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Future Trends

Volume 3, 2014

By Charmaine N Clarke

For 36-year-old Jim Jin and his younger brother, internet finance is a seamless part of life. They don’t think twice about making investments online. Jin, who left his job as Associate Director at Oriental Securities Research Institute this February to be Crowd Funding Department Director at ecommerce giant JD.com is quick to reassure sceptics who question whether any major investor would ever do a multi-billion dollar deal online. “Banks didn’t earn trust overnight, it took time,” he said. “So if one day internet finance transactions can be included in the insurance deposit system people will learn to trust them.”

In 2013 Jin, whose past research has been on China’s banking industry, did a special report called Internet Changes Finance. Today, he is enrolled in CEIBS’ part-time FMBA programme, and he’s one of the financial sector’s young talents that are expected to play a vital role in the push to establish Shanghai as an international financial centre. 

He sees a very different financial landscape in China within the next five years with the post-90s generation, who are quick to embrace change, at the core. “Frankly, it’s difficult to teach older people to use innovative tools, so they will continue to use traditional banking services. For the young people, those who are the future of China, they are good at accepting new things. They will be the group that the financial services will need to focus on,” says Jin.

Within the next five years, he anticipates that most, if not all, types of payment will be done online, reducing the need for physical bank cards. He also believes that: competitors who now haggle over who owns big data will realise that it’s better to share this information as it will provide better control over credit risk; that Chinese consumers will become more financially savvy and therefore more willing to accept new products; and that Internet finance will accelerate the marketisation of interest rates, leading to more balance within the financial markets. He’s also convinced that the current frenzy around Internet financing will die down as the sector becomes more stable and sustainable. This will include weeding out of some of the weaker players.  

In terms of the future of the various financial products now available, Jin anticipates that P2P online lending, which he estimates now has about 2,000 players in China, and yu e bao which the government began to regulate after transaction volumes hit RMB 700 billion,  will be among those that will struggle in the future. Why? The highly anticipated liberalisation of interest rates will make bank’s products more competitively priced, plus a continued slowdown in the Chinese economy will mean there is less loan demand, he says. “But other products such as Ali small loan, JD bai tiao (a type of virtual credit card that can only be used to purchase the company’s goods) and some third party payment platforms will be more sustainable because they have risk control mechanisms,” he says. In fact, he thinks P2P online lending is already peaking in China. “If you analyse the normal trajectory of lending service it takes about 3-5 years to have full financial exposure. But basically for the P2P online lending services in China right now, most of them are already in the period of financial exposure,” explains Jin.