Big Data may Reshape the Banking Market Structure in China

The Ali group will found one pure internet based bank in China, and will provide payments (including B2C, B2B and C2C), deposit, lending, cards and wealth management businesses. Currently, Ali Finance already provided payments, lending and wealth management businesses to their electronic business customers as one 3rd party payment vendor. The largest advantage of Ali group for banking business is data mining. Now, utilizing data, Ali group get loan from China Construction Bank (interest rate is lower than 4%), and lend to Ali group customers (interest rate is 19.8%). In August 2012, Aliloan began offering unsecured loans, allowing customers to get loans and make repayments 24 hours a day with their credit cards. This means quicker approval, lower loan costs, and a wider credit limit range than banks offer. Aliloan’s success is attributed to its access to a larger pool of customer data. The “platform + finance + data” strategy has given Aliloan a considerable advantage over banks in the SME financial services market. Aliloan looks to provide more complex financial services, such as payments, credit, bank cards, and supply chain finance, and will even venture into securing a banking license. The challenge is essentially one of understanding customers. Banks can either go deeper into data applications or become marginalized. Many banks have already started trying to gain an edge through big data. Big data has been used to achieve event marketing and real time marketing in Bank of Communications and the credit card center of CITIC bank respectively; China Construction Bank has integrated its e-commerce platform and credit business; China Everbright Bank has established a social network information database; and China Merchants Bank has grown its small and micro loan market by using big data. Big data has greatly helped the Chinese banking industry. For instance, the credit card center of CITIC bank has launched 1,286 promotions through its database marketing platform. In its marketing activities, customers are offered free gifts for a certain amount charged to their credit cards or for a certain number of credit card transactions. Customers can immediately receive their free gifts after completing a credit card transaction that meets the requirements, making instant marketing possible. Other aspects of improvement include: 65% growth in credit card transaction amounts, exceeding the banking industry average by 14%; preparation time for marketing activities has shrunk from 10 days to 2.5 days; credit card nonperforming loan (NPL) ratio has dropped by 0.76%; income generated per unit working hour has grown by 33%; and the average loan amount has risen by 18%. Going forward, banks will utilize big data technologies to develop such businesses as the enhancement of customers’ risk-based pricing model, real time interaction of data across multiple channels, enhancement of data quality, enhancement of semantic and phonetic analysis, real time marketing of banking services, P2P lending, and integrating banking services with the e-mall business.