Pic: AP.

Online deposit-taking shakes up the financial world, reports Asia Sentinel’s Steve Wang

The Internet in China has started to force real change on once-staid banks, forcing well-fed bankers to cough up better deals on yields on cash deposits that conventionally have been a given under the existing suppressed deposit rate regime.

Even though commercial banks have started instituting countermeasures by offering money market funds as well as e-banking platforms, they remain on the defensive and the battle is about to extend into the field of term deposits when Alibaba’s Alipay launches a 12-month, 7 percent anticipated-yield investment product Friday that also protects principal.

The deal is exclusive to Yuebao account holders who register ahead of time for the online bidding at 10:00AM the 14th. More than 1.3 mn users have already signed up and the number is climbing rapidly.

The only catch preventing an overnight exodus of the RMB46.1 trillion in household bank deposits towards such juicy online deals is of course, their limited availability, but the emerging trend of households placing less cash with banks has been firmly in place since last October. Issuance of this one-year wealth management product is reported to be just RMB300 million according to Securities Times.

China’s banking scene has been undergoing wrenching change over the past two years, with a whole variety of new instruments and institutions shaking up the financial system. The shadow banking sector has been growing at a torrid 34 percent rate since 2010. Government leaders recognize that they can’t turn back the clock to a state-owned system, but their approach is to attempt to control the risk while seeking to make the system more efficient.

Into this has come the Internet. Initially envisioned by the Chinese ecommerce group as merely a way for its users to manage funds in their online payment accounts, the Internet operations have instead mutated into what amounts to a full-blown surrogate for traditional deposit-taking operations.

The revolutionary Yuebao – translated as “found treasure,” from Alipay already surpassed RMB250 billion in funds last month. Despite the fact that flagship money market funds from Alibaba and Tencent have seen yields falling sharply after the end of the Lunar New Year celebrations as Shanghai interbank offer rates are tamed, aggressive marketing campaigns and the strong willpower to turn brick-and-mortar banks upside down characterize China’s online warriors. Creative disruptions to the traditional banking sector will increase, not fade, in the coming year.

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