THE CHEAT SHEET. Baidu, and a bank without branches

Yes. A direct bank to sell investment products and loans online.

It is a bank without any branches, which exists only online. It offers financial services mostly via the web and over telephone.

Not yet, but reports say Baidu — known as the Google of China — is tying up with one of the leading state-controlled banks, China Citic Bank Corp, to set up an online-only bank — Baixin Bank. Baidu’s users will soon be able to set up Baixin accounts through Citic Bank’s offline branches. Citic board says the new venture will have a proposed capital of more than $300 million.

Mind you, Baidu is not new to such ideas. Apart from running social media, it has content and location-based services as well. It also sells anti-virus software. A direct bank is Baidu’s latest attempt to get ahead of rivals in the fast-growing online financial services segment.

Baidu’s mobile app has 500 million users. It features a payment facility that currently boasts 45 million accounts. Baidu has a strong influence among small firms, which it thinks will help it sell wealth-management products such as money-market funds and other investment products, and offer loans to individuals and small companies.

Nearly 40 per cent of the Chinese population owns smartphones and 79 per cent of the Chinese population above 14 years of age have access to financial services. And a good chunk of them prefer online services. All these factors might work for Baidu. Still, there are many odds.

Direct banking is a very very nascent idea globally in general and China in particular. Of course, online firms have disrupted financial services in the country for the better, offering myriad forms of payment services, peer-to-peer lending and wallet products, but cynics say direct banking is an idea whose time is yet to come.

More than 20 Chinese banks, including China Minsheng Banking Corp and Industrial Bank have started direct banks. In January, media and gaming giant Tencent launched China’s first online-only bank, WeBank. The bank is named after the company’s popular WeChat instant messenger. The financial arm of Alibaba Group, Ant Financial, joined with MyBank in June. But these ventures have been largely hit by China’s rules that forbid users from opening bank accounts remotely. This limits banks’ ability to collect deposits and offer other services.

Also, ensuring creditworthiness of customers seems tough in an online-only model.

But the internet companies say the data they have collected from millions of gadgets — from location to the use of local services to e-commerce transactions — can help measure the creditworthiness of borrowers.

There is another reason why they think a direct bank is just the thing Baidu can excel in. In China, small corporate borrowers — who form a significant slice of Baidu’s user pie — find it hard to get loans. Large banks usually lend to state-owned enterprises for reasons such as secure debt repayment.

Experts say this model is workable in India as well given that the country has been witnessing a boom in smartphone sales and e-commerce activities. As you know, millions of customers of popular banks have already moved online for accessing most of the key services and it is just a matter of time before technology disrupts traditional banking. Watch this space.

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