What the alliance between HSBC and Alibaba represents
Matteo Giovannini

Editor's note: Matteo Giovannini is a finance professional at the Industrial and Commercial Bank of China in Beijing and a member of the China Task Force at the Italian Ministry of Economic Development. The article reflects the author's views, and not necessarily those of CGTN.

The global outbreak of COVID-19 has put numerous companies and economies on their knees and have forced governments that have so far mobilized all the resources in their power to support the intervention of the private sector from financial institutions to technology firms to rapidly assist the entire business ecosystem.

In this regard, this week it has been reported by the South China Morning Post that HSBC has teamed up with Alibaba's logistics unit Cainiao Network Technology Co. Ltd to offer quick trade finance approvals to online merchants using the Tmall platform in Hong Kong.

Alibaba Group Holding Limited has an equity stake of 63% in Cainiao, a global leader in technology-driven logistics and infrastructure that was established in 2013. The company supports cross-border solutions for Alibaba's international e-commerce business, including Tmall Global, AliExpress and Lazada.

The initiative is important because it is testimony to HSBC's commitment to the place where it was founded in 1865 and also confirms the recent decision of the top management to scale back from developed economies such as the United States and Europe and to focus its growth on the Asia Pacific region that is expected in future to provide a larger share of global output.

Certainly, the exit of the United Kingdom from the European Union at the end of January of this year and the consequent loss of single market access for London has been another important factor that has contributed to the decision of HSBC to move its investments and future plans on the Asia Pacific region, considering its historical link with the former British colony and the strong presence maintained over the years both in Hong Kong and in the rest of Asia.

The decision of HSBC to partner with Alibaba can also be seen as a smart way by the bank to provide financing to Chinese SMEs. /AFP Photo‍

The decision of HSBC to partner with Alibaba can also be seen as a smart way by the bank to provide financing to Chinese SMEs. /AFP Photo‍

The decision represents, from a market perspective, a strategic move from HSBC in the attempt to outpace the rising level of competition from challenger banks in Hong Kong, considering that last year the Hong Kong Monetary Authority (HKMA) issued licenses to eight virtual banks to operate in the Special Administrative Region with the intent to increase the services in financial technology and smart banking in the city.

Challenger banks emerged from the 2008 financial crisis and today represent the biggest threat to incumbent financial institutions by being able to offer the same services to the same pool of customers in a much faster and more convenient way by leveraging cutting-edge financial technology.

According to the source, the partnership between HSBC and Cainiao will offer approval for trade financing loans for an amount of up to 500.000 U.S. dollars that can be executed in just seven days. In order to obtain the financing, merchants are not required to provide any collateral to secure the loans but have to agree to transfer their comprehensive information to HSBC for its credit risk assessment.

As confirmed by HSBC top management this move represents the first time in history that the bank has decided to rely on third party data to analyze and approve loans. This revolutionary process is expected to speed up the whole KYC and on-boarding process for new customers of the bank by leveraging big data and artificial intelligence that are able to analyze a large amount of information such as credit history and bank account balances to help determine the creditworthiness of the applicant and lowering the risk of default.

The decision of HSBC follows a trend among established financial institutions that see the partnership with challenger banks as a more viable way of providing digital banking services due to the difficulty that long-established banks have in internally developing fintech solutions. 

In addition, the fact that HSBC is going to be the first traditional lender to partner with a tech company is expected to put the bank in a leading position in Hong Kong at a time when from one side the HKMA is insistently asking lenders to invest more in fin-tech services and from the other side the millennial generation is requesting more digital banking products.

A faster and easier financing approval process is going to be welcomed by the market and especially by those merchants and small and medium enterprise owners that have been severely hit by the coronavirus and would have the chance to easily obtain quick loans to support their business needs.

The decision of HSBC to partner with Alibaba can also be seen as a demonstration of trust in the future of the Chinese market and as a smart way by the bank to provide financing to Chinese SMEs at a time when China's economy is quickly recovering from the effects of coronavirus and when domestic companies need funds to support their businesses affected by two months of inactivity.

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