Online finance gaining share but facing challenges

Opportunities in risks

The enthusiasm for Internet finance is partly caused by the underdevelopment of China's financial market. Interest rates are not completely opened up and the investment channels are limited. Therefore, investors find the high returns of Internet financial products appealing.

However, most investors are only seeing profits rather than risks, taking it for granted that the government will clear up any mess should any risks hit the industry. Therefore, Francis Chan of Bloomberg Industries believes the government will tighten its control over Internet finance in the future.

"Internet finance will face more stringent and detailed supervision than conventional banks, putting pressure on profitability," said Chan. "Once the restriction on interest rates has been completely lifted, the interest arbitrage that Internet financial products now enjoy will soon disappear."

Zeng Gang, director of the banking research center of Institute of Finance and Banking at the Chinese Academy of Social Sciences, summarized three points for the future of Internet finance.

Internet financial service providers must enhance their investment management capabilities. The expanding financial products on the Internet require stable returns to customers. Yu'ebao and other Internet-based money market funds are making very simple investments, which cannot offer high returns in the long term.

"Internet finance has been advocating its advantages of lowering credit risks through streamlined data management. However, mathematical analysis cannot be so accurate as to fend off any kind of risk," said Zheng, "The United States for instance, with its strong ability in Internet data processing, did not avoid the sub-prime crisis."

The risks in finance have become so diversified that they are no longer the only or most serious kind. Having enough money does not only mean higher responsibility in risk prevention but also exploration of the means to deal with financial fluctuations in the future, said Zeng.