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'Open Sesame' for mobile credit

CHINA'S largest e-commerce company Alibaba is expanding its territory again, this time into the finance sector as it plans a virtual credit card service.

Starting next month, smart-phone and other mobile-device users in Zhejiang and Hunan provinces will be able to pay for Alibaba services and coupons by tapping a commercial credit line supplied to the company by banks. The consumers then repay the bills later through existing debit card accounts.

For those without a physical credit card, it will be more convenient to shop and receive the goods in advance using their track record of payment on Taobao as a reference.

The pilot project will be monitored and assessed before the new service is rolled out nationwide.

The group's financial arm, Alibaba Small & Micro Financial Services Group, is spearheading the new initiative. It will be headed by former Alipay Chief Executive Officer Peng Lei.

"It's a clever way for Alibaba to keep its users loyal to its payment service," said Li Yi, vice chairman of China's Mobile Internet Industry Association and a veteran industry commentator.

Alibaba's financial arm comprises four sectors covering domestic and international services as well as financing operations. Its mission is to leverage the group's massive user database to generate additional revenue.

Hu Xiaoming, head of Alibaba's financing operations, said that online transactions are a crucial channel for grassroots consumers to build up their credit track records.

A commission of between 0.8 percent and 1 percent will be charged by the vendor when an order is placed, and the balance must be paid within seven days of the invoicing date every month.

A potential of 80 million Taobao and Alipay users will be eligible for the new service, but the company didn't reveal a timetable for it to be fully functioning.

The maximum limit of credit varies according to a consumer's past payment record and purchasing history on Alibaba shopping sites Taobao and Tmall, with a maximum of 5,000 yuan (US$794).

Partnership with banks

A guarantee subsidiary set up by Alibaba in Chongqing will act as a guarantor for buyers. If a balance becomes more than one year overdue, the Alipay account will be deactivated.

Alibaba's Hu said the company hopes to partner with more domestic commercial banks to provide the consumer credit service. The sweetener is access to some Alibaba consumer data.

Alibaba Group Chairman Jack Ma has reiterated that financial services and data mining are the two major pillars of future growth, beyond e-commerce.

For banks already collaborating with Alipay, the virtual credit consumers could be parlayed into physical credit card holders.

Alipay's strength lies in its consumer management and its large pool of payment behavior data, which commercial banks could find useful in their risk controls.

Actually few domestic companies have the capability to leverage the large cluster of data and now the company is trying to seize this chance to expand consumers on mobile devices, a booming sector.

Payments in that segment grew fivefold last year and the number of users tripled, according to Alipay's annual figures. Still, mobile payments accounted for only 9.2 percent of total transactions, suggesting great untapped potential.

The most active users of mobile payments, somewhat surprisingly, live in inland areas such as the Tibet Autonomous Region and Sichuan Province, where household broadband is less popular than the mobile Internet.

Impulse buying

A separate report by Taobao said that visitors through wireless devices grew from 10 million in 2010 to 300 million by the end of last year. Relatively small purchases paid for via mobile phones usually indicate impulse buying.

For many of my friends and I, there remains the perception that mobile phones are still unreliable because they lack the protection software such as the safeguards in place for Internet banking on desktop computers.

Only small amounts of payment are occasionally made on mobile phones and most bank accounts put a maximum limit of several hundred yuan for payment through mobile devices.

Some argue that Alipay poses a threat to the foothold of commercial banks. That may not be true, argued Liu Cheng, a doctoral supervisor with the University of Science and Technology Beijing.

"More commercial banks will realize that Alibaba can provide them with a huge amount of user behavior data that they won't be able to accumulate on their own," he said. "Working with the Internet company will give them access to a new group of consumers."

Indeed, commercial banks have laid much of the groundwork for financial services like Alipay to build businesses upon.

Challenges still lie ahead for Alipay to become a smart intermediate channel linking banks and the group of consumers that they used to ignore.


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