27 October 2016
Consumers can use Alipay to settle bills, even pay for meat or fish in a wet market. Photo: Xinhua
Consumers can use Alipay to settle bills, even pay for meat or fish in a wet market. Photo: Xinhua

Investors should embrace booming internet finance

Tencent Holdings (00700.HK) launched the “red packet” function of its WeChat instant messaging service in Hong Kong during the Lunar New Year holidays.

After linking their bank accounts to WeChat, its users in the city could send virtual red packets of a set amount of cash to their friends.

Meanwhile, Alibaba Group Holding Ltd.’s Alipay payments service spent as much as 800 million yuan (US$122 million) sending red packets to viewers of mainland China’s widely televised Spring Festival Gala.

Internet has increasingly penetrated into everyday life in the mainland, including payment, borrowing and investment.

As the younger generation has become the dominant consumers, various financial services are booming on the internet.

Third-party payment has transformed the traditional methods of payment.

And non-financial organizations provide settlement services for buyers and sellers.

Alipay has snapped up the largest market share.

Alibaba’s Taobao e-commerce platform reported sales revenue of 91.2 billion yuan on Singles Day (Nov. 11) last year. Taobao has an average daily turnover of around 1 billion yuan.

The huge success of Taobao and Alipay has enabled Alibaba to venture further into the online-to-offline business.

Users can make payment with the Alipay mobile app when shopping, taking a taxi, buying movie tickets or paying utility bills.

In the meantime, online wealth management products have posted robust growth in recent years.

Alibaba’s mutual fund Yuebao is the most popular.

The investment product is the same as other money market funds, and customers can use the money at any time for shopping or payment.

Crowdfunding – including debt crowdfunding, product crowdfunding, equity crowdfunding and charity crowdfunding – is also becoming more popular.

Online peer-to-peer (P2P) lending platforms match lenders directly with borrowers.

An online platform can operate with lower overheads and provide the service more cheaply than traditional financial institutions, and investors can also obtain higher returns.

The borrowers post online how much money they need and for how long, the intended use of the proceeds and their credit situation.

The lenders sign contracts directly with the borrowers, getting rid of the traditional financial intermediaries.

However, Chinese authorities are tightening oversight of online P2P lending in the wake of the collapse of one of the most popular platforms, Ezubao, the country’s largest Ponzi scheme.

Crowdfunding for product development caters to personalized consumer demand.

Entrepreneurs post their product concept online and use the crowdfunding platform to raise money to develop the product.

It could cut the up-front costs for sellers and also generate a large number of users and capital if the product is well-received by end-users, who can obtain a new product at a relatively low price.

For example, a smart cup called Cuptime raised more than 1.7 million yuan on a crowdfunding website and won support from nearly 3,000 buyers.

The first 1,000 buyers can get the cup, which works with your phone to record your water drinking habits and remind you to stay hydrated, for 250 yuan.

Equity crowdfunding enables individual investors to access private equity investment projects.

It’s a good option for entrepreneurs, as they can choose their investors rather than being chosen. It’s easier than looking for angel investors or venture capital.

For example, the movie Ip Man 3 raised more than 10 million within 20 minutes on a crowdfunding site in October last year.

The movie offered a return of 8-11 percent, and investors could put up as little as 1,000 yuan for 180 days.

They were guaranteed to get back their principal, and the return will be linked to box office earnings.

This article appeared in the Hong Kong Economic Journal on March 2.

Translation by Julie Zhu

[Chinese version中文版]

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General Manager, Head of Investment, Investment Management, Bank of China (Hong Kong)

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