Internet finance 'may rebuild credit culture'

Internet finance is of topical interest, in more ways than one, and is being credited with giving people greater access to funding.

Before it came into existence, small enterprises and individuals rarely received bank loans, and holders of a small amount of cash had few investment opportunities.

But now Yooli.com, a peer-to-peer lending website launched in February, has accumulated about 400 million yuan ($65.9 million), according to Ren Yong, founder and chairman of the website.

His company helps provide loans via the Internet through cooperation with small loan companies, which are responsible for customer development and risk control.

For larger platforms like Tenpay, the online payment service of Tencent Holdings that has been running for eight years, annual transaction have already hit 1 trillion yuan. Several months ago, Tencent launched another online payment service on WeChat, a mobile social networking app with more than 300 million users.

According to Lai Zhiming, general manager of Tenpay, mobile Internet will become a key gateway to Internet finance and will bring earth-shaking changes to the industry.

"The growth of Internet finance will promote the development of financial services for small enterprises and individuals. It may also rebuild the credit culture in China," said professor Shi Jianping, vice-president at China Central University of Finance and Economics.

"Internet finance started a revolution in bank credit evaluation models by analyzing user behavior based on information collected from social networking websites. The new model will encourage users of online financial services to build up good credit," said Shi during an annual conference held by Caixin Media Company Ltd in Beijing on Dec 18-19.

Wang Mei, assistant to the general manager of the China Financial Certification Authority, said the users of such services should be cautious and alert to the problems of Internet finance platforms.

During October and November, more than 40 peer-to-peer lending companies went bankrupt or closed as their partners absconded with the cash.

These companies did not have a license issued by the government. Half of them offered an extremely high interest rate, which was often above 40 percent, according to Wang.

She said key elements in the healthy development of Internet finance are providing electronic authentication services and building a credit system.

The government is making efforts to create technical standards for credible websites and introduce a risk assessment mechanism for Internet finance companies.

"In the long run, the growth of P2P lending services relies on technical progress. For example, every Internet finance company needs to accumulate credit data and explore the value of credit to have risk-based pricing," said Wang Zhaoming, deputy general manager of Shanghai Lujiazui International Financial Asset Exchange Co Ltd. "Technology will also help verify user documents regarding identification, residence, employment and income."

He suggested regulators supervise P2P lending companies while supporting their development in general. On the one hand, the government should monitor the security of the companies' capital and customer information. On the other hand, it should allow the industry to try out some innovative technologies.