How Alibaba Is Reshaping Chinese Finance -Yu'e Bao Wow!

Working out of a cramped 600-square-foot apartment in Beijing's Chaoyang central business district, Jack Wang leads a team of ten customer service representatives for Qishi Club Co., an online toy seller. Each month his company racks up more than 150,000 yuan ($24,000) in sales from Alibaba Group Holding's e-commerce platform, Taobao.com, which is the eBay of China.

In the past Wang would withdraw all of the funds from Alipay, the group's payment service, and put the money in his bank, where he can earn interest ranging from 35 basis points on demand deposits to a maximum of 3.3 percent on a one-year term deposit. Since early this year, however, he has been transferring the revenue to Yu'e Bao, Alibaba's new money market fund.

The arrangement is simple, requiring just a click on Taobao's site, and lucrative. In mid-May, Yu'e Bao was paying an interest rate of 5 percent on accounts that offer instant liquidity: Wang can make withdrawals from the fund at any time without penalty.

"Of course, we stop pulling out money and putting them into banks and instead keep all of our cash flow in Yu'e Bao," Wang tells Institutional Investor.

"On average, we keep anywhere from 300,000 yuan to 500,000 yuan on Alibaba's platform — money that we used to keep in banks."

For the rest of the story from Institutional Investor, click here.