Internet finance: Golden goose for nest eggs?(2)

Chai Bin, a manager of e-business at GF Fund Management Co, echoed Yuan, saying the convenience of Internet finance lies not only in the ability to purchase wealth management products but also in understanding those products.

Chai's company, which recently opened an online shop on Taobao to sell fund products, believes there is a potentially huge demand for wealth management products due to the country's rapidly growing middle class.

The demand will only grow, he said, as many people "think purchasing fund products is too complicated", he said.

"There is so much financial jargon they don't understand. Thus, the threshold must be high," Chai said.

Based on what happened in the United States in the 1980s, demand will rise when the per capita GDP reaches $7,000 a year, he said, and China is nearing that point.

"With the increasing number of netizens in China, there is no better vehicle for reaching these potential clients than the Internet," said Chai, adding that more than 90 percent of fund products are currently sold through banks in China.

The success of Yu'E Bao - called a "grassroots wealth management product" as the minimum investment is only 1 yuan - will serve as an educational vehicle for future clients, said Chai.

"They understand now that wealth management is simple, and it is not something exclusively for the extremely rich," he said.

The convenience of Internet finance lies not only in saving money or purchasing online fund products. The Internet also can simplify the procedure for getting a loan.

Ye Daqing, chief executive officer and co-founder of Rong360, a Beijing-based private lending search service provider, said that a lot of small and medium-sized companies face challenges in getting loans.

"Our research shows that traditional financial institutions can meet the demands of only 15 percent of companies hoping to get loans."

A lot of small companies don't know where to find money. "By gathering such information online, we can help them," Ye said, adding that users of his platform received 20 billion yuan in loans by various lenders.

"The size of the granted loans (through the help of our company) is equal to the size of a city-level commercial bank," Ye said proudly, predicting that the merging of Internet and finance will meet the needs of customers better than traditional banks alone.

The Internet also is innovating the raising of venture capital.

By matching startups with angel investors, the Beijing-based AngelCrunch has helped raise about 250 million yuan for more than 70 startup projects since late 2011.

Crowd-source funding is still in its infancy in China, but Lan Ningyu, chief executive officer of AngelCrunch, said the sector has a bright future, especially with the increasing number of wealthy people in the country.

According to a Hurun report, there are 2.7 million high-net-worth individuals in China with personal wealth surpassing 6 million yuan and 63,500 ultra-high-net-worth individuals with assets of more than 100 million yuan in 2012.

The company lists more than 700 accredited investors who have the ability to make a combined investment of 6.5 billion yuan a year, said Lan. "The number is just about angel investors; we haven't included that affluent second generation (of the rich)," Lan said.

He said that with the help of the Internet, more investors will be able to find good projects and more good projects can get funding.

But the booming Internet finance sector in China creates mixed feelings in the traditional finance sector: feelings that include inspiration, doubt and vulnerability.

China Minsheng Banking Corp, a private national commercial bank, was inspired to set up an Internet finance company in August. The company, called Minsheng E-Business Co Ltd, is headed by Yin Long, a former official from the China Banking Regulatory Commission, the nation's top watchdog for the banking industry.

Yin said at a recent Internet finance summit in Beijing that it is important for traditional banking institutions to evolve in the Internet era.

But he warned that if not properly supervised and monitored, the Internet finance sector will be in big trouble within three years.

Some insiders from the traditional banking sector even raised the concern that Internet finance could become another kind of shadow banking.

Unofficial statistics show that the size of shadow banking reached about 25 trillion yuan by the end of 2012, comprising about 18 percent of all the money supervised by China's banking regulator.

Ye from Rong360 noted that Internet finance is still in its infancy and is not risky for the whole banking system in its current stage.

He advocated integrating Internet finance into the whole finance system, especially in terms of supervision and management.

"It is important to have a credit system that connects both Internet finance and traditional finance sectors. All of the banks share a blacklist of those who cannot pay off their debt. But there is no such list among companies in Internet finance. So, a company that has a bad credit history in the Internet finance sector may still be able to borrow from banks," Ye said.