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 "The yield is even higher than a bank time deposit, but a time
deposit ties up your money ... so it's better to just keep it in
Yu'e Bao, because you can use the money anytime. So why keep it at
the bank?" said Yuan, who studies in Shanghai.
Yu'e Bao, available on smartphones, is conveniently linked to
China's biggest online payments platform Alipay, similar to PayPal
and owned by an affiliate of e-commerce giant Alibaba Group Holding
Ltd. Users can dip directly into Yu'e Bao to pay for goods bought
online.
As Alibaba gears up for what could be the world's biggest tech IPO,
online finance has become another focus of the sprawling firm - and
while that business will be largely kept separate from the offering,
it could play a major role in the entire company's future growth.
China's banking industry is behind those of developed markets but
its number of Internet users, now more than 618 million, is sparking
a boom in online and mobile payments.
The total transaction value of China's third-party online payments
is expected to reach 18.5 trillion yuan ($2.97 trillion) by 2017, up
from 5.4 trillion yuan last year, according to Shanghai-based data
firm iResearch.
Yu'e Bao's high interest rates are an incentive to deposit money
into the platform, money which can easily be used to buy products on
Alibaba's huge online shopping websites and anywhere else that takes
Alipay.
Money market fund Yu'e Bao has been such a success that the fund
management company that helped launch it, Tianhong Asset Management
Co, has gone from near obscurity to China's biggest in terms of
assets under management (AUM) in just months.
The firm had 554 billion yuan ($88.88 billion) in AUM in the first
quarter of 2014, from just 10.5 billion yuan a year earlier,
according to Z-Ben Advisors, a Shanghai-based investment management
consultancy.
And now the company that owns Alipay, Zhejiang Alibaba E-Commerce
Co, is waiting for regulatory approval to buy 51 percent of Tianhong.
Tianhong's massive assets under management are in low risk, highly
liquid money market funds, said Wang Dengfeng, Tianhong's fund
manager.
"We knew it was a break-through product and would succeed but we
were surprised that it could reach today's levels," Wang said. "We
didn't expect it to move the money market industry and also the
country's money management policies."
CHALLENGES AHEAD
Tianhong may have grown fast, but like most money market funds it
has razor thin profit margins, said Chris Powers, a consultant at
Z-Ben Advisors.
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"The key will be whether Tianhong can take their now new name
recognition and their long list of investors and use them to get
them to invest in normal equity funds or fixed income funds which
will really help grow their AUM but also grow their revenue," he
said.
Yu'e Bao and Tianhong may also come under regulatory pressure.
Their rise has angered China's big state-owned banks, which can't
compete on deposit interest rates as they're controlled by the
central bank. The banking regulator has been talking about possible
restrictions on fund flows to e-payment platforms or even subjecting
them to the same requirements as standard banks.
Alibaba founder Jack Ma is fighting back.
"It's not the monopolies and powers that determine success in the
market, it's the consumer," Ma said on Alibaba's mobile chat app,
after banks imposed limits on how much their customers could
transfer to Alipay in March.
But it's not just regulatory challenges looming.
Competitors such as China's dominant online search company Baidu Inc
and Tencent Holdings Ltd, a social networking and online gaming
giant with the hugely popular WeChat mobile messaging app, have
their own investment platforms for customers.
And those customers are fickle. Yuan Yue has been watching the
yields on Yu'e Bao carefully as they've dropped below 5 percent for
the first time. A one-year time deposit at a local bank pays at most
3.3 percent.
"If it falls below 4 percent I won't keep it in Yu'e Bao," she said.
"Others like WeChat and Baidu are offering similar products.
"I can split it up - 2,000 yuan in Baidu's fund, 2,000 yuan in a
WeChat fund. They all make me money and the risk is diversified."
($1 = 6.2334 yuan)
(Editing by Jacqueline Wong)
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