Software eats into finance world

A similar scenario might not have been far from the minds of Internet company executives when they made the decision to expand into finance. The first ones to feel the pressure will be retail banks and retail brokerage firms. Like Blockbuster, they enjoyed comfortable profit levels because of their entrenched offline presence.

The Internet promises to be a game changer, with no cost to set up retail outlets and virtually unlimited capacity to serve customers. Internet companies also come with a culture of excellent customer service and transaction speed.

As has happened in industry after industry, the entrance of Internet players will shake up incumbent ones, many of which cannot adapt fast enough and become easy pickings.

If past examples are any indicator, the ambitions of these new players will hardly stop at taking over retail. Is it possible that after gaining an initial foothold in the financial industry they could expand into the core business of designing their own financial products?

That might seem rather removed from their current expertise, but it's happened in other fields. Again, take the case of Netflix, which started out as an online video rental company. It financed the hit US TV drama series House of Cards, entering the turf of original content production.

Technology companies have a history of gaining entry to well-guarded traditional industries from unexpected directions. Who's to say that Baidu will not, after learning the ropes of its new venture, come up with innovative financial products of its own?

It probably is in a better position to do so, with its access to vast amounts of data and advanced analytical tools.

Indeed, Baidu might well be on its way to such a future. In November, Baidu Jinrong (Baidu Finance) debuted after months of trials. This new service offers search facilities in credit card and loan services. It's a natural extension of Baidu's core competency, but, at the same time reveals the Internet company's ambition in the financial services industry.

Baidu's CEO Robin Li made it abundantly clear in the recent quarterly meeting that incorporating financial services into the Baidu product family is a key step in its overall strategy.

How things will play out is anybody's guess. Besides market forces, there is considerable regulatory uncertainty surrounding this development.

The financial services sector is regarded as vital to a country's economic well-being and is heavily scrutinized. Any changes are likely to be introduced in tentative baby steps. But it's hard to imagine such a lucrative and important industry remaining unaffected by the Internet.

At the same time, the Internet companies, pressured to seek new revenue streams, will surely push hard to get in on the action.

After some initial experimenting, with the authorities keeping a close watch, appropriate regulations will likely be introduced, ensuring fair play and market stability, but also probably acknowledging the rightful places of the new players. In the past, they have proved to be a positive force, bringing new ideas and rejuvenating stagnant markets.

The author is an independent commentator in Beijing. Contact the writer at fengwriting@gmail.com. The views do not necessarily reflect those of China Daily.