China: A long journey beckons: after the first year of e-financing era

Last Updated: 5 May 2015
Article by Roy Zhang

Some people believe that the e-financing era started in 2014, nevertheless the 2015 year signifies the arrival of spring for this industry. Indeed, there will be a great growth in the e-financing sphere this year.

After decades of development of the traditional financial industry in China, banking licenses have become increasingly scarce. Meanwhile interest rate liberalization in China is still in its initial stages. Therefore the environment is not conducive to the development of new generations of financial products. Financial regulators tend to impose excessive rules upon the industry as a result of the lack of investor protection as well as the lack of a class actions system. Some say that a registration system should be implemented and that a detailed information disclosure requirement instituted. Even if everything is clearly documented, once a party breaches a contract, how can be the other party achieve a remedy? Under the current regime, a lack of mandatory punitive measures leads to fairly low default cost. Additionally, the disclosure of false information will not necessarily result in severely unfavorable consequences. This is the general background and the reason why financial regulations are becoming increasingly tough.

Inspired by three landmark events

Even though strict financial regulations are enacted, people continue to pursue assets in the marketplace. What cannot be ignored is the huge demand for financial products from individuals and private enterprises, especially for small and medium enterprises as well as micro businesses. Several landmark events occurred last year offering market participants an insight into the demands and changes in the financial market, providing preconditions for the development of e-fi nancing including: a) huge demand in the market and b) financial regulations not necessarily "hindering" e-financing and the demand being satisfied by similar financial services. So what can we learn from those landmark events?

  1. Yu'e Bao

The creation and popularization of Yu'e Bao, an on-line investment fund, is the first landmark event enabling us to appreciate the changing market. Within half a year, it attracted a scale of investment exceeding two hundred billion RMB, which is inconceivable in the past. Nevertheless, another similar financial product would not necessarily make such a hit today. What we can learn from Yu'e Bao is that it appeared in the right place, at the right time and satisfied the market demand at that time.

  1. Virtual credit card

The second landmark event occurred when China CITIC Bank cooperated with Tencent and Alibaba to jointly issue virtual credit cards. This has had a huge impact on the traditional credit card business. Prior to this, UnionPay did plenty of groundwork to build a traditional credit card system, dedicated to achieving the goal of interconnection. We could find unified POS machines installed and utilized with the logo of UnionPay appearing on the counters of many signed up stores. It demonstrated that a high quality business environment had been established.

However, all of a sudden, internet companies are starting to cooperate with many stores in the same way, enabling many users to connect their credit card accounts to the payment system. The public began participating in the development of the fast payment system and discovered that it was an innovative product several years ago. While it has become standard nowadays, the fast payment system made a strong contribution to consumer market development. Although products like "Baitiao"(namely,"IOUs") are not called "virtual credit cards", they share similar functions. If we promote e-financing products and services which perform like credit cards and consumer finance in order to satisfy the financial demands of individual customers, these products are essentially the same. Accordingly they will revolutionize the current credit card system.

  1. Hongbao

Another landmark event is the "Hongbao"("lucky money") phenomenon. Using Hongbaos, people are able to make transactions conveniently via mobile phones, and plenty of business owners are aware of the social finance and social e-commerce being the development trends in the future. Wechat and Alipay provide a social and transaction platform not only for their members and consumers, but also for those who wish to utilize the mobile internet to promote their marketing plans. Numerous users are accustomed to making mobile payments on this platform. So this landmark event will clearly stimulate the development of the e-finance market.

The three events mentioned above deal with products which do not fall within traditional financial regulation covering the introduction of new products and risk management. This is understandable because traditional financiers always comply with established macroeconomic frameworks depending upon the classification of each financial product (such as investment banking, commercial banking and fund businesses). In any event, investors do not find it complicated because they are fully aware of the pay back they want as well as the risks they have to endure. E-financing attracts users, enabling them to make transactions conveniently and to purchase the financial products they want. This is a developing area of the market that we can see from these landmark events.

We can conclude two key points from those products. One concerns the payment system. It is either developed by ourselves individually then connected with other users' accounts, which is difficult for novices, or we can use services provided by UnionPay, Alipay or Wechat, which results in the creation of a public infrastructure. I find the latter one preferable. The second key point is that we should design our own products based on the environment and our strengths. We must figure out where our focus lies. For example, the financial systems of Alibaba are established on Taobao and Tmall, Tencent is based on Wechat and JD (Beijing Jingdong Century Trading Co., Ltd) on JD mall. The same principle applies to every web newcomer who has to decide whether its business is vertical e-commerce services or entertainment and media industry or something else. This involves a great deal of financial complexity, including the following three aspects. The first is the requirement of payment itself, the second being the cost of capital, i.e. transaction made today and payment completed tomorrow. The last aspect is the cost of credit, i.e. which party bears the cost? Financial products can be provided by dealing with a combination of the aspects above, on the other hand if one uses license holders, one can use the "channel services" (such as the channel between banks and trust companies or between banks and security companies) provided by licensed financial institutions. When e-financing products of licensed financial institutions are eventually presented to customers, they may have a complex underlying structure but they are easy to use.

The new market niche of licensed credit investigation services

The People's Bank of China issued eight licenses to authorise third-party credit investigation institutions in 2014. We can now see that these will open up another big market. Users will place more value on their credit records. Additionally all kinds of financial products may be developed based on these records. For example, some companies take advantage of "telemetry" technology to collect operational information about their trucks, including their departure point and destination. They can easily find out where those trucks leave from, how long they will stay, where they will refuel, even incidents of violating traffic regulations or accidents. What can we do with this information? A simple financial calculation can be made with this information to estimate how much a driver can make in a year. Based on this data, companies can decide whether they should lend money to drivers to buy a second truck, whether they should hire someone else to buy a second truck, doubling their business volume and increasing their efficiency. Despite a lapse in judgment sometimes, companies still know exactly how much a person can make in a year, how much they can lend to him and how long it will take him to pay back the loan through his business operation. This is similar some securitization products, where loans are issued based on cash flows.

I wish to share some of my reflections on the industry. First of all, the arrival and growth of the e-financing environment is of great significance. After all, what really matters is whether customers are willing to use your products and whether your products are userfriendly. Secondly, accounts and cash rule. Whoever controls more account information will attract more customers, and thus will have more access to information about transactions and cash. It is easier to deliver targeted advertisements, seal deals or develop new products based on this information because it is real and complete. Last but not least, companies must be innovative. If we look at traditional enterprises or even traditional internet companies, we can see that during their transformation process, what frustrates them the most is how to switch from traditional mechanisms to new ones. This is actually a very complicated process. However, the market has witnessed many successful cases of business transformation over the years and it goes without saying that there will be more in the future. We are exhilarated to see the huge potential for new market development, the dynamism of the e-financing market, and more importantly, people's enthusiasm about mobile and internet payment brought about by "Hongbao" craze.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.