Increasingly large businesses forming in China to serve the needs of increasingly smaller businesses


After Alibaba successfully floated a record-breaking $25 billion IPO one of it’s first initiatives is consolidation of a number of its financial services initiative under an umbrella private bank set up in China. The business is to focus on serving the needs of small businesses. MSME business is a largely unserved and promising area, but how will large groups such as Alibaba balance innovation as they scale to address this segment?





While a lot of focus has been rightly given to the unbanked and the under-banked, I believe not enough has been done to address the needs of businesses that have are growing increasingly smaller and have distinctive requirements. When Square brought out the Square reader in 2011 it opened the floodgates to a whole new set of MPOS services and rapidly commoditised that market. Yet businesses such as my own struggle to effectively take small payments in multiple currencies without the help of a massive organisation behind us with dedicated functions for this. Alipay spotted this opportunity and grew very rapidly, supporting such businesses in acquiring payments and managing the complexities that innovative entrepreneurs in China faced.


In China there is now a new trend towards the formation of private banks. Alibaba has recently received a license from CBRC, as one of three recently established private banks. This development stems from the Communist Party of China pledge in November 2013 to increase the competition in the Chinese banking sector.


Now Alibaba’s Ant Financial Services Group (rebranded this month from Ant Small and Micro Financial Services Company) will bring together it’s diverse financial services businesses, focussed on the huge opportunity from businesses that are growing progressively small. These include:

  • Alipay, their main payments service provider
  • Yu’e Bao, a money market fund
  • Zhao Cai Bao, a financial services platform
  • Ant Micro, a micro-loan provider
  • Huarui: Shanghai-based newly formed private bank addressed as MyBank but English name still pending

Alibaba helps companies in the US find and use the services of really small merchants in China, and caters to their needs for payments, escrow services, P2P lending and more.

Along with 249 other businesses (from across sectors and including China Mobile), Alipay received a license as a payments service provider. It has initially focussed on adding mobile and offline channels to it’s popular Alipay online digital wallet. Now it is pulling ahead of the pack with it’s own bank MYBank, and consolidation of six different businesses that will together focus on the MSME Opportunity.


To my mind this raises a number of questions that we answer in our Digital Money in China and other recent reports:

  • Will Alibaba succeed to keeping the dynamism that allowed it to grow, as it grows into such a large business, and how will it cope with the responsibilities of being a bank and still adapting and growing to meet the unique requirements of MSMEs?
  • So far China had one private bank, China Minsheng Bank. Alibaba’s main competitor Tencent has also set up a banke, Webank. Which of the other 248+ recently licensed PSPs are likely to follow suit, and how will being a bank help or hinder them?
  • As Chinese companies increasingly go international, how can global brands be protected? In Europe MyBank has just been investing heavily in setting itself up as a pan-European initiative. MYBank is not yet finalised as the English name that will be used by Alibaba, but are there sufficient deterrents to prevent it from using this existing brand name? I see this as yet another example of how consumers may be confused as they seek to use services from increasingly global players.
  • Where does this leave PayPal as it leaves the protection of EBay and must compete with the likes of Alibaba and Tencent?
  • And most important of all, perhaps – are the needs of increasingly small businesses best met by increasingly large conglomerates, rather than community co-ops and MFI institutions as in the past?

Will Open-to-SMEs continue to be Alibaba’s Open Sesame?


For more about developments in China see: Disruptions in Digital Payments in China - What does this mean for you?

Contact us at for details on our Digital Money in China Viewport and other recent research.



Disruptions in the smartphone market take a toll on Samsung results


Samsung announced their Q3 2014 earnings shows a substantial Q-on-Q decrease due to decline in their mobile business caused by intense competition in the smartphone market. Further to my post on How Apple play affects the Digital Money Game, as China Mobile starts to eliminate $2 billion smartphone subsidies, the cost of high-end devices is impacted and affects both Samsung and Apple, benefiting low-cost manufacturers like Xiaomi.


Headquartered in South Korea, The Samsung Group operates through over 150 subsidiaries, including 73 domestic affiliates as of June 2014, having been first established through Samsung Electronics Industry Co. Ltd back in January 1969. The company manages 3 divisions: CE (Consumer Electronics), IM (Information Technology & Mobile Communications) and DS (Device Solutions.


Anticipating consumer desire to interact with the Internet, Samsung focused early on smart TV sales, leading the market in 2011 with the launch of smart TVs and hub-based apps.


In 2014 the mobile phone market is expected to reach 1.8 billion units, with 1.2 billion of them being smartphones – this represents a growth of 7% since 2013. However Fitch Rating expects Samsung shipments during the period to remain flat.


Samsung has maintained a No. 1 position in the smartphone global market, with strong take up of the Galaxy S series and the Galaxy Note. However with Apple’s release of iPhone 6 (4.7”) and iPhone 6 Plus (5.5”) compared to the previous 4” models, these phones now represent a substantial threat. Low cost Xiaomi (low-cost devices) was already resulting in tough competition, especially across the Asia Pacific region. The figure below shows the impact on first half performance in 2014.




Samsung’s share in the global smartphone market dropped from 31% in 2013 to 25% in H1 2014. They announced mid to low-end shipments were down due to weak demand in the EU and lower 3G demand coupled with intensified price competition in China.


Samsung expect that in the second half of 2014, strong seasonality will help to boost smartphone and tablet demand. At the high-end, they expect growth to be led by TD-LTE expansion in China and lower inventory level in Europe. At the mid to low end they expect growth led by emerging markets, and this is where we are likely to see the competition heating up with new product launches expected.


Meanwhile Samsung Electronics plans to build a $14.7 billion semiconductor plant south of Seoul, in an attempt to make up for touch competitive pressure on its smartphones with new growth in its most profitable semiconductor division.