking regular eased the existing loan-to-deposit ratio by allowing placements by non-bank financial institutions to count as deposits under the calculation. Offering financial service is an important milestone for the Chinese internet conglomerates in their efforts toward various FinTech solutions supported by their cloud and big data capabilities and powered by the massive computing infrastructure. These services include e-payment services for in-store and online payments, P2P transactions, and P2P loans. Some of these services have already been made available by the players, but no one has a strong FinTech offering backed by a banking institution that has a global presence. WeBank and MYbank are the first steps for Alibaba and Tencent to monetize that market.

The third leg of the Chinese internet conglomerate trio, Baidu, cannot stay behind, and it has partnered with local Citic Bank to start its digital online-only bank. Like the other companies, Baidu also plans to employ the massive amount of information gathered through its other services for its financial initiative. However, unlike Alibaba and Tencent, Baidu could offer some of its financial services within Citic bank branches, which could increase its popularity and enable more people to enjoy its services.

When the global tech giants Alphabet Inc-C (NASDAQ:GOOG), Apple (NASDAQ:AAPL), and Samsung start offering different mobile-based financial services, the Chinese companies cannot stay behind. While Alibaba’s AliPay dominates the local Chinese market, it will experience intense competition not only from Apple Pay, Android Pay, and Samsung Pay as they try to penetrate China, but also from Baidu and Tencent, which are well-positioned to grow in this market. However, the advantage of Chinese players on top of the global players is their banking license, which will allow them to start an online loan business easily once they decide to do so. They are the only global players that have a banking license apart from Paypal Holdings (NASDAQ:PYPL) which has a Luxemburg license that enables the company’s loans business.

Among all the Chinese players, I believe Baidu is best positioned to monetize this trend in China, and it could also use its wide network and global power to expand its financial services globally. Baidu's banking license is currently pending approval from the Chinese banking regulator. However, it is likely to be approved and should serve as a catalyst to grow substantial electronic and mobile payments business as well as online and peer-to-peer loans and money transactions. In the long run, Baidu could become a significant player in these markets and this new initiative should drive the company’s growth higher.

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