Alibaba tests the limits of China’s non-bank banking
- By John Foley
0 Comment(s)
Print
E-mail Shanghai Daily, February 17, 2014
Alibaba isn’t a bank. But for customers it’s getting hard to tell the difference. Users of China’s dominant e-commerce website can now deposit funds, make investments, take out loans and even give out gifts of virtual cash. In taking on China’s lenders, Alibaba and its online rivals may be taking on bank-like risk.
Banks typically offer savings, loans and transactions. Alibaba’s foray into finance has seen it target all three.
While the amounts remain small compared with China’s towering mainstream lenders, the growth rates have been rapid. No wonder: state-owned banks have for years benefited from a tightly-regulated oligopoly.
Alibaba has long handled payments through Alipay, its version of PayPal. Now it allows users to invest surplus cash through a service called Yu E Bao. The funds, which are invested in low-risk securities like government bonds and interbank loans, offer a return of about 6 percent, double what savers get on one-year bank deposits. It’s a money market fund, not a bank deposit. But for customers there is little substantive difference.
Alibaba is now getting into longer-term investments. A fixed-term product launched through Yu E Bao on Friday would give customers an expected 7 percent yield, by investing in property and equities among other things.
The company also offers loans to small and medium-sized companies who sell on its Taobao marketplace. By February it had made 170 billion yuan (US$28 billion) of loans. While Alibaba doesn’t have a bank’s lending expertise it does have masses of data on borrowers’ transaction habits.
The clever part is that Alibaba isn’t doing the financial heavy lifting. Yu E Bao and the new fixed-term product are structured and operated by third parties. The e-commerce group acts as a conduit. Alibaba isn’t technically on the hook for users’ cash, nor does it pick investments, according to a person familiar with the situation.
Go to Forum >>0 Comment(s)