If Mobile Handset Manufacturer Xiaomi Has a Bank; Why Not Apple?

by Tim Sloane 0

This article in Quartz indicates that Xiaomi, the largest smartphone manufacturer you have never heard of because it sells low cost devices primarily in Asia, has launched its own bank. Financial institutions in the US that are deploying Apple Pay may want to take notice. Mercator published a Blog in July 2014 titled “Will Apple Be the New Entrant in Prepaid Financial Services?” and since no one knows where Apple is really headed, it may also aspire to deliver an Apple Bank:

“The Chinese smartphone maker Xiaomi has bigger ambitions than just making handsets and tablets–and in the Chinese tech sector, that means opening a bank. The company today launched an online money-market offering (link in Chinese) called Xiaomi Huoqibao (which roughly translates as “Xiaomi savings account”).

The new venture puts Xiaomi up against China’s two tech heavyweights, Tencent and Alibaba, not to mention against the country’s massive state-owned lenders. Online money-market accounts offer much higher interest rates than Chinese brick-and mortar banks, and have become hugely popular, due in part to a push from the tech industry. At the end of 2014, 185 million users had deposited 578.9 billion yuan ($93 billion) into Alibaba’s Yu’ebao, while Tencent’s Licaitong has 100 billion yuan in deposits from 10 million users. Xiaomi Huoqibao is attempting to make a dent in that market by offering an annualized savings rate of just under 5%, compared with 4.3% for Yu’ebao, and well above the negligible rates for typical Chinese bank accounts.”

Perhaps most importantly Xiaomi will almost certainly catch the attention of the Chinese government, rumored to be at the root of the CUP intervention to block banks from working with AliPay. China protects its assets and this could be perceived as a threat to the existing well connected banking industry.

But Xiaomi is pursuing a business model that has proven successful for many tech startups: start small and slowly introduce a software and device ecosystem that delivers high value across multiple consumer touch points:

“Xiaomi made its name by making attractive, high-quality phones that sell for around a third of the price of an iPhone, for a razor-thin profit margin. But the company’s profits, it has said, will come from elsewhere—from software services, and an array of branded electronics and lifestyle products that it makes with partners, including a smart TV, an internet-connected air purifier, and an internet-connected lightbulb.
Xiaomi’s strategy is to build devices and services around a common ecosystem to encourage users to go all-in on Xiaomi’s products, which now include banking. It’s a strategy that plays to the strength of Xiaomi’s rapidly growing base of enthusiastic users: It sold 60 million phones last year, and plans to shift up to 100 million this year.”

This strategy worked for Microsoft, Google, and others, and Xiaomi is small enough that it can remain focused on establishing a dominant position in the evolving convergence of Smartphones, Cloud Computing, and the Internet of Things. This opportunity may be sufficiently large that the Chinese government decides to give Xiaomi some time to determine if it can indeed establish a technology ecosystem that will deliver China a leading position in this technological area. Xiaomi may be the upstart that carves out significant territory from a technological roadmap that was originally laid down by Google, Cisco, and Microsoft.

Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group

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