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Alipay grabs share of asset management
Aggregated Source: Shanghai Daily: Business

ALIPAY, China's largest third-party payment site, last week started allowing users to put money into a separate asset management account to earn interest while they contemplate their next online purchase. The move has created a buzz, with some people saying it portends a shake-up in traditional banking.

The mutual fund by Tianhong Fund Management Co is designed for Alipay users who want to keep some money in their account until they want to use it to pay for online purchases on Taobao. Both Taobao and Alipay are arms of the Alibaba Group.

"What Alipay is doing is like an earthquake in the banking industry, and Internet companies are moving faster in terms of grabbing these new opportunities," wrote Yang Tao, a popular IT blogger and chief editor of tech website Tech2Ipo.

Alipay, banking on its 800 million registered users and on consumer behavioral data, has been moving into the financial realm quickly as it seeks to cover all bases of consumer life. The asset management realm is a large piece of the cake it doesn't want to forfeit.

It made headlines in major domestic media and also caught the attention of consumers. Alipay said that more than a million users had used the asset management account to subscribe to the fund by June 18. It didn't reveal the total investment volume.

A total of 44.2 million domestic investors had opened mutual fund accounts by the end of May, according to China Securities Depository and Clearing Co.

"We want more grassroots consumers to enjoy the happiness of investment," Alipay said in an official blog post.

No minimum requirement

The collaboration between Tianhong Fund and Alipay allows a simple connection between Alipay accounts and the mutual fund account. Purchases and fund redemption can be swiftly completed on Alipay's platform.

There is no minimum requirement for the fund through an Alipay account. That contrasts with the usual 1,000 yuan (US$163) minimum requirement.

The Tianhong Fund predicts an estimated 3 to 4 percent of annual investment returns, based on the track record of other money market funds offered by other fund companies under stable market conditions. Like other mutual funds, there's no guarantee of investment returns.

Average annualized return of all funds hit 3.58 percent so far this year, which is slightly above the benchmark 3 percent rate of one-year term deposits.

Zu Guoming, deputy general manager of Alipay's online vendors' business unit, said the payment company will work with more fund companies to help them launch products on Taobao's platform.

Fund and insurance companies' online stores on Taobao will be connected to the direct selling channels on their official websites.

Alipay's move is not all that revolutionary in the financial industry.

Many domestic mutual fund companies, such as China Asset Management Co and China Universal Asset Management Co, offer real-time redemption. They have launched "consumption related" money market funds, allowing mutual fund participants to pay utility or mobile phone bills with fund units they are holding.

Taobao launched a finance-management product sector at the end of last year, although only a handful of insurance companies have open official stores on Taobao.

Companies wanting to sell insurance or wealth management products on Taobao or other e-commerce sites such as JD.com and Suning have to get approval from the China Securities Regulatory Commission.

Standard insurance products such as travel insurance and auto insurance are fairly popular on Taobao because they allow users easy comparisons of various offerings. Can that consumer friendliness be extended to asset management?

Alibaba first tested the waters last year by launching three types of wealth management fund, with maturities ranging from three months to a year.

Within three days, more than 4,000 people bought the management products offered by Guohua Life Insurance Co, with a total value of 102 million yuan.

Last year, Alipay won approval to provide third-party payment services for insurance companies and fund management firms, along with six other domestic firms.

Online payment market

Alipay's Zu said more than 40 fund management firms now allow users to buy mutual funds using Alipay's account, and about half of them are under talks with Alipay to launch their products at Taobao stores.

In the first quarter of this year, China's online payment market grew 31.2 percent from a year earlier to 1.02 billion yuan, according to iResearch Inc.

By the end of March, 223 third-party payment firms had been licensed by the central bank.

Alipay has nearly half of the market, based on transaction volumes, followed by Tencent's Tenpay and China UnionPay's online arm.

"It's a natural process for them to seek collaboration with more external partners, especially in the financial sector," said iResearch analyst Wang Weidong.

"The Internet has gradually shaped the behavior of consumers," he added.

"In the future, the product design and sales of some wealth management products will deeply rely on the Internet as an important channel," he said.

Fund management companies are already seeking to expand their direct sales channels, mainly through their official websites and with third-party payment firms such as China PnR, to reduce their reliance on commercial banks.

Online sales channels do provide fund management companies and insurance companies with new customer bases. Buyers can enjoy lower entry fees than from traditional commercial banking.

But the picture is not perfect.

A former employee with a Shanghai-based mutual fund company said third-party sales channels can bring in new customers at the onset, but consumers are fickle and prone to switch to other funds if they offer better rates.

The sluggish performance of the stock market in the last year also damped general investment sentiment, the former mutual industry employee said.

Alipay's strategy is to attract people who have not bought wealth management products before, offering them products that are simple to understand and have relatively stable returns.

"Money market funds haven't been all that popular among individual investors because they don't provide the higher returns of stock-related funds," a vice president at a foreign bank in Shanghai, responsible for retail banking business, said.

"Plus, not many people will leave large amounts in their Alipay accounts."

Alipay has some way to go in convincing consumers to trust them with asset management.

"Why would I put my assets in Alipay when I can do all of that at a bank website, where my transaction is more secure?" said office worker Lisa Hu.

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