In­ter­net a shot in the arm for fi­nanc­ing

China Daily (Canada) - - COMMENT -

The rise of In­ter­net fi­nanc­ing has eaten into the sav­ings of tra­di­tional bank­ing gi­ants. Ac­cord­ing to of­fi­cial data re­leased on April 15, the sav­ings of four State-owned banks dropped by 1.9 tril­lion yuan ($305.41 bil­lion) in the first two weeks of April.

The de­vel­op­ment of the In­ter­net has pro­vided bet­ter in­for­ma­tion for mar­ket play­ers. And since the In­ter­net and the fi­nanc­ing busi­ness both need in­for­ma­tion to run their sys­tems, they can work in tan­dem.

Sta­tis­tics show that in 2013, China’s M2was 103 tril­lion yuan ($16.58 tril­lion) against it­sGDPof 56 tril­lion yuan. But small and mid­dle-sized en­ter­prises which ac­counted for 70 per­cent of the to­tal jobs in the coun­try could only get less than 20 per­cent of the to­tal loans is­sued by fi­nan­cial in­sti­tu­tions. This shows that China’s bank­ing sys­tem is dis­torted, with the price of money not rep­re­sen­ta­tive of its true value. This is where In­ter­net fi­nanc­ing can play a vi­tal role, be­cause it can ful­fill tra­di­tional fi­nanc­ing func­tions as well as cre­ate a fi­nan­cial world in which more people can do busi­ness.

Since the In­ter­net has been at­tract­ing more users and cap­i­tal by fa­cil­i­tat­ing more and faster trans­ac­tions, it can help bet­ter al­lo­cate re­sources through new modes of peer-to-peer lend­ing and “mass fund­ing”, which have al­ready at­tracted many in­vestors. Be­sides, people can eas­ily use the In­ter­net to search for and com­pare var­i­ous fi­nan­cial prod­ucts — some new web­sites have al­ready been de­signed to act like a fi­nan­cial su­per­mar­ket to al­low in­vestors to choose their prod­ucts (or in­vest­ment ve­hi­cles). In­ter­net fi­nanc­ing also helps users di­ver­sify risks by pro­vid­ing a huge vol­ume of data. An apt ex­am­ple of how a com­pany or in­di­vid­ual can min­i­mize (or di­ver­sify) risks is Alibaba, whose petty loan lend­ing — based on small businesses’ daily per­for­mance — has crossed 170 bil­lion yuan.

In­ter­net fi­nanc­ing can also cre­ate a new­fi­nan­cial world. It has al­ready bro­ken the tra­di­tional seg­men­ta­tion of space and time, prompt­ing more people to do busi­ness.

One of its leading ap­pli­ca­tions is Yu’ebao; its users who have Ali­pay can gain daily in­ter­est on their de­posits from a money mar­ket fund launched in June last year. Not only is the min­i­mum re­quired in­vest­ment of just 1 yuan con­ve­nient for small in­vestors, but also its an­nual yield of about 6 per­cent is much higher than the cen­tral bank’s bench­mark rate of re­turn of 0.35 per­cent. No won­der, it has col­lected more than 500 bil­lion yuan from over 81 mil­lion in­vestors.

In­ter­net fi­nanc­ing has the added ad­van­tage of be­ing low on cost and high in ef­fi­ciency. Whether it is eq­uity or bond fi­nanc­ing, or fi­nan­cial de­riv­a­tives, the essence of fi­nanc­ing is the medium of re­source al­lo­ca­tion and risk shar­ing. Tra­di­tional fi­nanc­ing in­sti­tu­tions have high la­bor costs and asym­met­ric in­for­ma­tion be­cause of their tech­no­log­i­cal lim­its, while the mar­ginal cost of In­ter­net fi­nanc­ing is zero which makes it a bet­ter medium of fi­nanc­ing with more up­dated data.

In­ter­net fi­nanc­ing is also con­ve­nient and fast. Third-party and mo­bile pay­ments are the trends of the times, and the gen­eral be­lief is that with more high tech­nol­ogy used to make pay­ments, we can man­age our wealth more con­ve­niently.

The de­vel­op­ment of In­ter­net fi­nanc­ing, how­ever, is not aimed against tra­di­tional fi­nanc­ing in­sti­tu­tions, even though it has fa­cil­i­tated changes in and poses a chal­lenge to the tra­di­tional mar­ket. In­ter­net fi­nanc­ing can play a sup­ple­men­tary role to the cap­i­tal mar­ket since the lat­ter is en­cour­ag­ing an in­creas­ing num­ber of small par­ties to join the mar­ket.

Hav­ing said that, it seems In­ter­net fi­nanc­ing is not that use­ful for trans­ac­tions be­tween big par­ties. Nev­er­the­less, it can use its ad­van­tages to serve more in­di­vid­ual (but small) in­vestors. And by com­pil­ing a huge vol­ume of data and de­vel­op­ing cloud com­put­ing, it could im­prove the credit sys­tem as well.

In­forma­ti­za­tion can help tra­di­tional fi­nan­cial in­sti­tu­tions to use In­ter­net fi­nanc­ing as a mode of oper­a­tion. Of course, in­forma­ti­za­tion has to be based on In­ter­net tech­nol­ogy and has to be car­ried out in three main ar­eas.

First, tra­di­tional fi­nan­cial ser­vices should be made avail­able on­line. In fact, most banks have al­ready started de­vel­op­ing their on­line-bank­ing and mo­bile-bank­ing busi­ness. For ex­am­ple, only about 40 per­cent of Bank of China’s tra­di­tional fi­nan­cial busi­ness is now trans­acted over the counter.

Sec­ond, banks should al­low clients to use the In­ter­net with­out a time limit to trans­act busi­ness. Ac­tu­ally, Chi­naMin­sheng Bank and Bank of Bei­jing are al­ready al­low­ing their clients to do so.

Third, banks should catch up with pri­vate en­ter­prises in e-com­merce. For in­stance, they should fol­low the ex­am­ple of China Citic Bank, which is work­ing with Alibaba and Ten­cent to is­sue vir­tual credit cards.

If 2013 was the year when a new­era in In­ter­net fi­nanc­ing started, 2014 could be the year of rev­o­lu­tion­ary de­vel­op­ments. In­ter­net fi­nanc­ing has forced tra­di­tional fi­nanc­ing in­sti­tu­tions to un­dergo cer­tain changes; now it is ex­pected to trans­form them. The au­thor has the book, In­ter­net Fi­nance, to his credit.


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