Internet finance: Golden goose for nest eggs?

"The competition is mainly within the network of banks. And since customers tend to choose banks based on their location rather than the services they provide, the competition in the finance sector is not that intense in China," Yuan said.

With Internet finance, customers can do their banking without leaving home, which will push financial organizations to improve the quality of their services and fight harder to win customers, he said.

Although Yu'E Bao offers a better interest rate than traditional banks, Yuan said the main reason for its success is its convenience rather than the higher returns.

Chai Bin, a manager of e-business at GF Fund Management Co, echoed Yuan, saying the convenience of Internet finance lies not only in the ability to purchase wealth management products but also in understanding those products.

Chai's company, which recently opened an online shop on Taobao to sell fund products, believes there is a potentially huge demand for wealth management products due to the country's rapidly growing middle class.

The demand will only grow, he said, as many people "think purchasing fund products is too complicated", he said.

"There is so much financial jargon they don't understand. Thus, the threshold must be high," Chai said.

Based on what happened in the United States in the 1980s, demand will rise when the per capita GDP reaches $7,000 a year, he said, and China is nearing that point.

"With the increasing number of netizens in China, there is no better vehicle for reaching these potential clients than the Internet," said Chai, adding that more than 90 percent of fund products are currently sold through banks in China.

The success of Yu'E Bao - called a "grassroots wealth management product" as the minimum investment is only 1 yuan - will serve as an educational vehicle for future clients, said Chai.

"They understand now that wealth management is simple, and it is not something exclusively for the extremely rich," he said.

The convenience of Internet finance lies not only in saving money or purchasing online fund products. The Internet also can simplify the procedure for getting a loan.

Ye Daqing, chief executive officer and co-founder of Rong360, a Beijing-based private lending search service provider, said that a lot of small and medium-sized companies face challenges in getting loans.

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