ICBC's Jiang: How Bank, Tech Services Converge
(Beijing) – By working to build cyberspace bridges that connect consumers and the financial services they demand, Chinese banks and tech firms are changing the nation's banking sector in profound ways.
What's not changing, according to Industrial and Commercial Bank of China (ICBC) Chairman Jiang Jianqing, is the commitment to pursuing sustainable profits and satisfying credit demands that all financing firms must share.
That ongoing pursuit explains ICBC's latest online business expansion strategy and the September 29 launch of an "Internet financing center."
In an exclusive interview just a few days before the new service was announced, Jiang told Caixin that the financing center was designed to function as pillar of the so-called "e-ICBC" business initially unveiled in June. The e-ICBC framework also includes a previously announced online financial information platform, an e-commerce platform at www.mall.icbc.com.cn, and an online banking platform.
Jiang said e-ICBC has been positioned to profit from the shift to online financing – and away from bricks-and-mortar bank branch offices – since "the only standard of success for Internet banking is that it resolves credit issues."
As the world's most profitable and China's largest state bank, ICBC is not hesitating to adjust to what some analysts call a banking environment whose players are increasingly differentiating and vertically integrating. These are the firms able to successfully adapt to business models that bridge Internet technology and financial services.
China's e-commerce giant Alibaba Group and social media leader Tencent Holdings are among the sector's non-traditional bridge builders. So are state banks and city commercial banks, which have been expanding online their services.
Alibaba and Tencent have expanded into online financing by opening online-only banks. Meanwhile, state and city banks are making more of their services website-accessible.
The industry landscape, therefore, is not only changing but increasingly competitive – and prone to risk.
"Asset quality" is the banking sector's main risk, Jiang said, which is exactly what he said in a 2003 interview as the bank prepared for a public listing.
ICBC is no stranger to change. It's grown by leaps and bounds over the past decade by shareholding reforms and through a 2005 listing on the Shanghai and Hong Kong stock markets. The biggest changes have come while the bank has been under the command of Jiang, who's been serving as bank chairman since 2000.
Regardless of the technological advancements and changing business models available to China's banks, Jiang said, the industry is still all about financing, credit and profits.
"Internet financing companies that want to get ahead in this business have to get back to the basics of financing," he told Caixin.
Excerpts from Jiang's interview with Caixin appear below:
Caixin: ICBC's e-ICBC umbrella covers three platforms as well as a number of Internet financial products including payments, fundraising, investments and wealth management services. Can you explain these businesses?
Jiang Jianqing: Our target is to build one center and three platforms, each of which will have more than 100 million users. The three platforms include a mobile messaging app that represents information flow, an e-commerce platform representing the flow of goods, and an online banking platform dealing with capital flows. The center is the newly launched Internet financing center.
The combination of the platforms and the center will do more to resolve credit issues, which is the essence of what commercial banks are about. It is also the key to success for Internet financing.
Many market analysts have expressed doubts about banks expanding into e-commerce. What is your view?
Our e-commerce site has been operating well. So far this year, its sales volume has reached 500 billion yuan and will exceed 600 billion yuan by the end of the year. Next year's sales volume is expected to reach 1 trillion yuan, making ours one of the largest e-commerce sites in China.
A major characteristic of our site is that it offers many financial products. Wealth management products account for more than 50 percent of the products on the platform.
Managing vendors is a major challenge when operating an e-commerce site. ICBC will provide enhanced management of vendor access, pricing, logistics services and dispute procedures to better protect customer interests. We are also studying the use of big data technology, since we control a lot of interesting data.
Some describe ICBC's messaging app as "an ICBC WeChat." Is ICBC in the social media business?
Messaging is penetrating the financial sector as it's widely used for transactions, financial product purchases and security verifications.
Banks need secure platforms to communicate with clients and manage internal flows of information. ICBC currently has different systems dealing with these kinds of communication, but we will integrate them into the information platform. Next year, our messaging app will have more than 100 million users and eventually exceed 200 million. It will become a new channel through which we can stay in contact with corporations and customers, as well as manage internal communications.
How will ICBC develop its credit business through the newly launched Internet financing center?
Conditions under which banks operate lending businesses are changing. As economic activity gets more complicated, risks attached to information asymmetry are growing. It is very difficult for a bank to figure out a company's capital flow and other operational conditions based solely on its (the company's) account information. Risk control for banks is more complicated than ever.
In the face of greater potential risks for small and micro-sized businesses, some banks have decided to avoid them altogether and offer loans only to better-qualified companies. Other banks have increased collateral requirements, which increased transaction costs. The need to resolve information asymmetry and benefit more companies presents great challenges to the financial industry. Banks should reconsider their credit management models and work out new risk management methods.
Traditional credit management doesn't fit small and micro-sized businesses. Due to a lack of information, customer due diligence costs too much. We plan to separate credit management for small companies and individual clients from management for large companies. The Internet financing center will manage credit issues to small and micro-sized business and individuals through the Internet and big data technology. Lenders can apply for a loan online, and the bank will respond by issuing a loan online.
There will be many innovative practices. To date, ICBC has issued about 450 billion yuan worth of loans through the online system. But that accounts for a only small portion of the bank's 11 trillion in outstanding lending. So the potential is great.
How will ICBC's Internet financing center find qualified loan customers? Who is your target customer?
Finding customers who qualify for loans requires collecting information and assessing risk. Since last year, ICBC has issued loans worth more than 10 billion yuan to 12,000 small businesses based on analyses of their transaction records.
ICBC controls a lot of historical data about banking business. It also has data from the three platforms and on-site investigations. Our risk control will improve a lot. Many small business are scattered in counties (around China), and making our service accessible to them through the Internet is a major task for us now.
In the future, big companies will mainly rely on capital markets for fundraising. Companies' urgent and short-term capital demands will provide Internet financing business opportunities. Banks seldom offered these kinds of loans in the past, but this will become an important business segment for Internet financing in the future.
What is ICBC's plan for the online payment business?
Banks' online payment services have developed more slowly than those at third-party payment companies. Banks have been more careful with security issues but overlooked convenience. Now, banks have woken up and have started to develop their own online payment services.
ICBC's payment service has grown faster than others, and we will develop the service according to central bank requirements. We will also cooperate with third-party payment companies to improve the service's security without sacrificing convenience.
How will ICBC deal with branch and personnel management issues, and with internal incentives, while transforming its operations from traditional banking to Internet financing?
Brick-and-mortar branches will definitely have to be transformed. Over the past four years, ICBC's business volume has increased significantly but its branch count has been declining. This is inevitable. In a few years, 95 percent of all business will be done online.
Many staffers working behind bank counters will have to transform themselves into marketing professionals. We are also talking about developing online-to-offline businesses. Many ICBC branches will turn into financial service hubs for their surrounding communities.
ICBC started tapping Internet-related financial services more than 15 years ago. Internet financing is now at the center of a new boom that's posing new challenges to banks. I think no matter how Internet finance changes in terms of technological advances, business models or platforms, Internet financing companies that want to get ahead in this business have to get back to the basics of financing.
Do you threatened by the fact that Internet companies such as Alibaba are rapidly expanding into the financial sector?
Banks have advantages over Internet companies. First, they have the capacity to combine online and offline services. Many fundraising activities, especially those involving big companies and large amounts of capital, need on-site investigations. ICBC has 17,000 subsidiaries and more than 100,000 credit inspection professionals who can investigate a customer's credit capacity. Secondly, banks have stronger capital capacity, which is a necessity for financial company development. Thirdly, banks control massive amounts of historical data that cover long periods of time, which can help with risk management.
There are also challenges. In the future, those who survive in the competitive Internet financing business will be those who can adjust the use of their data technology. Many Internet companies, as well as traditional financial institutions, may fail in the future. The failure of traditional financial institutions is likely due to ignorance of technological developments. But the failure of any Internet finance business is mainly due to inadequate understanding of finance.
Some say Internet financing may trigger the next financial crisis. What's your view?
Banks will always face risks. If the financial nature of Internet financing is overlooked, there will be big problems. Currently, the use of big data technology in risk control is still weak and Internet financing risk management is inadequate. Financial sector risks come in various forms, but in general they are all credit risk created by asymmetrical information.
(Rewritten by Han Wei)
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