60% of the financial growth of the country comes from SMEs’ contribution, however, two-third of over 80 million SMEs in China do not get loans from the dominated state-owned lenders. This creates a pool of nearly 53 million SMEs in China which go either unbanked or underbanked due to the 80% rejection rate in disbursing loans by traditional lenders. The key reason to the failure of receiving loans from traditional lenders is asymmetrical credit information of borrowers. As a resultre in a lack of credibility to pass the loan disbursal threshold. Additionally, borrowers faced a variety of challenges when seeking a loan from traditional lenders, such as:
- Lengthy and complex application process
- High cost of loan processing
- Loan size did not match expectations
- Long loan review and approval timelines
WeBank is China’s first virtual bank to launch in December 2014, and now one of the largest virtual banks in the world. It has over 170 million individual users and 500,000 small, micro-sized enterprises (SMEs). Above all, a modernized bank built on the underlying principle of agile banking, which includes ABCD of technologies and agility embedded governance.
WeBank is a consortium formed between Tencent, Baiyeyuan, and Liye Group, where Tencent holds the majority stake of 30% and the other have a 20% stake each. As a result, it is strategically located in China’s 3rd largest city of Shenzhen with easy accessibility to Hong Kong in 10 mins. The bank is focused on providing 24X7 virtual banking experience through innovative product design, data analysis, and technology. Moreover, it provides online financial products and services to the following three consumer segments:
- B2C: Welidai app for consumer loan
- B2B: Weiyedai app for SME loan
- B2B2C: Weichedai for Auto loan and smart retail
The bank is headed by David Ku, Chairman, and CEO along with Nanqing Li, President, Tom Wan, Chief Supervisor, and Henry Ma, Vice President, and CIO.
WeBank’s 2-S framework analysis
The bank is currently valued at approximately US$ 21 billion, having a 2800% Y-o-Y growth in deposit base. Further, the bank provides unsecured personal loans ranging from US$ 70 – US$ 44,000 by assessing the credit line within 5 seconds and loan amount disbursed in less than a 1 minute.
According to the 2018 annual report, WeBank reported a net profit of US$ 356 million which has grown at a rate of 148.8% CAGR. Despite its NPL ratio increasing from 0.32% in 2016 to 0.51% in 2018, it is still under market average of 1.9%. Additionally, the capital adequacy ratio decreases from 16.74% in 2017 to 12.82% in 2018, bringing it to the minimum threshold requirement.
To further scale its growth, WeBank has become China’s technology infrastructure provider by becoming a part of China’s Blockchain-Based Service Network (BSN). It will provide technical support in developing and operating blockchain-based applications for a positive impact on people’s livelihood.
WeBank also announced two partnerships during an Artificial Intelligence (AI) conference NuerIPS2 with Tencent Cloud (cloud computing platform) and Mila (Deep learning research facility). The partnerships aim at protect data privacy while enabling cross-organization collaborations in AI and fintech, powered by the new federated learning (FL) technology, according to Business Wire. WeBank launched the world’s first industry FL open-source framework Federated AI Technology Enabler (FATE) in February 2019.
WeBank raised a venture capital amount of USS$ 173 million in June 2016 from Tencent Holdings. On another note, Shenzhen Brightoil Petroleum Group Co one of the investors in the bank sold its US$ 63.63 million stake after failing to repay a loan to Ping An Bank Co. Ltd in 2018, according to Reuters
WeBank analyses the customer base of over 1.2 billion coming from WeChat and QQ, popular social media and payment platforms owned by Tencent group. This customer base helps them assess the credibility of customers through payment records and social networking messages, while soliciting loan applications through advertising on these platforms
-: Technology Infrastructure
WeBank is powered by AI, Blockchain, Cloud and data which the bank classifies as
ABCD technologies as shown below:
This full suite of technologies helps the bank excel in creating platforms that support China’s mission of financial inclusion. In addition to providing digital banking and financial services, WeBank actively participates in building technological infrastructure to improve the financial services market. Key initiatives by WeBank include:
- BCOS: Blockchain open-source, a platform for secure and controllable consortium-based blockchain development, supporting a full spectrum of applications:
- Resource management
- Talent acquisition
- Tourism finance
- Supply Chain
- CBOS: Collaborative business operating system for agile innovation that includes:
- Full stack cloud computing management capability
- Heterogeneous resource allocation
- Distributed architecture management
- Master management of all operations
- ESG: WeBank’s environment, social and governance involves several capabilities, including adopting natural language processing to analyze corporate reports and financial statements. Further, WeBank now has a fleet of satellites in space to study companies’ operations and report on their ESG practices. WeBank uses machine learning-enabled satellites to study the impact of a company’s environmental impact. As a result, it helps asset managers assess the environmental risks for investors, building strategies to trade Chinese securities. According to Digfin group, WeBank has applied ESG metrics to 300 Chinese companies and has found a correlation between ESG scores and their overall financial risk.
-: People Infrastructure
WeBank has an overall staff size of 1700 individuals, where more than 50% of the workforce are IT professionals. The bank operates on the talent strategy of driving technology and innovation in banking and finance.
Actionable lessons learned from WeBank
- Leverage the consortium companies’ core capabilities (e.g., Wechat and QQ’s customer data to assess credibility from the social messaging activity) to create a robust business strategy for scalability and strength.
- Build profitable backward integration partnerships (e.g., target regional banks, financial institutions) to achieve mass customer acquisition targets and support financial inclusion mission.
- Create an ecosystem that provides business opportunities for non-banking service providers to promote innovation in banking and financial services practices, debunking incumbent banks’ conventionality