Internet Finance: An Irresistible Trend

As early as late 20th century, Bill Gates, the founder of Microsoft, had predicted that traditional commercial banks would die out like the dinosaurs. Recently, the topic of Internet finance aroused debate at the Bund Global Financial Summit in Shanghai.

The extensive use of Internet technology could accelerate the upgrading of the traditional financial industry. Some experts further predicted that Internet finance would be the theme of the 21st century. Therefore, it has become a major strategic task for financial professionals to set up a feasible supervision system, advancing the development of Internet finance.

The core technology of financial services lies in data processing. Although financial institutions are the intermediaries that direct the allocation of social funds, their day-to-day businesses center on the processing of customer data.

Take credit operations for example. The decision to issue a loan is based on an analysis of the borrower's financial history and data. It includes deposits and ability for repayment. As far as commercial banks are concerned, the assessment of the credit and market risks they face relies on database analysis. It's no exception to the securities and insurance industries. In this sense, the core competitiveness of the financial industry consists in data collection and processing.

Internet finance is the perfect joining point of data processing technology and the financial industry. Internet technology has significantly reduced the cost of data collection and processing, and physical and manual work. According to e-commerce giant Alibaba, the data generated by its website a day could equal the total data yielded by joint-stock banks since their establishment.

Moreover, the extensive use of Internet technology has made it much easier to make transactions. In October 1995, Security First Network Bank, the first Internet bank in the world, came into existence, marking the birth of financial business online over the Internet. Since then, Internet finance began to spring up in a great many countries and regions, encompassing online securities, insurance, futures, payment and settlement.

Internet finance will completely subvert the business, profit and survival models of traditional finance. Technically, all the traditional financial businesses can be conducted on the Internet.

Learning from overseas companies, China has made rapid progress in peer-to-peer lending. From 2007 to the first half of 2011, China witnessed its peer-to-peer financing expand from 20 million yuan ($3.25 million) to 6 billion yuan ($976 million).

The transaction value of Internet payment is astonishingly enormous. According to statistics, daily transactions of Alipay, a leading third-party online payment solution affiliated to Alibaba, exceeded 4.5 billion yuan ($732 million) in 2012. Since an Alipay transaction takes seven days on average, the depositing funds could be as much as 30 billion yuan ($4.88 billion), dwarfing that of commercial banks in a medium-sized city. The integration of Internet technology and the financial industry is an irresistible trend of history.

Therefore, efforts should be made in assessing the tremendous influence of Internet finance on traditional financial businesses, monetary policy regulation and financial stability. Priority should be given to the establishment of an Internet financial risk prevention mechanism and a financial supervision system. As Niu Ximing, President of Bank of Communications, pointed out at the Bund Global Financial Summit, risks always lag behind immediate profits. Hence, it's of prime importance to execute self- and risk-control.

This is an edited excerpt of an article by Xiang Zheng, a financial commentator, published in Economic Information Daily

THE MARKETS

Dominant Position Gone

Bright Dairy is set to lose its majority shareholding in New Zealand's Synlait Milk when the dairy processor lists on the New Zealand stock exchange this month.

Synlait on June 24 issued a prospectus in advance of its bid to raise 75 million NZ dollars ($58.04 million) in its initial public offering.

The capital raised would help pay down debt and fund Synlait's growth initiatives, which include a new extraction and purification plant to produce lactoferrin, an important ingredient in some infant formula products, and other facilities.

John Penno, Managing Director and co-founder of Synlait Milk, said Bright Dairy had provided Synlait with valuable strategic insight into the Chinese market.

Iron Ore Stockpiles Rise

Iron ore stockpiles at Chinese ports saw a minor increase during the week ending on June 24 amid a continued trend of subdued transactions.

Inventories of iron ore at 25 major Chinese ports stood at 75.18 million tons from June 18 to June 24, marking a week-on-week increase of 520,000 tons, or 0.7 percent, according to a report released by Xinhua News Agency.

The price index for 63.5-percent-grade iron ore imports edged up 1 point from the week ending on June 17 to reach 113 points, while the index for 58-percent-grade iron ore gained 2 points to 104 points.

Despite the price rise, the market did not see a significant improvement in trading volume, indicating a continued standoff between buyers and sellers, the report said, adding that prices are expected to fall with the arrival of the slack season for the steel industry.

NUMBERS

2.08 tln yuan

Profits of industrial enterprises with an annual sales revenue of more than 20 million yuan ($3.15 million) from January to May

53.5%

Year-on-year increase in profits of the IT, telecom and electronic equipment sector from January to May

33

Number of industrial sectors that witnessed higher year-on-year profits from January to May

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