3rd payment firms enter the fray

Although banks provide the funds, the service is thought to be similar to a cyber credit card, a further move by third-party payment players to expand in the financial industry.

"I don't think the service will have an impact on the banks' credit card business. In fact, it's complementary as more users' credit histories can be dug out and accumulated for banks' reference," said Hu Xiaoming, Alibaba's vice-president.

The move comes after Alibaba started to extend loans to vendors on its trading websites based on their trading records rather than collateral in 2010.

Around 220,000 small and micro enterprises had received loans from Alibaba as of March, at an average interest rate of about 18.9 percent a year, which is "not low" for small and micro companies, said Hu.

More industry players, not only third-party payment companies but also e-commerce companies, have started providing micro loan services to ease funding problems.

Beijing Jingdong Century Trading Co Ltd, which operates China's second-largest shopping website, and smaller rival Suning Commerce Group Co Ltd both partnered with banks to provide micro loans to their suppliers and distributors, which usually face a shortage of funds due to long payment periods.

With the services, Jingdong and Suning's suppliers and distributors can get funding more easily based on their past credit and account receivables records.

This way of lending by using e-commerce data differs from the traditional way, in which small companies have to provide collateral to banks and sometimes have difficulties meeting the banks' requirements. In addition, banks usually prefer larger companies with lower risks.

"Banks are actually a bit behind. They don't have the key e-commerce data of their customers, and this may prevent them from developing value-added services as their Internet counterparts do," said a vice-president at a major third-party payment company who asked not to be named.

He Qiang, a professor at the Central University of Finance and Economics, said that the expansion of third-party payment and e-commerce companies into payment services may pose a challenge for banks.

"Payments are where banking services start, as clients deposit their money in the banks primarily for the purpose of processing payments, which generates lending and remittance business. And now the online payment companies are taking the same track," he said.

Innovation encouraged

However, Simon Chow, head of the consumer banking unit at Citi (China) Co Ltd, said that banking products and services, such as credit cards and electronic banking, are still irreplaceable despite the fast development of third-party payment services.

"Banking services provide clients with complex possibilities, such as cash flow management, instead of payments alone. In addition, the way the banks and companies control risks and serve their clients are quite different," Chow said.

Zhou Xiaochuan, the central bank governor, said on March 13 that authorities support the financial innovation of the e-commerce players.

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