Online financial services making the difference

Ten years ago, it was hard to imagine that bank cards would eventually disappear. But today it seems increasingly likely.

A few weeks ago, I was dining at a noodle bar near my neighborhood. When I finished, I was about to pay before I realized I was out of cash.

The restaurant does not accept credit cards, so I was going to ask the staff where the nearest ATM machine was. But the waiter told me that I could actually pay through my account on WeChat, the mobile app developed by Tencent Holdings Ltd.

What struck me was not that I was paying online, but that small businesses had simply bypassed credit cards and jumped directly into cyberspace payments.

To be honest, I can hardly remember the last time I used a bank card to pay for goods or services. In the past, Chinese consumers preferred to pay with cash and people would carry bundles of banknotes around for even large purchases such as cars or even apartments.

But before credit cards could take root here, the mobile payment system came along. Now, I can't imagine living without my e-wallet. I pay online for daily necessities, such as my groceries at the convenience stores, and my electricity bills. I even pay for taxis and movie tickets through my smartphone.

When I dine with friends who want to "go Dutch", I simply transfer my share of the bill to my friend's account through my e-wallet. It is easy, instant and costless.

The proliferation of smartphones and mobile banking technology have enabled us to virtually carry a bank in our pockets. It has changed the way people manage their daily financial transactions.

Quietly, mobile banking, and the broader concept of Internet finance, is shifting the way we pay for goods and services from a cash to cashless society in a way that was unimaginable a decade ago.

Giant online companies, such as Alibaba Group Holding Ltd and its rival Tencent, that run third-party payment services, are also penetrating the traditional offline transaction market.

They are pushing mobile payment into big department stores and brand name retailers such as Wal-Mart Stores Inc and Carrefour SA. The transaction business was dominated by the State-owned banking clearance service provider UnionPay.

What is just as important is that online payment companies such as Alibaba's Alipay have developed into quasi-financial service companies. They now not only offer transaction settlement services but also wealth management solutions for clients with "idle cash" in their virtual account. And the returns are usually higher than what traditional banks offer.

Still, this trend has sent the alarm bells ringing at the financial regulator because this boom in online financial services has created risky loopholes in the system.

Tighter regulation is already on the way. The People's Bank of China, the central bank, has proposed a controversial rule that caps the daily maximum payment through an online third-party account at 5,000 yuan ($800), unless the customer's identity can be verified through sophisticated methods such as digital certification and electronic signature.

The regulator intends to limit the role of third-party payment companies to small-item transactions. If people want to purchase big ticket goods such as iPhones or luxury handbags, or buying into investment products online, they will have to switch to the traditional online banking. Naturally, this process can often be tedious, unstable and less user-friendly.

Some experts said that the new regulation will hit the country's 250 online payment companies. But for the big players such as Alibaba and Tencent, the impact will probably be limited as they have now acquired banking licenses that allow them to operate sophisticated financial services.

As an individual consumer, I believe competition is a good thing. And my hope is that the rise of online financial firms will break the dominance of major State-owned banks that have enjoyed easy profits for too long.

In fact, I have converted my stubborn dad into a mobile banking user. In the end, we all have to move with the times.

Contact the writer at lixiang@chinadaily.com.cn