A new breed of online banks promoted by tech companies like Alibaba and Tencent is taking root. Will they be able to hold their own against traditional banks?

To boost the economy and help small and medium enterprises get capital more easily, the Chinese government is encouraging non-government entities to invest in financial institutions, even allowing private companies to open their own banks. When the government announced its decision to grant five banking licenses for private banks earlier this year, the big three tech companies—Tencent, Alibaba and Baidu—jumped at the opportunity.

Tencent, the company behind the popular WeChat social media app, was the first to take the plunge. In 18^th January 2015 it launched WeBank, the country’s first online-only bank.

WeBank is mainly in the business of selling financial products for other institutions, granting small personal loans and auto loans. Despite the fact that it does not have any brick-and-mortar branches, by July 2015, WeBank had disbursed over RMB 800 million in “personal micro loans”. It is rumored that WeBank has over 2 million users (the company doesn’t disclose figures). How did WeBank ratchet up so many users and assets in such a short period of time? The answer is simple: WeBank promotes its loan service on WeChat and QQ, the dominant social media apps in China. According to the latest figure, WeChat had 800 million users. The financial products WeBank is selling have a high rate of return and so they are often sold out in seconds. WeBank is essentially a ‘connector’, connecting individual clients and small enterprises with banks and financial institutions.

Set up by Alibaba on January 25^th 2015, MYbank has been working on three kinds of loans which indirectly tie in with Alibaba’s core business: one for people in rural areas, one for internet start-ups, and one for Tmall and Taobao sellers. Rumor has it that there is an interesting story behind the name “MYbank”. Before Jack Ma set up Alibaba, he wanted to set up a translation agency. But then he was an English teacher with little money. He tried every possible avenue to get a loan but couldn’t get even a single penny from any bank to start his own business. “I thought that if there was a bank that could do this (give loans to small enterprises), it would’ve helped a lot of people succeed. And this thought never left my mind,” he said during MYbank’s launch ceremony. That’s why MYbank came about. It is said that the name “MYbank” actually stands for Ma Yun’s bank (Ma Yun is Jack Ma’s Chinese name). MYbank does not accept any loan applications for amounts over RMB 5 million. Its mission, thus, is very obvious: “not for the rich; only for the little guys”.

MYbank operates on a Cloud Computing platform. There is no bank staff involved in giving loans. Big data is used to calculate the loan amounts. The whole process is quick and easy—a far cry from how things work at traditional banks. In the future if you want to get a loan from MYbank, you only need to spend three minutes on a two-step process: three minutes to fill the application and submit, then wait. Once the application is approved, the money will reach your account within one second.

No one wants to be left out for sure, but not everyone wants to go through the hassle of getting a banking license. In November 2015, Baidu announced its decision to launch Baixin Bank by cooperating with CITIC Bank, a traditional bank. Unlike WeBank and MYbank which decided to go it alone, Baidu let CITIC bank hold a 51% share. Set up by a traditional bank and a search engine giant, Baixin Bank aims to have quality service, both online and offline. On the other side, Baidu is offering user behavior analysis which will not only help with risk management, but it will also make personalized service feasible. In the future, Baixin Bank aims to sell financial products and give out small loans to individual clients.

Even contract manufacturer Foxconn, which makes iPhones for Apple, is eyeing finance. From 2014 on, Foxconn has silently set up six financial services companies in China which have already provided loans for more than 100 suppliers. “We know our suppliers better than anyone else,” Jack Lee, Director of Fujintong (Foxconn’s financial service company), said to Chinese media. “Fujintong started by providing financial service to suppliers, but we would expand our financial service to other parts of supply chain and eventually, we want to sell financial products to individuals.”

These new banks certainly have some advantages. For one, they don’t need physical branches and thus they have fewer overheads. The technological advantage of BAT will go a long way in helping the actual banking operations with technologies like big data and cloud computing helping in tailoring the user experience and also determining creditworthiness. They also will cut out the need for cash and cards.

So will these banks blaze a new trail? Or will they find it hard to compete with the big four state-owned banks as well as the many commercial banks that have established a large customer base in China? We’ll wait and see. But the government seems keen to encourage them. As Premier Li Keqiang said on his visit to WeBank’s Shenzhen office: “The government won’t leave you in the cold. A warm spring will be created for the new private banks.”

For more, look at the infographic below: