Online finance to expand household investment

Internet-based services will make credit more accessible: BCG

The rise of Internet-based finance in the Chinese mainland is set to catapult the average household's investment readiness and credit accessibility of small businesses in the coming years, management consultancy Boston Consulting Group (BCG) said in a report released on Thursday.

Currently, the demand of the vast majority of households in the Chinese mainland for low-cost, more efficient financial services are unmet, which, coupled with the advancement in technology and the Chinese government's support for financial innovation, serve to drive growth in online finance in the market, Tang Tjun, Hong Kong-based senior partner and manager director at BCG, told a news conference in Beijing on Thursday while releasing the report.

In 2013, mainland households with investable assets below $100,000 accounted for 94 percent of the mainland's total number of households, far above the ratios in developed markets which generally stand below 50 percent, data from BCG showed, indicating unaddressed demand for more affordable and accessible investment conduits.

With sustained growth momentum expected in Internet-based financial services, investment readiness of normal households will grow substantially over the next few years, according to the BCG report.

The consulting group estimates that by 2020, the number of mainlanders purchasing fund-based wealth management products as a percentage of the total population will rise to 25-30 percent from a mere 3 percent in 2012.

For small and micro-sized enterprises and individually owned businesses in the country, the emergence of online financing will also help meet their credit demand that has long been marginalized. As a result, the number of small and micro-sized enterprises receiving credit will surge to 30-40 percent of the total by 2020 compared to 11 percent in 2013, the BCG report predicted.

As for emerging areas in online finance, particularly peer-to-peer (P2P) lending which involves tremendous risks, differential business models that target specific financing needs must be sought for survival in the face of uncertain prospects, David He, principal for the consulting firm in Beijing, said at the news conference.

In a sign of prevailing risks for P2P lending in the country, 11.3 percent of more than 1,100 P2P platforms in the country have been shut down or fled with clients' money by July, said a report released in late August by rong360.com, a Beijing-based online private lending search service provider.

While the country has yet to lay down detailed rules for the regulation of the fast-growing P2P arena, tougher policies are expected to be in the pipeline to rein in the risks of unrecoverable loans, Feng Lin, a senior analyst at Hangzhou-based China E-Commerce Research Center, told the Global Times on Thursday.

Possible rules could include putting a licensing system in place to filter out the unqualified players and setting reserve requirements for P2P platform operators, Feng suggested, noting a coordination between different government bodies such as the People's Bank of China (PBC), the country's central bank, and the China Banking Regulatory Commission (CBRC) is also essential in the oversight of the emerging online finance trend.

A registration mechanism with transparent disclosure of investors and intermediary service providers, namely operators of P2P platforms, also needs to be created, He Bo, an analyst at Shanghai-based fund consultancy Howbuy, told the Global Times on Thursday.

Detailed regulations specifically designed for the P2P sector may come out as early as the end of the year, according to recent Chinese media reports which are yet to be officially confirmed by either PBC or CBRC.