Internet finance in China will take more than five years to reach a level where it can accept deposits and extend loans outside of the banking sector as the industry remains fragmented, the Hong Kong Economic Journal reported Monday, citing an Ernst & Young official.
In the next two to three years, the online finance business will grow at a rapid speed, but it can only be called a comprehensive market once its financial products grow to a certain size, which might take five years or more, Jack Chan, managing partner of the financial services office at Ernst & Young China, was quoted as saying.
In recent years, several internet finance products, including Alibaba Group’s Yu’E Bao, have become popular among investors because of their high interest rate offers.
Early this year, the People’s Bank of China imposed a ban on mobile payments using the QR code system and similar virtual credit cards, citing security concerns.
Chan said risks from internet finance activities can be transferred to the banking system, and as such, regulators have to monitor such activities.
“It depends on the level of supervision — there would be fewer risks with tighter rules, but that would also take away the characteristics of internet finance products, their being fast and convenient,” he said.
Chan believes that regulatory bodies support the development of internet finance, but they must ensure that the public is well protected. So if those products are not fully understood by the public, the regulators will move slowly, he said.
Financial “disintermediation”, or the removal of intermediaries in the industry, will also be done step by step as 80 percent of the capital is still in the banking system, according to the newspaper.
Internet finance has brought huge changes to the operation model of the lenders.
China’s economic slowdown has weighed heavily on the income of banks, which, at the same time, have to invest a lot in innovative products and channels that put further pressure on their profit growth.
This is especially difficult for state-owned banks, where senior management officials stay only for a few years at their posts.
“It requires courage for them to accomplish some targets or some missions,” Chan said.
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