When Single’s Day last month broke all records to become the biggest one-day online shopping event in the world, it went beyond sales of standard merchandise for the first time.

On Alibaba Group’s popular Taobao and Tmall shopping sites, 17 insurers and fund management companies sold a combined 908 million yuan (US$146 million) of wealth management products in the 24-hour period.

It underscores the latest trend in digital marketing. Commercial banks, fund managers and insurance companies are rushing to embrace the Internet in an effort to reach a younger generation of consumers glued to their smart devices most of the day.

Shanghai office worker Janice Wang said she was surprised to learn that one of her colleagues had set an alarm for 8am on Single’s Day, November 11, to purchase a wealth management product offering an annualized yield of 7 percent.

Wang decided to follow suit, transferring 20,000 yuan into her Alipay account and then depositing it in Alipay’s Yu’E Bao cash management product.

“It’s not a bad way to manage my pocket money through Alipay,” she said. “I’m familiar with the transaction process because I have been using it to pay for my Taobao orders for quite a long time.”

Last month, Yu’E Bao became the first domestic mutual fund to reach more than 100 billion yuan in value. It has nearly 30 million subscribers. The average asset of each investor was around 3,300 yuan, a small amount compared with ordinary asset management products.

On Single’s Day, about 42 percent of transaction value came from online users aged between 26 and 32, and nearly 50,000 consumers opened fund-trading accounts through the Taobao channel.

More to come

More fund companies are expected to open official marketplaces on Taobao in the coming months, after the online shopping site gained approval from the China Securities Regulatory Commission to sell mutual funds in early November.

The attraction of such funds is not hard to understand. China’s one-year fixed deposit rate is only 3 percent, while these money market funds or wealth management products offer yields of 5 percent or higher.

Yu’E Bao, launched by Tianhong Fund Management Co on the Alipay platform, has had an average return of 5.1 percent in recent weeks.

Moreover, investors can buy into fund and insurance policies on Taobao for as little as 1,000 yuan. That compares with a minimum investment of 50,000 yuan usually required for wealth management products sold through traditional channels such as banks.

“We hope to offer investors and fund companies new sales channels that make investment more accessible to grassroots Internet users,” said Yuan Leiming, general manager of the asset management division at Alibaba Small & Micro Financial Services Group.

E Fund Management Co has became the first fund to use the Internet as its solo fundraising channel, after raising 211 million yuan for its debt fund during the Single’s Day event.

Still, that number is a small fraction of the overall mutual fund market, which had combined assets of 3.85 trillion yuan at the end of the third quarter.

Shanghai Pudong Development Bank has become the latest commercial bank to open e-banking channels on WeChat, allowing a younger generation reliant on smart devices to complete everything from bankcard transactions to payment of credit card bills.

WeChat, the popular smart phone messaging software operated by Tencent, has more than 400 million subscribers. That’s attracting a lot of attention from wealth management firms.

Pudong Development is offering three wealth management products, with annualized yields ranging from 5.7 percent to 5.9 percent.

Insurers and banks have been using high yields as carrots to consumers.

“It’s a new trend for banks to turn to online channels to woo consumers, and we don’t want to be left out,” said head of a Pudong Development branch with knowledge of the matter. “Our wealth management product itself is an ordinary one, and the higher yield is designed to catch the eyes of consumers who can easily swing between different banks and fund companies.”

Big impetus

A former employee with a major mutual fund company told Shanghai Daily that similar real-time redemption money market funds were already available at several domestic fund companies prior to the launch of Alipay’s Yu’E Bao, but Alipay’s brand recognition and huge impact among Internet users give its products big impetus.

Still, service quality remains a critical component in the success of those financial products hawked online, industry watchers point out.

Consumer financial service company Bankrate Inc has raised questions about the capability of providing online customer services for those who use e-commerce channels.

“Although e-commerce and payment companies have broadened their sales channels for financial products and are offering more convenient purchasing, the capability of professional services such as risk assessment becomes a serious question for online channels,” it wrote in a research note.

China’s third-party online payment industry rose 50.8 percent in the third quarter from a year ago to 1.42 trillion yuan, aided by closer partnerships with financial institutions, Internet consultancy iResearch Inc said in a quarterly report last month.

CN Benefit, a financial services firm that tracks wealth management products offered by domestic banks, points out that asset management products and money market funds sold through Internet channels differ in nature from ordinary products because they target a class of younger customers largely ignored in the past.

Redemption of money market funds of up to 100,000 yuan through Alipay will require commission charges, depending on which bank account is used for transferring the money. Investors requiring a large amount of capital to buy into the stock market, for example, may find that cost an irritant.

“The Internet is certainly not a direct rival to banks and fund companies, and there is no guarantee of increased subscription volumes even if these wealth management products are sold through innovative channels,” said Fu Weiwei, an analyst with CN Benefit. 

“Instead, overall service capacity rather than marketing stunts plays a more important role in the success of these new sales channels,” he pointed out.