A screen shot of the WeBank app Photo: IC

One small step for WeBank is a giant leap for financial reform, Chinese Premier Li Keqiang said on January 4 when he pressed a button to issue the first loan by China's first Internet bank, Shanghai-based newspaper China Business News reported on January 5.

The 35,000 yuan ($5,630) loan was granted to a truck driver, the report said, noting that it did not require collateral and the borrower did not need to come to an off-line counter to receive it.

The first loan is a model of what Chinese Internet banks plan to do, but the road ahead will not be easy.

WeBank in the news

WeBank, which has registered capital of 3 billion yuan, was jointly launched by Internet giant Tencent Holdings, Shenzhen Baiyeyuan Investment Co and Shenzhen Liye Group, according to a statement on WeBank's website.

As the country's first Internet bank, WeBank has been under the spotlight since preparations for it began in July 2014, and Premier Li's visit on the first day of its trial operation was also eye-catching.

But WeBank has tried to keep a relatively low profile, and even after the trial operation started it did not post any new information on its website.

Now WeBank is inviting selected target customers to try its services, Tencent told the Global Times Tuesday via e-mail.

The formal operation of WeBank is expected to start in March or April, Xinhua News Agency reported Sunday.

The bank randomly chose its first borrower, Xu Jun, who works for a truck services online platform called Huochebang, business news portal caixin.com reported on Monday.

The company offers truck-hire services via a smartphone application, and has more than 650,000 trucks and about a million drivers registered on the platform, the report said.

Based on its information, the company compiled a list of drivers qualified to get a loan and Xu was picked at random from the list.

Unlike traditional off-line banks, WeBank does not wait for customers to apply for a loan. Instead it approaches people who are chosen based on their credit record, and asks them if they need a loan, the report said.

Focus on small business

Many truck drivers need loans but off-line banks are generally reluctant to provide small loans, a member of staff at WeBank was quoted as saying by caixin.com. WeBank can offer this service instead, the staff member said.

During his visit, Premier Li said WeBank should focus on individual clients and small businesses, according to the caixin.com report.

Gu Min, president of WeBank, also said that the bank was not intended to serve government departments, large enterprises or wealthy individuals, the report said.

Focusing on smaller loans offers a good way to avoid direct competition with traditional banks, who prefer affluent clients, Zeng Linghua, chief analyst at Shanghai-based fund consultancy Howbuy, told the Global Times Wednesday.

Meanwhile, although China's credit reporting system is still immature, WeBank can rely on Tencent for getting individuals' credit information.

With its huge number of users, Tencent has rich experience in building individual consumers' credit reports based on online information, including spending records and social networking habits, a spokesperson for Tencent Credit Reporting Co told the Global Times on January 12.

The People's Bank of China (PBC), the central bank, has information on 850 million individuals in its credit reporting system, but only 23.7 percent of them, or 320 million individuals, have proper credit records, caixin reported, noting that the rate in the US is 85 percent.

One of the main ways to build up a credit record is to use a credit card, but currently China's credit card penetration rate is only around 23 percent, according to the report. But experts have noted that people have a considerable need for small loans, even if they don't have credit records.

However, the PBC is planning to build an expanded personal credit database, and has started inviting companies to participate in the process.

The PBC issued a notice on January 5 ordering eight firms to prepare credit reporting operations within a period of six months, including Tencent Credit Reporting and Sesame Credit Management Co, a subsidiary of Alibaba Ant Finance Service Group.

Being more direct

Faced with competition from Internet companies, traditional banks have responded by launching direct banking, which offers services remotely via the Internet or phone.

By press time, 15 banks in China had either launched direct banking services or are planning to, caixin.com reported.

Industrial and Commercial Bank of China (ICBC) will offer direct banking services that cover account opening, deposits, investment, transactions and capital transfer, the report said.

Opening an account remotely has been an obstacle for direct banking services in China so far, because of the regulatory requirement that opening accounts must be done face-to-face.

ICBC's solution is to allow users to open accounts based on their existing accounts with other banks, the report said, but it is not yet known whether the Chinese banking regulator will approve the proposal or not.

ICBC could not be reached for comment by press time.

Industrial Bank, a Chinese commercial bank, launched its direct banking services in March 2014, offering products such as wealth management services.

Through the online platform, people can invest in the products using bank cards issued by other banks, a member of the customer service staff at Industrial Bank told the Global Times Tuesday.

But before the first investment, customers still have to go to the bank's off-line branches for an investment risk evaluation, the staff member said, indicating that the direct banking service still relies on physical contact for the first step.

"With the development of technology, it is possible that we may not have to stick with off-line operations to open an account or use other services," Zeng said.

When the country's expanded credit database is large and detailed enough, people will no longer have to rely on off-line banking, especially for small transactions and lending, he noted.

WeBank used face recognition technology for its first loan, and remote face-to-face operations may offer a solution, caixin.com reported, noting that the practice could be a reference for the PBC in exploring new ways to open bank accounts.