Chinese brokerages are joining hands with Internet companies as online services reshape the financial industry landscape.

China’s top securities regulator last month gave the green light to Zhongshan Securities, Great Wall Securities, Sinolink Securities and other brokerages to operate online businesses on WeChat, China’s most popular mobile messaging application, developed by Internet giant Tencent Holdings Ltd.

The approved business scope includes account opening, stock trading and fund transfers, according to a report by the Securities Times.

Although details of how these businesses will be conducted have not yet been disclosed, analysts said the brokerage services are likely to be integrated into WeChat’s in-app wallet service, which already allows users to make money transfers and purchase wealth management products.

The new linkages will allow brokerages to tap into the vast user base of WeChat, which had about 468 million monthly active users at the end of the third quarter last year.

The move marks the latest effort by Chinese brokerages to grab a piece of the action in the booming Internet finance industry.

As of December 26 last year, 35 of China’s 120 brokerages had been approved by the China Securities Regulatory Commission to launch Internet securities businesses on a trial basis, according to the Securities Association of China.

In truth, Chinese brokerages have been connected with the Internet since 1997, when securities investors for the first time were allowed to execute trades online instead of contacting a broker by phone or in person.

However, the securities firms have been lagging behind banks and mutual funds in utilizing Internet finance that really took off in mid-2013 with the launch of Yu’e Bao, a money market fund offered through Alibaba Group Holding Ltd’s third-party payment unit Alipay.com.

According to iResearch Inc, a market research company, investment by China’s financial sector in Internet technology rose 3.2 percent in 2013 to 50.58 billion yuan (US$8.2 billion). The firm said it expects investment to reach 60 billion yuan by 2017.

Investment by securities firms was only 10 percent of the total, slipping a percentage point from a year earlier, iResearch data showed.

That decline was mainly due to the reduced cost of marketing communications, thanks to the growing popularity of social networking platforms such as WeChat and Weibo, which helped securities firms save on costs of marketing via telephone and text messages.

Software investment

Brokerages’ investment in software increased 9.9 percent during the year, while expenditure on IT staff outsourcing rose 23.1 percent, according to iResearch.

“The data indicate a self-driven restructuring is underway in the securities sector in response to the rise of Internet finance,” iResearch said in its 2014 report on Internet brokerages.

A number of brokerages, including Guotai Jun’an Securities and Haitong Securities, have set up their own Internet finance departments. Brokerages are also thumbing a ride from Internet companies that are more resourceful in online territory.

In December, Kunming-based Pacific Securities signed a one-year cooperation agreement with Chinabank Payments (Beijing) Technology Co, a wholly owned subsidiary of Chinese e-commerce mogul JD Group, to develop online securities products. Zhongshan Securities tied up with Baidu Inc to allow netizens to open stock trading accounts on Baidu’s online third-party marketplace for financial products.

Similar alliances have also been formed between Huatai Securities and Netease Inc, one of China’s leading Internet services providers, and between Sinolink Securities and Tencent.

“A relatively tight regulatory environment has limited the scope of the brokerage business as well as their appeal to new customers,” said Jiao Wenchao, analyst with Ping An Securities. “Cooperating with Internet companies is the best way for brokerages to draw in consumers rapidly.”

Sinolink Securities was the forerunner in embedding itself with the Internet.

In February 2014, Sinolink teamed up with Tencent to launch its first Internet product, called Yong Jin Bao, which literally means “commission treasury.”

It boasts 24/7 online services to open accounts within three minutes, via either website or mobile application. It has also wooed investors with record-low commission fees and a fund investment service that will automatically buy a money market fund with idle money in clients’ accounts.

Online success

The Sinolink venture created quite a stir. Essence Securities and Haitong Securities estimated that about 5,000 new accounts were opened a day through Yong Jin Bao, accounting for approximately 16 percent of average daily activity in new accounts in February last year. That buttressed Sinolink’s offline presence. The brokerage has only 38 branch offices nationwide, the least among China’s 20 listed securities firms.

“By virtue of the Internet, brokerages are able to overcome geographic limitations, tapping into potential clients in villages and towns where branch offices often don’t reach,” said Ruan Jingwen, chief executive officer of iResearch.

As of last August, 14.5 percent of netizens who have stock trading accounts opened those accounts through online channels, according to iResearch. The proportion was 24.2 percent among netizens in rural areas.

Despite all the fanfare, China’s Internet securities business is still in its infancy. Most brokerages have simply moved existing products and services online, rather than creating new value, analysts said.

“In overseas markets, the development of e-brokerages took different routes to success,” said Jiao with Ping An Securities. “They increased the customer base and then provided them with value-added products and services.”

San Francisco-based Charles Schwab Corp, one of the world’s largest online brokers, is one example.

Founded in 1975 as the first discount brokerage after the US securities regulator abolished fixed-rate commissions, Charles Schwab launched e.Schwab in 1995. In 1998, e.Schwab contributed to more than half of the firm’s trades and became the largest online broker with 1.8 million accounts.

By leveraging its huge customer base, Charles Schwab gradually diversified its services to newsletters, financial statement analysis, round-the-clock investment services and high-tech e-trading tools.

“Last year, efforts by most Chinese brokerages were focused on taking their securities businesses online,” said Ma Gang, head of the retail financial department at Zhongshan Securities.

“But in the future, I think the focus will be on product innovation. The biggest challenge for brokerages is to develop financial products that are suitable for Internet marketing.”