The mainland's largest internet companies are likely to sharpen their collaboration with financial services providers amid greater competition and regulatory risks in the online fund management business, according to analysts.
"We expect new internet finance products to be launched in the second half of this year because the mainland still has the highest national savings rate in the world at more than 50 per cent," said Ricky Lai, an analyst at Guotai Junan International.
Leading the charge would be mainland internet market heavyweights Alibaba, Tencent, Baidu, Sina and NetEase, which were now also competing in the online finance market, Lai said.
E-commerce giant Alibaba, which is preparing for its initial public offering in New York, was the first to launch an innovative online wealth management product for mainland consumers last June. The highly successful Yu E Bao money market fund had raised about 554 billion yuan (HK$696 billion) and signed up about 81 million investors by the end of April.
With Yu E Bao, Alibaba lowered the minimum fund investment to one yuan from the previous average of about 1,000 yuan. This allowed the participation of younger and more middle-class investors, which the other online money market funds that followed have also targeted.
But competition with banks and more recently, from telecommunications network operators, has put pressure on annual yields for online finance products, which have fallen to less than 5 per cent from a peak of around 7 per cent. In a report, Barclays said declining yields had led the internet companies to expand their online finance offerings to include personal loans and investment-linked insurance.
Alicia Yap, the head of China internet research at Barclays, said: "We believe potential regulatory risks remain high in the internet finance space as new types of internet finance products are developed."
She said the launch of new online finance products would not only further lower the cost for investors, but also become a "more efficient distribution platform for banks, insurance companies or fund management companies". The size of the market in terms of savings that can be invested is huge. Total savings in the mainland's banking system reached 940 billion yuan in January.
At present, the major internet companies have been partnering with fund management companies to repackage products to their online consumer base.
Yu E Bao customers, for example, have their money invested in the Zenglibao Money Market Fund managed by Tian Hong Asset Management, according to Takeshi Jingu, chief researcher at the Nomura Research Institute in Beijing.
Lai saw the potential for the biggest number of new products to be developed by Hong Kong-listed Tencent, Asia's largest listed internet company, after its application for a mainland banking licence was approved by authorities.
"Tencent is also investing at least 10 billion yuan in new online finance and e-commerce companies in the Qianhai economic zone in Shenzhen," Lai said.
Bien Perez bien.perez@scmp.com
