Internet Finance Fest

According to Xie, in 20 years’ time, a third type of financial operating mechanism that is discrete from both indirect financing among commercial banks and direct financing through the capital market, known as the “Internet direct financing market” or “Internet financial model,” will take shape.

Until now, Internet enterprises and financial institutions have proceeded from their respective dominant fields, wherein companies focusing on third- party payments or P2P finance enter the financial services sector via an Internet platform. But Internet technology has enabled banks to introduce Internet banking and e-commerce platforms that effectively act as channels for an electronic revolution.

Thanks to the multiplying functions of mobile devices, consumers will in future need just one terminal, such as a mobile phone or tablet, to buy products, visit financial management websites and make investments.

Rapid popularization of smart phones has demystified Internet finance consumption. Long-distance purchases of physical commodities, along with Near Field Communication (NFC), will in the next five years increase four-fold the transaction scale of global mobile payment to more than US $1.3 trillion, according to a report from Juniper Research.

Changes in Conventional Banking

Internet finance could potentially change the financial industry service mode. In addition to satisfying various daily-life needs, the Internet has also significantly reduced the costs of information exchange and enhanced communication efficiency. Financing institutions as a whole might thus be empowered to lower their service charges and improve service quality, so measuring up even further to consumer demands.

Moreover, Internet finance has reshuffled the customer bases of conventional banks. Rapid development of the e-platform has accumulated mass customer data, to the extent that Internet finance owns more customer resources than any single financing institution. Internet finance will also accelerate the process of financial disintermediation.

“The relationship between Internet finance and traditional banks is complementary. The Internet can reduce information asymmetry and so bring about a reduction in the cost of banks’ affiliated agencies and manpower,” deputy dean of the National School of Development of Peking University Huang Yiping said. “Platforms or mobile terminals” and “big data” are the two main features of Internet finance. Its impact on traditional finance will be embodied in the trends of finance privatization, marketization of the Internet interest rate, service popularization, and expansion of those benefiting from it.

At the same time, Internet finance can change the convention whereby financing institutions monopolize fund payment. In recent years, third-party and mobile payments have sprung from nowhere, and are not limited to electronic commercial exchanges. Third-party payments, such as through Alipay and Tenpay, account for about 80 percent of the market share, so exceeding those of Unionpay and Internet banks.

Traditional financial enterprises now face the competition between modern science and technology and traditional banking business; whichever runs fastest will be the winner, according to president and CEO of Ping An Insurance Ma Mingzhe.

“The transformation brought about by scientific and technological development is both disruptive and revolutionary. Its impact on modes of banking that have been maintained for 200 years, on the entire financial industry, on almost all markets and certainly all consumers is irresistible,” Ma Mingzhe said. “Once science and technology enterprises penetrate the government policies restricting their access to the market they will seize upon it, so exerting overwhelming and destructive impact on the traditional financial industry.”

The upgraded risk control and improved services that accompany the development of Internet finance will probably incite banking customers to shift to this new mode. This does not imply, however, the phasing out of banking locations, because the financial field still needs venues for interpersonal communication and feedback, according to Zhang Chenghui, director of the Research Institute of Finance of the State Council Development Research Center.

New Financial Regulation Tests

In 2013, the first year of Internet finance, consumers delighted in the availability of various Internet financial products, and competition among high-yield finance products entered full swing. Certain insiders nevertheless believe that the risks that accompany Internet finance are becoming apparent. Limitations on the behavioral norms of online transactions that current regulations impose obligate regulators to perfect without delay relevant laws and regulations pertaining to Internet finance. Combining Internet financial enterprises’ risk management, control and self-regulation is also vital.

The State Council recently published a notification geared towards strengthening regulations that prevent the risks of so-called shadow banking. Known as document No. 107, the notification clarifies the shadow banking concept, its regulatory responsibilities and ways of perfecting the regulatory system. It also for the first time includes new Internet financial companies under the shadow banking category.

The document sets out the three types of institutions through which shadow banking operates. One is that of unsupervised, unlicensed credit intermediaries. They include certain third-party wealth management companies and an emerging army of Internet companies that offer financial services. The document calls for supervision of such institutions, and an enforceable plan is indeed forthcoming. With regards to asset securitization and network financial activities of third-party wealth management companies and non-financial institutions, the regulation calls on the Central Bank and related departments to jointly research and formulate appropriate measures.

It is imperative that Internet financial activities be standardized. Financial institutions that conduct business through networking and the Internet should observe regulations on business scope, as doing business outside of it through improved technology is out of bounds. Institutions like online payment platforms, online financing platforms and online credit platforms must comply with all financial laws and regulations. Offering illicit financial services by taking advantage of Internet technology is prohibited.

Certain insiders regard the document as a policy foundation for Internet financial industry, a weather vane for related regulations, and essential to the sound development of P2P industry. The document reaffirms that the legality of Internet financial service is an unbridgeable baseline.

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