Banks strike back at online financial startups

Some State-owned commercial banks, including China Construction Bank Corp and Agricultural Bank of China Ltd, also raised the interest rate of major fixed deposits by 10 percent to the upper limit in certain branches.

Rumors said that several banks including the Industrial and Commercial Bank of China Ltd, Bank of Communications Co Ltd and China Everbright Bank Co Ltd, have submitted product plans to the regulatory authorities in an attempt to lower the 50,000 yuan minimum investment bar of wealth management products and conduct a risk assessment of first-time buyers of such products online.

Apart from using traditional measures, the banks are also strengthening their business transformation efforts and making innovations by embracing Internet finance, said Li.

The majority of the listed banks have launched their own e-commerce platforms plus e-banking and mobile banking services. More than 100 banks have opened public accounts on WeChat to reach out to customers and promote their services.

Wu Qing, a financial researcher with the Development Research Center of the State Council, said: "Internet finance will accelerate the process of a decrease in the market share of commercial banks. To be more specific, the process is known as ‘financial disintermediation'. But the banks will still retain their strengths and play a leading role in the financial market. In the future, commercial banks are likely to become the most important providers of Internet financial services because they are more active in developing such services."

In 2012, China Development Bank created a website for small and microbusiness financing in partnership with Alibaba and helped build a peer-to-peer financing platform in Jiangsu province. A year later, China Merchants Bank launched investment and loan projects, which are similar to peer-to-peer lending, for individuals and small businesses, raising a total of 38.35 million yuan with annualized yields ranging from 6.1 percent to 6.3 percent.

Despite the fact that the banks are making efforts to reform, financial experts said they are passively imitating the financial products of Internet companies rather than making their own innovations. In many cases, the services provided by the banks are identical to those of Internet companies.

While Internet companies can provide financial services to customers through a variety of access points, including Web browsers, search engines, applications, e-commerce platforms and third-party service providers, the banks only offer limited access to their services. The traffic volume brought by mobile banks and the banks' public accounts on WeChat cannot compare to the traffic volume of Internet companies that provide financial services, said an account manager of a commercial bank who declined to give his name.

According to a report issued by the Financial Research Center of Bank of Communications in January, Internet companies have the advantage of platforms, customer resources and data, whereas commercial banks have rich capital reserves, credibility and good risk management skills. At the current stage, neither side can get deeper into the areas of strength of the other.

It is true that the banks can develop more Internet financial businesses through technology upgrades, but "the current problem lies in the conflict of ideas and culture between commercial banks and the Internet", said the report.

Kenny Lam, a partner at McKinsey & Co Inc, said: "The models on which Internet financial products are run are quite innovative. They handle data in such a way that allows them to lend with a much more precise assessment of risk, which leads to much more competitive pricing than banks. I think banks need to change the model they sell to customers. They also have to find ways to bet on new things beyond what they are offering now."