China’s appetite for online financial products has slowed dramatically, according to a report from the China Internet Network Information Center (via Xinhua).
Products like online mutual funds, peer-to-peer loans, and insurance only showed 2 percent growth in the second half of last year. Between the time these products began to hit the market in early 2013 through the first half of 2014, CNNIC says 12.1 percent of Chinese internet users subscribed to or bought some sort of online financial product, but the rate of growth slowed in the second half of 2014 and only reached about 14 percent. As of December 2014, 78.5 million bought into these non-traditional finance options, up 1.5 million on the previous semester.
The initial boom of consumers buying into online financial products stemmed from bottlenecks in the traditional banking system. In contrast to state-owned banks that cater more to businesses and state-owned enterprises, these privately owned and peer-to-peer alternatives offered a much lower barrier to entry. That includes no minimum deposits for mutual funds and loans for people without established credit ratings.
Alibaba’s Yuebao, one of the largest online mutual funds in China, started to stagnate and even shrink in 2014. Assets fell from US$92 billion to US$87 billion in the third quarter of last year. A combination of heightened competition, stricter government regulations, and declining interest rates likely contributed to the fund’s dip.
Tencent’s WeChat investment fund is quite a bit smaller. In January, it reported 10 million users who’ve banked over US$16 billion. Users can deposit and withdraw funds directly from the popular WeChat messaging app. Tencent has also began closed beta testing for China’s first private online bank, WeBank.
The peer-to-peer lending market has been on fire in China, with new companies popping up and receiving venture capital on an almost weekly basis. This has been followed by even more startups building wealth management and investment apps in the wake of Hong Kong opening up its stock market for Chinese investors and vice versa.
A single semester of dampened growth isn’t enough to project whether or not online financial services in China are nearing their saturation point. The ongoing boom of both web giants and startups creating new offerings to previously under-served markets would seem to suggest otherwise. But if the user numbers continue to lose momentum, it might be time to consolidate.