HONG KONG - Chinese entrepreneur Jack Ma is accustomed to making lemonade out of lemons. MYbank, a lender backed by his payments conglomerate Ant Financial, will be a real test of his skills. That's because China makes life deliberately hard for online banks.

Four-year-old MYbank is one of a handful of privately-owned online banks in the People's Republic. It was set up by Ma's $150 billion payments-to-wealth-management juggernaut Ant and other backers as part of Beijing's pilot scheme to open up the state-dominated financial sector. Today, the Hangzhou-based upstart caters to millions of small and medium-sized businesses traditional lenders deem too risky. As of the end of last year, MYbank's loan book grew by half to nearly 50 billion yuan ($7.3 billion).

Digital-only banking is tough to crack everywhere - JPMorgan in the United States recently shuttered its Finn app after just one year, having found that even millennials want to deal with a human now and again. But in China, onerous restrictions make it especially difficult. China's virtual banks are only allowed one physical branch, and their customers face daily deposit and withdrawal caps. So they can’t compete on an equal footing with established rivals such as Bank of China and Industrial and Commercial Bank of China for the country's $27 trillion deposit pile – a massive source of cheap and pretty stable funding.

Being MYbank is therefore relatively expensive. Customer deposits make up just over a third of its total funding structure, with the rest coming mainly from interbank and off-balance sheet sources, analysts at Bernstein reckon. Profit therefore comes from lending smarts. As part of Ma's e-commerce empire, which includes e-commerce giant Alibaba, MYbank can access masses of transaction data to gauge creditworthiness more effectively than state-backed behemoths, so long as borrowers grant it permission – and even facilitates loans for its bigger, older rivals, for a fee.

Ma has disrupted well-armoured incumbents before. Alipay, now the country's top mobile payments app, has trounced the state-owned UnionPay, which has a monopoly in processing and clearing domestic bank card transactions. Ant's money market fund grew from nothing to roughly $170 billion of assets under management in just five years. China’s banking fortress is all but impregnable, but Ma has a better chance of storming it than anyone.

 

CONTEXT NEWS

- Chinese online bank, MYbank, is planning to raise new capital, according to a person familiar with the situation.

- Reuters reported on July 30 that MYbank was seeking around 6 billion yuan ($871 million) in a funding round that would value the company at 24 billion yuan, Reuters reported on July 30, citing a source and fundraising document.

- MYbank is 30% owned by Ant Financial, the financial services company controlled by Alibaba founder Jack Ma. It lends primarily to small businesses. As of the end of 2018, loans and advances on its balance sheet topped 47.7 billion yuan, up 51% from a year earlier, according to its annual report.

- The bank reported an annual earnings of 670 million yuan on revenue of 6.3 billion yuan.

 

(Editing by John Foley and Sharon Lam)

© Reuters News 2019