Smartphone maker Xiaomi launches money market fund

Xiaomi has launched an online money market fund in China to compete with similar products from Alibaba and Tencent, as technology companies continue to make inroads into finance.

The world's third-largest smartphone maker on Tuesday said it would team up with E Fund Management, the asset manager, to sell a money-market fund through a finance app bundled with Xiaomi's operating system.

Xiaomi said that a newly created financial unit was planning to offer other products such as index funds, securities brokerage and consumer loans.

"We're aiming to build a smart platform to help financial partners find high quality clients, while helping our users earn money and borrow money," said Hong Feng, Xiaomi co-founder.

Financial services are widely viewed as an important emerging growth driver for internet and technology companies.

During the lunar new year holiday in February, Alibaba and Tencent, the country's two biggest internet companies, spent more than Rmb4bn on gifts and promotions aimed at persuading users to link their bank cards to the two companies' respective mobile apps.

Alibaba's financial affiliate launched Yu'E Bao in 2013 and it has become the country's largest money market fund with 185m investors and Rmb712bn under management, as of the end of March.

Tencent followed in early 2014 with its own money fund, Licaitong, linked to the group's WeChat and QQ instant messaging apps.

Xiaomi's product, Huoqi Bao, will mimic the key features of Yu'E Bao by offering investors higher interest rates than on bank deposits and providing cash on demand. However, Xiaomi's money fund will begin without key advantages that Alibaba and Tencent used to build their financial user bases.

Before Yu'E Bao, millions of Alibaba users had already linked their bank accounts to the company's online payment affiliate, Alipay, to buy goods on the group's Taobao and Tmall online marketplaces. Transferring funds from Alipay to Yu'E Bao required only a single click.

Tencent relies on its 396m WeChat users and 848m QQ users to draw investors to Licaitong. Even so, Licaitong's money fund trails Yu'E Bao with only Rmb55bn under management, as most WeChat and QQ users are not accustomed to using the app for payments or shopping.

Fund management partnerships also pose a challenge.

Alibaba is also the majority owner of Tianhong Asset Management, the fund company that manages Yu'E Bao. By contrast, E Fund Management is not exclusive to Xiaomi. Licaitong on Tuesday launched sales of an equity index fund also managed by E Fund.

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