The rise of Internet finance in China has sent seismic waves through the banking sector. Already slow to adapt to liberalization trends, Chinese banks have recently begun to acknowledge the importance of these new online lending platforms. The popularity of Internet finance in China has arisen from a perfect storm of unmet small business financing needs, strong demand for investment products and a lack of government regulation. In this environment, technology giants have leveraged their massive user bases and developed Internet finance platforms that position them as major players in a sector poised for continued rapid growth.
As Chinese banks encounter increasingly strong competition from Internet finance companies, the industry landscape is swiftly changing form. Banks now understand that they must embrace these technology platforms that are capable of spanning multiple industries. Internet finance’s rapid ascendance has caused China’s State Council to expedite the creation of new regulation to protect consumers and to assert some control over the sector’s rapid development.
Regardless of new regulation efforts, however, these platforms continue to have strong appeal. Unlike traditional banks, which cannot finance down payments, Internet finance is becoming one of the most popular methods for borrowers in search of mortgage and other installment loans. P2P and other micro-loan products now permit individuals and small businesses to overcome previously insurmountable borrowing hurdles. In an environment of minimal regulation, the masses in China find themselves in a position to finance many aspects of their lives, making installment payments on everything from appliances to weddings and medical care.
Yet, no group has benefited more from the rise of Internet finance than China’s technology giants. Quickly building financial capabilities that compete head-to-head with more traditional financial institutions, large Internet companies such as Tencent, Alibaba, and Sina are using their rich data sources and directing marketing channels to seize market share in the online investment sector. The Chinese government has even announced a pilot program under which technology companies will be permitted to buy certain banks.
Internet finance has undergone rapid, uncontrolled, and haphazard expansion and is proving to be the go-to banking platform for Chinese businesses and individuals. Led by China’s largest technology companies, new online lending platforms are steadily emerging, increasing lending opportunities throughout the country. The continued future success and stability of this sector will depend on the wisdom and implementation of Chinese government regulation going forward.