Alibaba’s online investment account becomes a serious threat to Chinese banks – Quartz


If you work in a Chinese bank these days, what you probably sweat the most are deposits disappearing. Banks are only allowed to lend a certain percentage of their deposit bases. The artificially low deposit rates set by the government have prompted households and businesses to keep their savings in higher yielding products, such as wealth management products (WMP). Less deposits mean less loans, which means less interest income for banks. (Banks earn commissions on WMPs, so it’s not that bad.)

But, in a trend we reported in October, Chinese internet giant Alibaba is now competing with bank savings accounts and WMPs – and winning. In November, deposits on its investment platform, Yu E Bao, exceeded 100 billion yuan ($ 16.4 billion), with 30 million users, an astonishing growth in just six months of operation.

Of course, 100 billion yuan is only a fraction of 0.09% of the amount of Chinese bank deposits, which stood at 103.2 trillion yuan in November. But in the months that Chinese banks lost deposits, Yu E Bao steadily gained (for ease of comparison, the charts below use billions of yuan as a scale):

The big jumps in September and June reflect banks putting investment products on their balance sheets to record them as deposits to meet end-of-quarter reserve requirements.

And here are the net deposits added to Yu E Bao:

When Alibaba launched Yu E Bao – literally, “the account balance treasure” – in June, it simply billed it as an account to store the remaining balance on Taobao, Alibaba’s hugely popular e-commerce site. . But Yu E Bao offers around 5-6% annual interest. And like this recent Financial Times article (paywall) explains that Chinese investors also find it user-friendly.

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

We have seen in the past how Alibaba is not the only one to offer this. Baidu launched a similar product in October, attracting 1 billion yuan on day one. And now the Chinese digital powers Tencent and Netease join forces. If they succeed even a fraction of Alibaba’s success, things could get even more uncomfortable for Chinese banks.

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