Chinese smartphone maker Xiaomi has launched its first online money market fund product, in a bid to capitalise on the surging popularity of digital investments.

With 100 million users of its low-cost smartphones in China, Xiaomi is counting on its market reach as well the high yield offered by its MMF.

However, analysts have warned that the firm will find it hard to compete against the MMF dominance of e-commerce giant Alibaba’s hugely popular Yu’EBao fund product.

Xiaomi, the world’s third-largest smartphone maker, launched its first financial product HuoQiBao on its financial services app this week, after a soft launch of a beta version in March. The product has been launched in partnership with Guangzhou-based E Fund Management. The service is embedded in Xiaomi Wallet, a payment platform, and E Fund’s Tiantian MMF.

Xiaomi has not ruled out developing partnerships with fund companies other than E Fund. Xiaomi also plans to offer equity index funds by teaming up with fund companies in the near future, and is also looking at securities brokerage and consumer loans. But a Xiaomi spokesperson declined to comment on the timeframe and potential partners.

“We see our users have demand for cash management and taking out loans,” said the spokesperson.

While Alibaba is able to view its users’ online consumption patterns, Xiaomi believes it has the advantage in being able to see its users’ social behaviour on its mobile platform so as to meet their demand for particular products.

“We want to build a smart financial platform, to help financial partners find high-quality clients, while helping our users earn and borrow money in a convenient way,” said Hong Feng, Xiaomi co-founder, in a statement.

E Fund had mutual fund assets of Rmb250 billion ($40.3 billion) as of the end of March. The linked MMF provided a seven-day annualised yield of 4.872%, higher than Yu’EBao’s 4.284% as of May 12.

“This is a going to be very tough competition, but [we] believe there is still room for growth,” said Ivan Shi, research manager at Shanghai-based consultancy Z-Ben Advisors.

Shi said it remained to be seen what kind of special feature Xiaomi will bring to the fight, but if institutions did not plan their strategies well, the sales would be difficult. “Not every online MMF will succeed,” he added.

Nevertheless, Shi said partnerships between online platforms and MMFs still have room to grow given the large size of deposits in China, but firms needed to step up their efforts to increase sales. Chinese retail investors had Rmb8 trillion of their wealth in savings at the end of 2014, Z-Ben has estimated. 

He pointed out that Alipay is growing its payment user base and it can now be used for shopping in Carrefour and Walmart, which could in turn be used to expand its online MMF user base.

Xiaomi’s HuoQiBao is likely to imitate Alipay’s Yu’EBao and Tencent WeChat’s LiCaiTong, but it is a latecomer in the partnerships between fund and internet firms. Yu’EBao has been linked to only one MMF managed by Tianhong Asset Management since launching in mid-2013. LiCaiTong has been linked to three banks’ cash management products and four MMFs managed by fund companies - E Fund, China AMC, GF Fund Management and China Universal Asset Management - since early 2014.

On Wednesday, LiCaiTong introduced E Fund’s open-ended feeder fund, which invests in the firm’s CSI300 equity exchange traded fund, to become the first equity product available on WeChat.

Analysts have predicted that Yu’EBao’s growth will stagnate due to recent interest rate cuts by the People’s Bank of China, which resulted in a lower yield, and a soaring equity market, which could result in fund switching. However Yu’EBao’s AUM grew by 23% in the first quarter of this year, to hit Rmb711.7 billion at the end of March.