China’s peak fintech industry group plans to establish a new platform to facilitate interaction and cooperation between online lenders and depository banks, as part of broader efforts to tame risk in the sector.
With the the government cracking down on risk in China’s financial sector, both regulators and the fintech industry are focusing on improvements to deposit handling operations.
The “Online Lending Information Intermediary Business Provisional Administrative Measures” issued in August last year highlighted deposit handling as one of three key areas that would be the object of regulatory focus, alongside lending ceilings and e-commerce licensing.
NIFA now plans to organise and advance the establishment of a communications and cooperation platform for depository banks and online lenders, with a view to providing a third party depository system for client funds.
Speaking at the “National Online Loan Institution Fund Deposit Connection Forum” on 24 April, Lv Luowen, the assistant chief secretary of the National Internet Finance Association of China pointed to improvements to fund deposits as a key means of forestalling risk in the online finance sector.
Despite their importance from a risk perspective, however, most online lending entities have yet to perfect their fund deposit systems, with a chief reason being a lack of adequate communication channels between online lenders and depository banks.
Banks keen to partner up with online lenders
Established banks are keen to reap the rewards promised by the latest fintech developments via the launch of online depository operations.
This enthusiasm has been whetted by the “Internet Lending Fund Deposit Operation Guidance,” that lets depository banks off the hook for loan defaults.
As of the start of April 36 of China’s banks are providing depository services via online lending platforms, while 281 standard online lending platforms have executed direct depository agreements with banks, comprising 12.32% of players in the sector.
Of those 281 platforms 158 have already formally hooked up their systems with bricks and mortar banks.