Problem of Internet Finance in China

254 and settlement services over third party payment platform and the selling of wealth management products over the cyber space. The existing regulatory requirements on Internet finance in China may not be able to keep abreast with the explosive rate of development in cyber space. Furthermore, the lack of understanding on this new ecosystem by Regulators also hinders the smooth development of the Internet finance. The dramatic development of Internet finance has finally caught the Regulators ’ attention. Let’s imaging that millions of investors have participated in a single money market fund of about billions of Yuan, Regulators have to evaluate the associated risk to investors, ensure its safety and smooth operation of the products. The risk is amplified by the huge number of investors involved with the Internet. The low barrier of entry to the Internet finance, such as the P2P lending sector, can increase the degree of participation by the public. At the same time, it will also increase the risk of default by borrowers, or investors owing to the inadequacy in sources of capital. In April 2014, the People ’s Bank of China the Central Bank, together with the China Banking Regulation Commission CBRC, has drafted a set of guidelines to regulate the Internet finance sector. The CBRC will responsible for regulating P2P lending and the Central Bank will regulate third party payment services over the Internet. On the other hand, Chinese banks ’ resilience to the growth popularity of selling money market fund and the continuous leaking of deposits from the banking sector into the non-financial e- commerce companies has finally sparred with each other. It leads to the drawing capital away from bank accounts and increases the funding costs of commercial banks. In view of the potential risk involved, the Central Bank has suspended payments through code scanning and virtual credit cards in March 2014 before the issuance of the guidelines mentioned before. The four largest commercial banks also cut the existing interface which made with their bank cards to pay through Alipay in the banking system. The Big Four banks also lowered the maximum payment amount allowed per transaction and the total daily payment limit that make with Alipay. However, it is claimed that the largest challenge to the financial reform rests on the market competition brought by the new economic to the existing stakeholders. The protection policy towards the Big Four commercial banks and financial institution, together with the crowd out attitude of the commercial banks towards the e-commerce companies ’ cross-border operations, all have suppressed the further growth of the Internet finance. Furthermore, Regulators and banks have lagged behind Internet companies in terms of user experience, accessibility and customer decoding ability. The existing regulatory frameworks may not be able to cope with the needs of the new industry, which to certain extend has halted financial innovation.

6. Conclusion and Recommendation

The amount of data is increasing at an exponential rate and extracting the nuggets of information that can benefit business is becoming a strategic issue for many e-commerce and Internet companies. Internet finance includes institutions which provide money payment and settlement, P2P lending and offering of wealth management products over the cyber space. The emergence of Internet finance also exposes the issues during the financial reform process in China. 255 It is hoped that with the development of the Internet finance, it can bring an inverting effect which accelerates the reform of the financial industry in China. No one should ignore the importance of the hardware requirements under the big data epoch. Substantial investments in information infrastructure development, big data analytic and database management, cloud computing capacity and related software development are expected. Secure element is the heart of the new ecosystem. Third party payment companies should prove that they have spent sufficient amount of resources for the maximum protection of consumers and they have to process transactions in line with industry standards. The risk of leaking and misuse of customer information is forcing service providers to alter the way they handle transactions. However, it seems that such provisions and technology is not well in place in China, nor widely an accepted industry standards [10] . From the regulatory point of view, it is expected the Central Bank should align the development of various third payment platforms by formulating respective industry standard and to encourage a health competition among different stakeholders. Regulators should strengthen the requirements for e-commerce companies which extend their operation towards the financial sector and further enhance investor protection for transactions executed over the Internet. On the other hand, part of the reform should include the remove of the existing oligopoly market structure in the banking sector and the promotion on financial innovation so as to meet the global challenge in the new century. References [1] Zou, Z.H. 2014. New Reform, New Open, New Bonus: China Economic Analysis 2013-2014. Shanghai: Trust Wisdom Press. [2] Anderson, C. 2008. The Long Tail: Why the Future of Business is Selling Less of More. New York: Hyperion. [3] Economides, N. 2001. The impact of the Internet on financial markets. Journal of Financial Transformation , 11, 8-13. [4] [5] Evans, G. 2013. Internet of things. Disruptive Technology . HSBC Global Research. [6] 2011 –2012 China E-Commerce Report, iResearch Consulting Group. [7] [8] China Internet Financial Innovation Mode Report 2013, iResearch Consulting Group. [9] Jingu, T. 2014. Internet finance growing rapidly in China. lakyara , vol. 189. [10] Banks, Alibaba spar over Internet finance services . Retrieved April 30, 2014, from http:www.china.org.cnbusiness2014-0408content_32028586.htm