Tech Upstarts Disrupt China's Banks

New services enable Chinese to transfer money, using mobile devices, into funds that earn 17-fold more interest than state-controlled banks offer.

Rebecca Ning, along with 43 million other Chinese, has found a way to make about 6 percent annually, or 17 times her usual interest rate, by tapping her phone and using technology that’s disrupting China’s banking status quo.

Employing Alibaba Group Holding Ltd.’s affiliate Alipay, an Internet payment system similar to PayPal, Ning pokes a silver icon with the first Chinese character for “pay” to transfer money from her bank account in Beijing to Alipay’s investing platform, Yu’E Bao. She earned 430 yuan ($71) in interest on 30,000 yuan in almost three months last year, instead of the 26 yuan that she would have earned had she left the money in her checking account.

As Internet financial products gather momentum, China’s state-controlled banks are losing share of the nation’s 44.8 trillion yuan in household deposits, which for decades have helped keep their profits high as rates fixed by the government created a 3 percent spread between what they collect on loans and what they pay on one-year time deposits.

Household savings fell by 897 billion yuan in October, 35 percent more than the drop a year earlier, as investors shifted out of savings and checking accounts into investment products, central bank data show.

The Tian Hong fund has reaped 1.8 billion yuan in gains for Yu’E Bao investors since its inception, or an annualized return of 4.9 percent, according to the company. That’s 14 times the rate banks pay on checking accounts.

Tian Hong pays Alibaba a payment-technology fee and a platform-marketing fee for investor referrals, Teresa Li, a Hong Kong-based spokeswoman for Alibaba, wrote in an e-mail.

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