Alibaba and Tianhong: Mobile Internet Drives Yu’e Bao to the Top


Who would have thought that Jack Ma’s Alibaba would go beyond e-commerce by using the cloud and mobile Internet to reshape China’s online finance with the takeover of Tianhong and the launch of Yu’e Bao? In four years, backed by some 370 million account holders, it has become the largest money-market and now manages over $211B in assets. Unbelievable, but it is more than twice the size of JP Morgan’s U.S. government money market fund.

Excess Funds Funneled Securely

Realizing that its clients had residual funds in banks which weren’t earning substantial interest, Alibaba’s two affiliated companies, Alipay and Tianhong Asset Management created Yu’e Bao. What Yu’e Bao did with the “leftover treasure” in customer accounts is to move it from a practically inert bank account to Yu’e Bao where it can earn better rates. While it was cumbersome in the past to invest in mutual or hedge funds, the e-commerce platform made it easy for mobile-internet users to invest with just a click on their mobile phones. Within a few months, the fund had grown to $15 B and 30 million users, which presented problems because of the need to clear safe transactions speedily. AliCloud, another Alibaba company supported this growth since it was capable of providing the infrastructure using the Pay-As-You-Go Model.

“Yu’e Bao went on to become the first successful fund to integrate cloud computing to manage direct sales and clearance systems. The innovative business model and technology architecture of Yu’e Bao has had a great influence on the finance industry and has become a benchmark in Internet financing.” – Alibaba Cloud

Leveraging on Millennial Capacity

Though interest rates have not caught up with the size of the fund, it remains immensely popular – in fact, Tianhong had to put a cap on daily investments at $3,000 in December 2017. This comes close to the heels of a total investment cap of 250,000 yuan ($38,257) per person. The fact that it could be done securely, conveniently, and require just a small investment. It is crowdsourcing in a really big way!

“Yu’e Bao has “so many individual accounts they are able to have the power to negotiate with banks, and because the duration is very short, they also have high liquidity. The large scale of the Yu’e Bao fund allowed it to negotiate better rates, and banks need deposits to lend, and these are deposits.” – Peter Alexander, Z-Ben Advisors (Financial Times)

Alipay has done what Paypal has not done globally – practically take over wallets due to its speed and convenience. But did Yu’e Bao disrupt the Chinese economy because it could predict consumer behavior, has an “all-in” app, and focuses on small investors making affordable, practically risk-free investments? The quick answer would be “yes” but a closer look will reveal that Yu’e Bao acts as an integrator of “small-depositor funds” and turns around to lend to banks at a significantly higher interest. The smaller depositors in turn, get interest from Yu’e Bao at a higher rate than what the banks originally were prepared to give. Jack Ma may turn out to be the master of the win-win game, after all.