New rules can put banks on digital path

Traditional financial services providers must grasp technology to avoid seeing their market share erode by challengers

The tech giants are definitely moving in on banking in China. Their growth has been so significant and influential that the central government recently released guidelines to "promote the sound and steady progress of the emerging industry".

But do not rely on the conventional wisdom that the regulators' move will be a blow to the digital disrupters and a blessing for the traditional banks being disrupted.

Internet finance－the catch-all term for loans, investments and other financial services provided through online channels rather than banks and other traditional institutions－is seen as innovation and entrepreneurship, and the government's intention is to further open up the financial industry.

Alibaba's Yu'ebao, an online investment fund with 185 million individual investors, is now the nation's biggest money-market fund. Ant Financial, Alibaba's financial affiliate, which operates the popular Alipay payment system, launched MYbank in June with registered capital of 4 billion yuan ($626 million). In April, it introduced the CSI Taojin Big Data 100 Index, which tracks e-commerce activities to gauge the performance of companies.

Tencent Holdings also has a 30 percent stake in WeBank, which began trial operations in January and offered its first loans in May.

In short, digital banking is on the rise, and it's tech giants that are offering it.

The traditional banks in China have to take the guidelines over Internet finance as yet another whip of innovation and transformation. The reason is simple. Since policymakers clarified the roles of regulators corresponding to each type of Internet finance, including digital banking, all the digital players now have the legitimate status to collaborate and compete in the new ecosystem－as long as there are no compliance issues endangering bottom line requirements, such as crime control, consumer rights and information security.

So what do traditional banks need to do to retain their competitiveness while the industry barriers are officially lowered?

Go digital, without hesitation. China has the largest Internet subscription globally and is predicted to continue to grow during the next few years, according to the China Internet Network Information Center, a State-affiliated research organization. The number of fixed-line and mobile Internet users in China increased to about 650 million in December, and the research center expects this figure to grow. It also says one-third of China's 650 million Internet users are younger than 30, while almost 90 percent of Chinese netizens access the Internet from home, and 450 million have 4G or 3G mobile connections.