Internet finance is in, but is banking out?

Time to show more online interest

Wang pointed out that a tightening regulatory environment means it's "unlikely" online financial activities will take a bigger market slice from banks.

"The dramatic development of Internet finance is challenging the regulatory framework," he said, adding Yu'ebao now manages 500 billion yuan of 80 million users, or 10 percent of China's economic population. "When a financial product is that big, any responsible regulator has to make sure it is safe and the potential risk of such products can be well-contained."

Although Internet finance is considered too young to challenge banks now, it's an alert that will spur interbank competition, analysts said.

"We are going to see meaningful change in the medium to long term," Credit Suisse's Wang said. "Banks have witnessed the trend and realize that Internet finance is a feasible model and a sharp weapon to gain market share. When banks start to compete with each other by leveraging the new technology, the impact created will be much greater than the challenges from external competitors."

He added that banks have lagged behind Internet companies in terms of user experience, accessibility and data bases.

"Ten years from now, the value of physical branches will substantially decline because, by then, 99 percent of transactions will be finished online," Wang said. "Banks need to rethink their business model and catch up substantially. This is a great opportunity for the well-run ones to stand out."

Traditional banking perceived as more secure

Banking on brighter prospects

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