The lesson is a story about Ant’s Yu’e Bao.  According to the Financial Times (i) and Wall Street Journal (ii) it means “Leftover Treasure.” Four years ago, Ant Financial, the payments unit of the Alibaba, launched Yu’e Bao to scoop up the leftover treasures left by Ant Financial’s users of its Alipay mobile wallet.  Just to be clear, Yu’e Bao is a Chinese consumer money market fund that offers a short-term, above market interest rate for any money not actively being used in an Alipay wallet.  For those unfamiliar, Alipay is a Chinese mobile wallet used to make purchases on a variety of Chinese online and mobile sites such as Alibaba’s Taobao (similar to eBay or Amazon) and to pay for goods and services from merchants who accept Alipay, including vending machines.  In 2015, Alibaba claimed that Alipay had 451 million active users conducting and average of 153 million daily transactions. (iii)  

Essentially Ant realized that its customers were leaving only some money in their Alipay wallets to fund future, planned transactions.  Since the act of transferring funds in and out of a mobile wallet can be cumbersome, a consumer needed to plan ahead.  But when a consumer wanted to make a spur of the moment purchase they were forced to reach for an alternative payment method such as cash or a debit card.  So in order to get its customers to leave more money in their Alipay wallets, they launched a money market fund that pays customers for idle funds held in the wallet. This would encourage customers to move more money into an Alipay wallet when their paycheck was deposited at their local bank.  Since there are no minimums in terms of funds transferred or time held in the fund, it has meant more Alipay customers are opting to move their paychecks from their banks into Alipay and selecting the Yu’e Bao option to earn higher than market interest until they need to use the funds.  

The net result is that just four years after launch, Yu’e Bao has become the world’s largest money market fund.  It reached $165 billion in assets on April 26, 2017, surpassing JPMorgan’s Government Bond Fund which had $150 Billion.  Given the size of this portfolio and its short-term nature, this has provided Ant Financial with immense bargaining power since the fund pays a 3.93% yield (iv).   The average user of the Yu’e Bao fund is under 30 years of age. This is the equivalent PayPal launching a money market fund for its Venmo wallet and amassing assets roughly the same size as a major regional bank within a typical presidential term – all because it can pay more for deposits than an average CD, simplifies mobile wallet transfers, and makes e-commerce point of sale purchases seamless.

While U.S. banking laws are very different than Chinese banking laws, there is an important lesson to be learned that goes beyond the obvious.  On the surface, the Yu’e Bao example demonstrates that consumers are willing to adopt new financial services from new players over those offered by incumbents if they provide greater value and convenience.  However, the real lesson is the speed with which the mobile device can supercharge that consumer shift of assets if incumbents don’t react quickly enough.

A final note to take in account is that MoneyGram’s shareholders recently approved Ant Financial’s $1.2 billion takeover bid by 97%.  All that remains is regulatory approval before Ant Financial can begin conducting transactions in the U.S.(and globally) under the MoneyGram brand.(v)    

Therefore, as we prepare to receive Ant Financial to our shores, U.S. FIs and nonbank payments firms need to take heed of a new player who is very adept with mobile marketing to Millennials.  American financial service businesses can no longer afford to focus primarily on high net worth banking customers.  They need to develop concrete marketing plans embedded in the mobile channel to court tomorrow’s core banking customers – Millennials.  The time to act is the next 6-12 months before the story of Yu’e Bao gets repeated in the U.S. 

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[i] https://www.ft.com/content/28d4e100-2a6d-11e7-bc4b-5528796fe35c

[ii] https://blogs.wsj.com/chinarealtime/2014/04/18/yue-bao-finds-leftover-treasure-in-deposits/

[iii] http://www.alibabagroup.com/en/ir/pdf/160614/12.pdf

[iv]  https://www.ft.com/content/28d4e100-2a6d-11e7-bc4b-5528796fe35c

[v] http://www.bizjournals.com/dallas/news/2017/05/16/moneygram-shareholders-approve-deal-with-ant.html

Author

About Michael Moeser

Michael is the JAVELIN’s Director of Payments. He advises clients on the rapidly changing payments industry. Michael is focused on tracking the evolution of the payments industry, covering specific areas such as person-to-person payments, U.S. and global EMV card migration, digital wallets, merchant acceptance of different payment forms, cross-border payments, real-time transactions, and digital payments.

Michael specializes in assisting clients in developing new payment products or repositioning existing services to capitalize on market opportunities, understanding how to market to particular consumer and small business market segments, and developing new corporate strategies that can transform an existing payments franchise.

Michael brings over 20 years of experience from the payments and consulting industries. Before joining JAVELIN, he led the international small business card portfolio at Visa, launching new and growing existing debit and credit card programs with banks and financial services companies across the globe. Previously, he was the Head of Competitive Intelligence at Capital One, a Payments Knowledge Expert at McKinsey’s Payments Practice, and the Head of Product Marketing at Ondot Systems, a Silicon Valley mobile card control startup. He has presented to audiences around the globe, primarily at Visa and McKinsey client and public audiences.

Michael holds a BBA in finance from the Ross School of Business at the University of Michigan and an MBA in marketing and entrepreneurship from the Kellstadt Graduate School of Business at DePaul University.

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