NewChina's internet finance sector challenges state-owned banks

Premier Li Keqiang put his money where his mouth is, giving full support to digital banking as part of his cabinet's efforts to revamp China's financial sector.

The leadership has been determined to break the cosy monopoly enjoyed by the state-owned banks by introducing new competitors, in tandem with the process of liberalising the interest rate mechanism.

The booming internet finance sector, buoyed by a rising number of financial services encompassing online payment, online person-to-person (P2P) lending platforms, and sales of financial products through the internet, offers the government more avenues to implement the long-expected financial reforms.

According to consultancy McKinsey, more than 70 per cent of people in China would open an account with a purely digital bank, the latest sign that internet finance is going mainstream as new players lure depositors and borrowers away from the powerful state-owned banks.

In a survey of 3,500 consumers across the country, McKinsey found the biggest four state-owned lenders were becoming less dominant in the retail banking segment, with their market share dropping from 78 per cent in 2011 to 73 per cent last year. "Implications for traditional retail banks and internet players are far-reaching," the consultancy said in a report. "For retail banks, a key to success in the future is moving towards more of a total relationship model."

It defines the total relationship model as a go-to-market approach where a financial services provider can meet all aspects of a customer's needs. WeBank and Alibaba's Yuebao are well received by millions of China's residents as they use these online services to deposit cash, transfer money, borrow, lend and buy wealth management products.