Alibaba: the new face of finance in China

Mon May 19, 2014 4:44am EDT
 
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By Paul Carsten and Jane Lanhee Lee

BEIJING/SHANGHAI (Reuters) - For Yuan Yue, a Chinese graduate student in international trade, moving all of her spare cash to an online investment fund called Yu'e Bao was a no brainer.

"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.   Continued...

 
A man walks out of a building at Alibaba's headquarters on the outskirts of Hangzhou, Zhejiang province April 23, 2014. REUTERS/Chance Chan