Alibaba’s online investment account is becoming a serious threat to Chinese banks

December 23, 2013 Leave a comment

Alibaba’s online investment account is becoming a serious threat to Chinese banks

By Gwynn Guilford @sinoceros

6 hours ago

If you work at a Chinese bank these days, the thing you’re probably sweating the most is vanishing deposits. Banks are only allowed to lend a certain percentage of their deposit bases. Artificially low government-set deposit rates have driven households and companies to hold their savings instead in higher-yielding products, such as wealth management products (WMPs). Fewer deposits means fewer loans—which means less interest income for banks. (Banks earn commissions off WMPs, so it’s not all bad.)But, in a trend we flagged in October, the Chinese internet giant Alibaba is now competing against both bank savings accounts and WMPs—and winning. In November, deposits in its investment platform, Yu E Bao, surpassed 100 billion yuan ($16.4 billion), with 30 million users—astonishing growth in just six months of operation.

Of course, 100 billion yuan is but a sliver—0.09%—of the amount in Chinese bank deposits, which totaled 103.2 trillion yuan in November. But in months when Chinese banks have lost deposits, Yu E Bao has steadily gained (for ease of comparison, the charts below use billions of yuan as the scale):

The big jumps in September and June reflect banks bringing investment products onto their balance sheets to count them as deposits in order to meet end-of-quarter reserve requirements.

And here are net deposits added to Yu E Bao:

​When Alibaba launched Yu E Bao—literally, “account balance treasure”—in June, it framed it merely as an account to store the balance leftover on Taobao, Alibaba’s wildly popular e-commerce site. But Yu E Bao offers roughly 5-6% annual interest. And as this recent Financial Times piece (paywall) explains, Chinese investors find it user-friendly as well.

“There’s no point in keeping money in the bank any more. This is just as reliable, more flexible and you can earn a lot more from it,” Li Mingyang, a Shanghai-based editor, told the FT. “This is fun, almost like a computer game.”

We’ve covered in the past how Alibaba isn’t alone in offering this. Baidu launched a similar product in October, attracting one billion yuan on the first day. And now Chinese digital powerhouses Tencent and Netease are joining in. If they pull off even a fraction of Alibaba’s success, things could get even more uncomfortable for Chinese banks.

Filed under TMT Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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