China's leading search engine Baidu has launched its first online wealth management platform Baifa on Monday. The biggest online search company in the country is moving away from its advertising business to compete with Alibaba and Tencent Holdings in the financial sector.
In cooperation with China Asset Management, Baidu has launched its first online wealth management platform "Baifa", which literally means "great fortune for everyone" in Chinese.
Baidu initially advertised Baifa’s annual fund return target as 8 percent, but later retracted its earlier statement, saying that it does not guarantee a specific rate of return since such practice is not allowed by financial regulation.
Eight percent is much higher than the usual profit rate of 4-5 percent of money market funds. Baidu has set its selling limit to 1 billion Yuan or around 164 million U.S dollars.
Wang Tao, Founder & CEO of Everstring, said, "This is baidu’s first time setting up a online platform to sell financial products. Their 8 percent return promise was more for advertising purpose. They may make up the difference themselves."
China’s finance sector has been dominated by state banks. But now technology companies are using their online resources and platforms to push financial products developed by financial firms.
Alipay launched Yu’ebao earlier this year which allows users to transfer their balance in their Alipay accounts into a money market fund. It has attracted 16 millin users. Analysts say internet firms are moving away from advertising and making a foray into financial services.
Wang said, "Internet firms traditionally rely on advertisement, games, and online trading platforms for their profits. But those profits are narrowing with more competitors in the pool. With their large user base, it’s inevitable that they are moving into the financial businesses."
Wang adds that current wealth management products have very similar returns and therefore are very suitable for online distribution. Low interest rates in the banks give customers more incentives to invest. Baifa’s website crashed soon after its launch and reached its funding raising limit in less than 5 hours.
