Dec 14, 2020 08:55 PM

After Four-Year Hiatus, China Hands Out Another Independent Direct Banking License

The new bank is the latest manifestation of the growing collaboration between traditional lenders and technology companies.
The new bank is the latest manifestation of the growing collaboration between traditional lenders and technology companies.

China Merchants Bank Co. Ltd. (CMB), one of the country’s largest commercial banks, has finally won regulatory approval to set up a direct banking joint venture with financial service platform Jingdong Digits Technology Holding Co. Ltd. (JD Digits), almost four years after it first announced the plan.

China Merchants Tuopu Bank (招商拓扑银行) will be only the second direct bank with independent legal person status to get the go-ahead and its approval comes almost four years after China Citic Bank Corp. and search engine Baidu Inc. were given the green light for their joint venture, AiBank, in January 2017. CMB announced its plan the following month. Direct banks have no physical branches and only offer services over the internet or telephone.

The new bank is the latest manifestation of the growing collaboration between traditional lenders and technology companies as they seek to take a bigger share of the financial services market and challenge the dominance of Ant Group Co. Ltd. and Tencent Holdings Ltd. in the fintech sector. The government is also encouraging cooperation as part of its broader inclusive finance strategy to bring low-cost financial services to the masses, especially those living in rural areas.

China has different types of license for internet banks –– Tuopu Bank and AiBank have a license for a direct bank with an independent legal entity status (独立法人直销银行). Traditional banks operate their direct banking platforms as internal divisions using their existing bank licenses. Other new online lenders have a private bank (民营银行) license. These are: MYBank, which counts Ant Group as its biggest shareholder; WeBank, backed by Tencent; Sichuan XW Bank backed by electronics group Xiaomi Corp. and Sichuan-based agriculture conglomerate New Hope Group.

A report on electronic banking released by the China Financial Certification Authority showed that in 2019 there were 116 direct banks operating in China of which 99 operate via mobile apps. Only AiBank had adopted the independent legal person model and gained a license from the country's banking regulator. China had granted 19 licenses (link in Chinese) for privately run banks as of the end of June.

The length of time it took the bank to gain approval indicates that regulators are taking a cautious stance on the expansion of the independent direct banking sector, as the business model is relatively new in China, Dong Ximiao, chief researcher of Zhongguancun Internet Finance Institute, told Caixin.

“Regulators’ work to rectify the internet finance sector is coming to an end and relevant risks have been basically resolved,” Dong said. “So now the time is right to open access to direct banking licenses.” Recently released rules on commercial banks’ online lending business and financial holding companies will help the authorities regulate direct banks, he said.

CMB will hold a 70% stake in Tuopu Bank which will have registered capital of 2 billion yuan ($305.7 million), the Shanghai-listed lender said in a stock exchange filing on Friday night. Wangyin Online (Beijing) Business Service Co. Ltd., a wholly owned subsidiary of JD Digits, the fintech arm of e-commerce platform, controls the remaining 30% stake.

“China Merchants Bank and JD Digits will greatly leverage their respective resource advantages to fully support the development of Tuopu Bank,” CMB said. “Tuopu Bank will provide more efficient inclusive financial services for the real economy by using digital technologies and offering innovative services.”

Analysts said the venture will help CMB diversify its lending business and help JD Digits promote its online lending business, which is one of the fintech giant’s main revenue streams. Like many of its peers, JD Digits is facing challenges from tougher requirements imposed on online microlenders on financial metrics including capital reserves and leverage ratios.

A previous version of this story incorrectly stated the number of licenses granted for privately run banks. The correct number is 19.

Contact reporter Tang Ziyi ( and editor Nerys Avery (

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