Big banks land uppercut on internet finance

May 02, 2014 14:42
Baidulicai, a unit of Baidu Inc., is one of various online services that lets people invest in financial products, draining deposits from banks. Photo: Bloomberg

With Alibaba’s Yu’E Bao leading the charge, hundreds of billions of yuan have flowed from banks to internet money market funds over the past year. The product basically aggregates small individual accounts into a big lump sum to negotiate higher rates from banks.

The cash exodus has attracted a wealth of attention within China and now former Federal Reserve chairman Alan Greenspan has weighed in. Greenspan says Alibaba is using the difference between the interbank and market rates to create yield for the public, which is good thing for China. And Yu’E Bao, he says, is the first step to the normalization of the country’s financial system.

But there's no doubt Chinese lenders are very unhappy, with many putting up new hurdles to stanch the fund flow. Now it will to take up to two working days to transfer money from Yu’E Bao to a user's current banking account, which makes its much less flexible compared with the previous real-time transfer.

National Business Daily quoted a financial industry insider saying that not one of the big four banks will real-time transfer with Yu’E Bao. CITIC Bank and Ping An Bank are among the minority still willing to support the service.

Back in March, the big four banks -- Industrial & Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank -- all lowered the maximum amount that account holders can transfer from Yu’E Bao to 5,000 yuan a time, and no more than 50,000 yuan per month.

Other banks are also fighting back by offering more attractive products. Industrial Bank has launched a wealth management product with an floating interest rate, which is as high as 5.77 percent on an annualized basis based on the past seven days’ quotes.

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EJ Insight writer