Internet a shot in the arm for financing

Internet financing has the added advantage of being low on cost and high in efficiency. Whether it is equity or bond financing, or financial derivatives, the essence of financing is the medium of resource allocation and risk sharing. Traditional financing institutions have high labor costs and asymmetric information because of their technological limits, while the marginal cost of Internet financing is zero which makes it a better medium of financing with more updated data.

Internet financing is also convenient and fast. Third-party and mobile payments are the trends of the times, and the general belief is that with more high technology used to make payments, we can manage our wealth more conveniently.

The development of Internet financing, however, is not aimed against traditional financing institutions, even though it has facilitated changes in and poses a challenge to the traditional market. Internet financing can play a supplementary role to the capital market since the latter is encouraging an increasing number of small parties to join the market.

Having said that, it seems Internet financing is not that useful for transactions between big parties. Nevertheless, it can use its advantages to serve more individual (but small) investors. And by compiling a huge volume of data and developing cloud computing, it could improve the credit system as well.

Informatization can help traditional financial institutions to use Internet financing as a mode of operation. Of course, informatization has to be based on Internet technology and has to be carried out in three main areas.

First, traditional financial services should be made available online. In fact, most banks have already started developing their online-banking and mobile-banking business. For example, only about 40 percent of Bank of China's traditional financial business is now transacted over the counter.

Second, banks should allow clients to use the Internet without a time limit to transact business. Actually, China Minsheng Bank and Bank of Beijing are already allowing their clients to do so.

Third, banks should catch up with private enterprises in e-commerce. For instance, they should follow the example of China Citic Bank, which is working with Alibaba and Tencent to issue virtual credit cards.

If 2013 was the year when a new era in Internet financing started, 2014 could be the year of revolutionary developments. Internet financing has forced traditional financing institutions to undergo certain changes; now it is expected to transform them.

The author has the book, Internet Finance, to his credit.

(China Daily 04/18/2014 page9)