New vehicles hint of strain at Yu’ebao

Source:Global Times Published: 2014-2-11 21:48:02

Yu'ebao, an online fund investment platform operated by AliPay, recently launched its first fixed-term wealth management product (WMP). The new vehicle requires Yu'ebao users to deposit their money for an entire year in exchange for an annualized yield of up to 7 percent.

In my opinion, fixed-term WMPs represent a play to increase user stickiness. Such products can also offer AliPay more security with regard to sudden withdrawals by its users. This is likely a concern now for the company, since interest rates at Yu'ebao have dropped more than 1 percentage point between their high mark in 2013 and the end of the Spring Festival. If yields continue to slide, investors might panic and pull their cash.

By offering fixed-term products, Yu'ebao is taking a necessary and suitable step to stabilize its funding base. Yet, Yu'ebao's promise to preserve investors' capital may constitute a breach of China's financial regulations. The platform should take this potential problem seriously now that the pressure is on to deliver its advertised interest rate of 7 percent.

The author is Yu Fenghui, a commentator.

Beijing Times

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