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The Internet Finance Essay

1888 words - 8 pages

The Internet Finance: A booming sector in China’s economy

The Internet finance, also known as the online finance, is a new financing model that takes the advantage of the Internet or any other IP networks. In China, the dramatically growing Internet finance opens up a revolutionary means of financing other than resorting to the capital market or conventional banks. In this paper, I will firstly examine the development of Internet Finance in China through representative a Chinese company——Alibaba, to explain why this innovation has gained so much popularity. Then, I will analyze some rising problems as well as the possible solutions to them.

Generally speaking, the ...view middle of the document...

First, it has a much higher interest rate than conventional banks. An ordinary demand deposit in savings accounts at China’s conventional banks has an annual interest rate of 0.35 percent. Even if investors choose to deposit with fixed time, meaning they are not able to withdraw on demand, the interest rate is only a little bit higher, at about 3.3 percent. In contrast, Yu’E Bao offers a much higher interest rate at around 6 percent (New York Times).

The second reason is that Yu’E Bao has more flexibility than traditional investing means. Unlike conventional banks that have set high minimum amount of investment, generally over 10,000 yuan, Yu’E Bao’s minimum line is only one yuan. In other words, everyone can be an investor only of they would like to be (China Daily). Furthermore, customers can redeem their fund holding at any time to pay for their online purchases, while traditional financial products have strict restrictions over money withdrawal.

The third reason is the low risk. Alibaba is investing the money fund mainly in national bonds, enterprise bonds, banks’ fixed deposits and other low-risk financial products. Though there still exists risks to some extent, the real possibility of crackdown is fairly low (Sohu). It provides investors a guarantee that buying online funds will not be more unsafe than depositing in banks.

Last but not least, Alibaba’s superb marketing strategy. It is promoting Yu’E Bao through investing in a taxi app called “Didi Taxi”, which requires people to adopt Yu’E Bao as the payment method. By using this app, customers can pay a much lower taxi fee, as Alibaba has offered taxi drivers high subsidies in return. Though it is difficult to calculate how many people began to use Yu’E Bao because of this taxi app, there is no doubt this brilliant marketing strategy does have contributed significantly to the popularity of Yu’E Bao.

The prosperous Alibaba is an epitome of the booming Internet finance industry, in which people can get access to a platform that has all sorts of financial information incorporated. Its obvious advantages over traditional finance means, such as higher interest, low risks, more flexibility as well as smarter marketing methods, have attracted millions of investors, leading to a brand-new era of financing.

However, the Internet finance booming miracle is not flawless. Many economists and experts from finance sectors have brought up three critical defects of it. Pressure from major banks comes as the first obstacle to its development. Critics have referred to the online products as “vampires sucking blood out of banks” (New York Times). A report issued by Chinese International Capital Corporation, a domestic brokerage, predicted that, “in three year the online money-market funds could manage funds comparable to 8 percent of all bank deposits” (Moran). Indisputably, online funds have become a significant challenge to traditional...

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