China's phone manufacturers move into finance as Xiaomi launches a money market fund

Written by Denis Suslov || May 18 2015

Xiaomi teamed up with E Fund Management to offer a new money market fund last week. The fund will be available on the wealth management app installed on the Xiaomi operating system and will be similar to products offered by Alibaba and Tencent in that it offers higher-than traditional bank deposit rates and allows nearly instant liquidity.

Xiaomi reported that the newly established finance department responsible for the new fund has more financial products in the pipeline, including index funds, a brokerage service and credit offerings. Hong Feng, the founder and vice president of the company stated that Xiaomi will build a financial platform that will bring more clients to their partners in the financial industry and will give users a more straightforward way to borrow and invest money.

As we wrote before, finance has become an integral part of the online experience for many users in China. Alibaba and Tencent spent more than 600 million over Chinese New Year to encourage more users connect their bank accounts to their mobile apps.

While we are optimistic about the new fund, Xiaomi is at a disadvantage compared to Alibaba and Tencent. When Alibaba’s fund was launched for the first time, millions of users already had their cards linked to the system. All they had to do was to press the “Buy Now” button. Also, Alibaba has more control over pricing and profit margins, as it owns a significant portion of Tianhong Asset Management, the asset manager responsible for its money fund product.

Tencent, which had almost 400 million Wechat users and stunning 848 million QQ users at the moment of Licaitong launch in 2014, now only manages RMB 55 billion, an AUM 10 times smaller than that of Yu'E Bao.

At any rate, whether Xiaomi will succeed with the fund and building a larger platform in future or not, venturing into finance is a big achievement for the five-year old company. It will also prove to be an interesting test of if a hardware / mobile OS company can join its peers in providing innovation in the financial industry.