Opinion | Financing arms will be absent from Alibaba float

The good news for prospective investors in Alibaba's initial public offering is that the firm owns two high-growth financing arms that look set to disrupt mainland banking. The bad news is that neither business will be included in the Hong Kong float, set for the fourth quarter.

Alipay, a Chinese version of PayPal that received its payment licence from the central bank in May, is running rings around the mainland's heavily regulated banking industry.

Last month, the Alibaba unit launched a money market fund managed by Tian Hong Asset Management. More than 2.5 million people transferred 5.7 billion yuan (HK$7.2 billion) into the fund in two weeks.

The marketing was simple. Alipay said it would pay investors annual interest of 3.8 per cent, slightly higher than the government-controlled one-year deposit rate of 3 per cent.

It speaks volumes about the mainland's state-run banks that so many people were willing to put their money into Alipay, which is not licensed as a bank and has no physical presence.

It is a website. But so desperate are mainland consumers for decent investments - and in particular for an alternative to that black hole of mainland banking known as wealth management products - that millions of clients were willing to transfer billions of yuan to the new service.

Meanwhile, Alibaba, headed by Jack Ma Yun, also runs a microfinance arm known as Alibaba Financial. Regulators recently gave approval to the entity to raise money.