Alibaba has become a money market machine in China
Alibaba, through its asset management affiliate Ant Financial, is holding the largest money market fund (MMF) in the world – Yu’E Bao – , with more than 260 million unitholders and $220 billion AuM, representing 27% of total AuM in China’s MMF market.
It build it in only 4 years by leveraging the success of its online shopping platform (Taobao), the world’s largest one, and its digital payment channel Alipay with its 520 million users.
The principle is simple: Alibaba gives its customers the option of transferring idle cash they have in their e-wallet into a fund. It’s thus become more convenient than going outside to invest cash, since Alipay users are able to transfer funds to and from Yu’E Bao with no minimum investment threshold, no increased costs and no time delay. Moreover, Yu’E Bao offers higher yields than bank deposits, through the use of advanced big data analysis and prediction models for liquidity and duration risks.
Following the wild success of Yu’e Bao, other Chinese technology firms have ventured into savings, such as Tencent with WeChat Pay or Baidu with its online platform Baifa linked to Baidu Wallet.
Indian market is the next target
In April this year, the Indian regulator allowed investors to use e-wallets to invest up to Rs50,000 ($780) a year in mutual funds, providing India’s 300 million smart phone users with easier access to a wide range of online and mobile investment platforms.
It is thus no coincidence that Alibaba and Ant Financial invested $177 million last March to increase their holdings in Paytm – one of the largest digital payment company in India – raising its combined stake to more than 50%, up from 42%.
This participation allows the Chinese e-commerce giant to face Amazon and local leader Flipkart in one of the world's fastest-growing markets for digital commerce.
Moreover, it’s going to benefit from the Paytm’s development strategy in financial services. It has indeed entered savings for the masses by first offering a gold account as a store of value, followed by its own money market fund. In addition, last June Paytm applied for a license from the Reserve Bank of India to set up a money market mutual fund that invests in short-term funds.
This year, Paytm's founder announced plans to invest $1.6 billion over the next five years to innovate in wealth management, lending and insurance.
And what will be next?
Ant Financial and Alibaba are continuing their expansion. The company has partnered with conglomerate Emtek – Indonesia’s second largest media firm and shareholder of Bukalapak a major e-commerce player - to enter Indonesia which is Southeast Asia’s largest economy and home of 250 million people.
This partnership is part of a series of initiatives that Ant Financial has undertaken to expand its business beyond China. It has invested $200 million into a similar Fintech joint venture in Korea (Kakao Pay), and has comparable alliances in the Philippines and Thailand. In October, it announced a partnership in Hong-Kong with Li Ka-shing’s conglomerate CK Hutchison Holdings.
Ant Financial is also bidding to buy U.S.-based money transfer services firm Moneygram. Its CEO recently told that the company is aiming to reach 2 billion users over the next 10 years. What kind of impact will it have on money market? To be continued.
Author: Pascal Buisson - November 2017
