Experts see bright future for online-based banks

SMEs tipped as early beneficiaries of new lenders

The rise of Internet-based banking is a significant step in China's financial reform process, Chinese Premier Li Keqiang stressed during his visit Sunday to WeBank, the country's first private online bank. The Global Times interviewed three experts to get their views on this topic.

Sheng Hongqing, chief economist at China Everbright Bank

Premier Li's actions signal the Chinese government's strong support for the development of Internet finance and private banking, both of which are seen as important emerging areas of China's financial system.

Internet finance and private banking will play important roles in supporting China's real economy. Both can help supplement the traditional banking sector, potentially providing financing to tens of millions of small and medium-sized enterprises (SMEs).

Like traditional State-owned banks, Internet and private banking institutions will serve as financial intermediaries, gathering funds from depositors and then lending it out to borrowers. It is estimated that funds circulating within China's Internet finance and private banking sector have reached upwards of 4 trillion yuan ($643.58 billion). Using this huge amount effectively would have a hugely positive impact on China's real economy.

Online and private banks are well positioned to service China's SMEs. This position is in line with China's current policy orientation of expanding loan access to SMEs which have previously found credit inaccessible or unaffordable.

In the future, it seems obvious that small lenders, pawn brokers and other private financing institutions will deepen their connections with the Internet. Further integration is also needed between small private lenders and medium- and large-scale commercial banks. By such integration, smaller private institutions can make use of the back-end settlement systems used by big banks. They can also offer their own idle funds to their larger peers.

Ding Jianping, director of the Research Center for Modern Finance at Shanghai University of Finance and Economics

The Chinese government has been vigorously promoting financial system reforms to better serve the real economy. The rise of Internet finance and private banks is undoubtedly an important move in this direction as it will help lower funding costs for local enterprises.

Chinese businesses are now confronting many internal and external difficulties. Domestically, big commercial banks tend to lend to State-owned enterprises and big companies rather than SMEs. These banks are themselves at great risk due to their loan exposure with local government financing vehicles. Meanwhile, a weak global economy has restricted demand for Chinese exports.

The government is helping alleviate SMEs' difficulties by supporting Internet financing and private banks. This will also promote steady structural economic reforms and stable conditions in the labor market. SMEs, after all, account for most of China's economic output and employ the majority of the country's workforce.

Moving forward, harnessing big data will be extremely important to online financing companies and market regulators. Innovative products and services based on such technologies will help Internet financing companies secure an early advantage over their competitors: traditional banks. Meanwhile, market supervisors can also use big data to supervise what looks to be an industry headed for rapid growth.

It's no exaggeration to say that Internet-based financing companies could overturn existing dynamics within the financial industry. To do so, online companies will have to take full advantage of technological breakthroughs as they navigate around obstacles presented by large State-owned banks.

Qiu Gaoqing, vice general manager of the Financial Research Center at Bank of Communications

Premier Li's visit suggests that Internet finance represents an important avenue of reform within China's financial system. The Chinese government seems willing to allow more private capital to enter the financial sector as part of efforts to promote funding availability.

Internet-based financial services can accelerate sector reforms at the macro and micro levels, forcing traditional commercial banks to adjust the way they do business. These larger banks must strengthen their technological capabilities by introducing online services and making use of big data.

Internet finance will enable borrowers and lenders to make deals at more appropriate prices. Competition with Internet lenders will force traditional commercial banks to widen loan channels and explore new direct financing vehicles.

Compared with their traditional peers, Internet financing companies should be more efficient and offer better incentives. This will prompt banks to beef up operational and settlement efficiency.

In their initial stages, Internet finance enterprises will focus primarily on the needs of SMEs. Later on, they will expand to service larger enterprises as their capital pools expand and as their risk control abilities improve.