China's first 'Internet bank' begins trial operation

Tencent-owned firm to focus on lending to individuals, small businesses

Tencent Holdings' WeBank, China's first so-called "Internet Bank", opened for trial operation on Sunday, offering flexible online financial services without setting up physical branches.

WeBank, with a registered capital of 3 billion yuan ($483 million), was jointly founded by Internet giant Tencent Holdings, Shenzhen Baiyeyuan Investment Co and Shenzhen Liye Group, according to a statement on WeBank's website.

The WeBank's website did not offer channels for new account application on the first day of its trial operation.

The official Xinhua News Agency reported on Sunday that during its trial operation, WeBank's business will be limited to opening new accounts for its shareholders and employees, as well as inviting selected customers to experience its services.

Official operation of WeBank is expected to start in March or April, Xinhua reported.

WeBank, which is among the first batch of five private banks to get approval from the China Banking Regulatory Commission, has a business scope that includes taking deposits from the public, offering loans and conducting foreign exchange.

Benefiting from the large user base of Tencent's social networking platform WeChat, WeBank is expected to focus on retail banking business for individuals as well as small and medium-sized enterprises with its innovative financial products, according to Guo Tianyong, head of the China Banking Research Center at the Central University of Finance and Economics.

"It will be hard for WeBank to compete with traditional commercial banks on corporate banking services to large enterprises," said Guo.

Guo noted that WeBank is unlikely to pose a threat to existing commercial banks in a short term, and it can even offer innovative ideas to them.

In the absence of physical branches and face-to-face communication, WeBank will offer loans online by identifying customers' facial features digitally and will not require mortgages, according to a post on the State Council's website on January 4.

WeBank will evaluate the credit risk and determine the loan amount based on the data analysis of the borrower's credit record such as previous online payments, the post on gov.cn said.

Tencent's credit management system is more efficient compared with traditional methods and could guarantee loan security based on data analysis, Xu Hongcai, head of the Department of Information under the China Center for International Economic Exchanges, a Beijing-Based think tank, told the Global Times on Sunday.

The traditional mortgage-backed security system used by commercial banks works well for investment loans to large enterprise, but the innovative method used by WeBank could be more suited for the demand of consumption loans by individuals, which is expected to expand rapidly in the coming years, Xu said.

Following the start of the trial operation of WeBank, another four private banks are expected to be opened in the coming months, including an Internet bank backed by Alibaba, which analysts forecast will focus on different business areas compared with WeBank.

Gu Min, who was previously responsible for the Internet financial business of PingAn Insurance Group, has been appointed as board chairman of Webank, the statement said.

On January 4, Chinese Premier Li Keqiang visited WeBank's headquarters in Shenzhen's Qianhai special economic zone in South China's Guangdong Province and witnessed the facilitation of the company's first online loan of 35,000 yuan granted to truck driver Xu Jun.