As part of Alipay, Yu’e Bao was initially designed to offer users of the online payment service a chance to see their unspent money grow between purchases. Soon users began transferring money from their savings account into the platform, as the average Yu’e Bao account now holds over RMB 5,000. This is clearly indicative of the fund’s higher rates: Yu’e Bao currently offers 4.22%, as compared to the government’s 3.35% rate for money-market accounts.
At only a year old, the platform’s fund – Zeng Libao – already possesses USD 92 billion in assets, which makes it the biggest single money-market fund in China and the fourth biggest in the world. Besides competing with banks for customers, Yu’e Bao also influences banks’ account rates by loaning money to them. Yu’e Bao makes its by loaning cash to banks low on deposits – at rates higher than the banks would offer their customers. This, in turn, forces banks to offer higher rates. As for the significance of this development, Nicholas Borst of the Peterson Institute for International Economics, said internet finance “has the potential to be a large catalyst for reform and efficiency gains in China’s state-dominated financial system.”
Source: Global Intelligence