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China leads world in online finance sector

Chinese online finance, Chinese internet finance

China is moving to rein in its fast-growing and innovative online finance sector, which offers a glimpse of how the rest of the world may someday handle money.


Chinese Internet companies have transformed the average smartphone into a platform for cashless transactions, bank transfers, loans and investments far beyond what is common in the U.S. With many skipping credit cards entirely, Chinese people buy money-market funds, split a restaurant check and pay for services ranging from taxis to takeout food all within the same phone app.


Last year, nearly a quarter of China's population—a number bigger than the total U.S. population—made payments online. Data provider Euromonitor International estimates that China's mobile payments this year will total $213 billion, compared with $163.5 billion for the U.S. The biggest payment service, an affiliate of e-commerce giant Alibaba Group Holding Ltd. called Alipay, has 400 million users.


"These numbers are phenomenal when compared to other payment providers that operate globally," said Ng Zhi Ying of Forrester Research Inc.


Internet companies are pushing to allow users to open online-only bank accounts on their smartphones, with their identities confirmed via selfies. Meanwhile, China's peer-to-peer, or P2P, lenders, which connect investors with borrowers through online networks, are set to make $33.2 billion in loans this year, 43% more than in the U.S., and could see issuance triple over the next two years, according to Morgan Stanley projections.


"In China, you see a lot of stuff happening for the first time over the mobile and Internet platforms," said Tim Pagett, financial-services industry leader at Deloitte China, adding that Chinese consumers may soon buy cars and insurance via their phones. In terms of how widely Internet finance is used, he said, "China is far ahead of the rest of the world."


Internet finance is touching parts of China's economy—everybody from students to farmers to truck drivers—long denied credit in China's state-run banking system. In the port city of Tianjin, long-haul trucker Shi Junze fell on tough times two years ago when transportation fees dropped and clients delayed payments. "We were at a point where we basically could no longer maintain our trucks," Mr. Shi said. "And banks wouldn't give loans to ordinary people like us."


Fincera Inc., an online truck-financing service supported by a P2P lending platform, gave him 30,000 yuan in monthly credit for repairs, maintenance and gasoline.


Internet finance in China has skyrocketed largely because traditional banks haven't provided many individuals with access to investment vehicles and other ways to increase their money. Banks have stuck to lending primarily to state-owned enterprises because they have implicit or explicit government backing for debt repayment, which makes them seem more secure.



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