News / Asia

China Sees Big Shift Into Online Finance

Employee seen behind glass door of Alibaba's company headquarters on the outskirts of Hangzhou, Zhejiang province, April 23, 2014.
Employee seen behind glass door of Alibaba's company headquarters on the outskirts of Hangzhou, Zhejiang province, April 23, 2014.
Victor Beattie
The International Business Times says a big financial shift is underway in China.

It says people are increasingly depositing extra cash in online investment platforms that allow instant access to their funds with no minimum deposit while offering interest rates much higher than traditional banks.

One of those online financial products is Yu'e Bao, a money market fund offered through e-commerce giant Alibaba's third-party payment affiliate, Alipay.com.

Launched in June, the service offers interest rates up to 6 percent, compared to the capped 3.3 percent savings rates at major banks.

Much like Paypal.com, it allows users to tap their accounts for online purchases.

Emerging at a tumultuous time in China's financial sector, when traditional banks and Beijing regulators are pushing for stricter Internet finance rules, Yu'e Bao isn't the only game in town.

Online investment platforms are also available to customers of China's massive online search company, Baidu, and Tencent, the country's largest internet company.

With more than 618 million active internet users, China is seeing an unprecedented number of consumers conduct transactions via smartphone or tablet.

According to IBT, Yu'e Bao investors already outnumber those in China's stock markets, causing some experts to question whether the nascent industry represents a sustainable model.

"While online financial services are growing rapidly now, there are reasons to suspect that it is unsustainable given market forces, as well as the potential for greater regulation," said Ken DeWoskin, director of Deloitte's China Research and Insight Center.

DeWoskin said in a VOA interview that some form of regulatory restraint, such as the amount of cash reserves online bankers would be required to keep on hand, may undercut the range of services.

But he said e-commerce is likely to remain a growing mainland phenomenon.

"Rent prices for traditional retail shops in major Chinese cities is so high [that] online services operating out of warehouses can easily compete because of their relatively low costs," he said.

According to Reuters, "the total transaction value of China's third-party online payments is expected to reach nearly $3-trillion [18.5 trillion yuan] by 2017."

Although Alibaba's financial products may be separate from the massive company's upcoming IPO, Reuters also says Alipay.com's financial platforms are likely to prove vital to the company's overall growth.

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