Last 2013, online wealth management had made its advent in China. Ever since the world’s businesses have gone mobile, China’s investment has also made the same turn. What people need to know about it is that internet finance primarily encapsulates three things: (a) lending, (b) payment services, and (c) financial consultancies (Jingu, 2014).
According to experts, the reason behind the boom in internet finance in China is the list of deficiencies that can be encountered by a customer with traditional financing. Alipay, one of China’s payment services, was recently dubbed as the most popular online payment choice for the reason that it allows people to safely use their credit cards in purchasing products online. Unlike traditional banking, Alipay is so much easier to use since it does not complicate the procedures of shopping payment. Furthermore, it is complete with security guarantees unlike traditional banking. Because of the evident deficiencies in traditional financial products, more people now resort to using online internet financial tools. This, however, had put a lot of pressure on various Chinese banks as people decided to shift their deposits to online-based wealth management financial products.
In order to compete against the booming internet finance in China, a number of traditional joint-stock banks have decided to introduce money market deposit accounts which will allow several banks’ customers to withdraw their savings from automated teller machines (ATMs) and pay their debit cards through a money market account like a typical savings account.
The evident boom in the realm of internet finance in China can be credited to a subdued formal financial system. As what most people are aware of, China’s banking system is highly regulated, meaning interest rates and monopoly state banks are controlled. Because of this, most people are not able to receive favourable and real returns from the bank deposits they have made.
The formal financial system’s flaws are believed to be the chief reasons why shadow banking had managed to rise after the global financial crisis back in the year 2008; however, even though internet finance is obviously changing the landscape of the financial sector in China, this change will not permanent. Soon enough, banks will be able to compete with internet finance.
The Governor of People’s Bank of China, Governor Zhou Xiaochuan, aims to liberalize interest rates after 2015 in order to allow banks to compete with the flourishing internet finance. One principal reason why the boom in internet finance will not last very long is China is because Chinese traditional banks plan to adopt internet finance as they restructure their business operation. As a matter of fact, Ping An Insurance Group had already decided to launch its own Peer-to-peer business. Experts say that it is to be expected that others banks will soon follow to this trend and employ the same tactic internet finance private firms usually use. If banks will not adopt the said trend, it is very likely that they will lose higher rates of market share. In many ways, internet finance has proven its worth as an efficient tool in enhancing China’s financial system. It might even be the beginning of financial liberalization.