China will soon introduce a new set of rules on Internet banking, in response to Premier Li Keqiang's push for an "Internet-first" policy, and the trend in which Chinese Internet firms are increasingly providing financial services.
According to Zhang Tao, director of the legal department of the People's Bank of China, the Central Committee and State Council has approved the legislation called "Guidance regarding the promotion of healthy development in Internet banking."
The legislation would focus on encouraging innovation, preventing risk, promoting the industry's healthy development amid an ordered market, and pushing open competition, he added. This could help prevent China's state lenders from favouring state-owned firms over small businesses due to perceived lower level of risk.
The legislation is also hoped to encourage growth of the Internet banking sector in China so as to potentially accelerate financial reform in the banking industry.
Major Chinese companies have been eyeing the Internet banking industry even though they are not a traditional financial services institution. Just this year, Internet giant Tencent launched a private bank called WeBank, while Ant Financial – the financial affiliate of e-commerce giant Alibaba – launched MYbank. Both banks are offering consumer deposit-like investment products with higher returns than a normal bank savings account.
Even though there is great interest from non-financial institutions to provide Internet banking services, there are barriers that prevent them from doing so. Stumbling blocks include choosing a suitable business model to deal with mobile security and awaiting a clear direction from the Chinese regulators.
Tang Jiacai, MYbank's Chief Information Officer, said that "because the regulatory authorities have not yet approved the opening of accounts [online], that has greatly affected the products we had originally planned." Besides that, the bank is faced with security woes since it allows users to open accounts remotely via face recognition technologies but such technologies could be easily abused.
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