Internet firms inject dynamism into traditional banking sector
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China's nascent online finance industry is facing an uphill battle competing with traditional banks. And now, with potentially heavy regulations being implemented, the fight between new and traditional banking is expected to get even more intense.
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Internet firms inject dynamism into traditional banking sector |
The latest move to regulate the online finance industry. China's central bank will be leading an association to regulate peer to peer lending, and third party payment services. The new move comes after the central bank suspended virtual credit card products and QR code payments in mid-March, citing security risks.
A series of measures have put a brake on China's burgeoning internet finance sector. Private internet firms do not yet feel the spring has arrived. But their development inevitably challenges the regulatory framework of China's finance industry.
Since last June, private internet firms, headed by Alibaba have been making bold moves into what has pre-dominantly been a traditional banking domain.
Yu'erbao, a money market fund distributed online by Alibaba Group, features flexible redemption and high returns. It quickly absorbed over 500 billion yuan from 61 million Chinese investors. Other Internet companies followed suit. Tencent, Baidu and Sina Corp launched similar products, all offering higher-than deposit returns.
"Wealth management products from private internet firms are a big draw among Chinese customers. This has accounted for some of the capital losses in traditional banks since last year." Prof. Guo Tianyong from Inst. Of Finance, Central Univ. Of Finance & Economics, said.
For fear of losing more deposits, banks have started to act. China's largest bank, the Industrial and Commercial Bank of China is now putting a cap on how much its customers can spend on Alibaba and Tencent's online payment services. Banks have also begun to lower the threshold and raise returns on their own wealth management products.
Analysts say the new service won't overturn the traditional model, but expect it to hold its own.
"I think it challenges our system of management, from central planning to market-oriented, for example in interest rates. The burgeoning of internet compa
nies means that regulation cannot be based on geography any longer. At the same time, we hope that more private capital can be encouraged to enter previously monopolized fields, in banking, in futures and insurance." Jing Linbo, deputy director of National Academy Of Economic Strategy, said.
For now, the internet finance sector is still facing a hard time fighting for its corner. But its mere presence puts inter-bank competition on alert, which in turn, may pave the way for meaningful changes in the long run.
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