Innovation required to boost online finance

Internet finance offers innovative products and services based on Internet "thinking", and these new services are grabbing attention.

They feature high returns and flexible transactions, and they have raised a huge scale of funds in a short time. Internet finance also features low entry barriers and rapid development, enabled by the application of Internet technology.

The main problems in Internet finance include weak credit rating functions and inadequate risk and evaluation systems. The sector is also hampered by illegal network transactions that can be difficult to detect, gaps in information technology security and an incomplete regulatory system.

The development of Internet finance will nonetheless have a huge impact on many aspects of traditional finance, such as the channels for and innovation in financial products.

To a certain extent, Internet finance replaces the traditional financial participants and accelerates the process of financial disintermediation.

After the early stages of development, Internet finance and traditional finance will complement and learn from each other and grow in tandem.

It will take about 10 years for these sectors to "fuse" and overlap in the areas of financial product innovation, customer service and their customer bases.

The customer will remain the center of the banking, insurance, securities and other financial fields. Regulators will need to create a framework that deals with both the separate and mixed presence of traditional and Internet finance. Doing so will promote the shared prosperity of the entire financial industry.

Based on these trends, we need to fully recognize the positive role of the development of Internet finance, implement the proper policies, encourage financial innovation combined with prudence and standardize the development of Internet finance in terms of policy, institutions, regulation, risk prevention, IT security and consumer protection.

We need to standardize Internet financial regulation and related systems. Internet finance is just an innovation in terms of operations and technology; it does not change the basic characteristics of finance.

We should clarify the legal nature of the Internet financial institutions and their functions. Some of the traditional regulations must be expanded to encompass Internet finance. Areas that the regulators must consider are entry barriers, business scope and standards, legal and regulatory compliance, financial operations, supervisory systems, risk monitoring and credit ratings.

We need to strengthen the management of entry and exit in the Internet finance sector and push the Internet finance sector toward the proper mix of risk management and social welfare. We also need to create a positive policy and market environment and ensure the effective regulation of financial firms.

Information security is a key area. This includes the completeness of data, timely responses to information security incidents and improving the overall security level.

In addition, a consumer protection system should be established for Internet finance, along with a risk management and consumer protection plan.

The author is a scholar at the School of Economics of Xiamen University.