"The core competence of an online financial supermarket is to balance traffic, asset quality and investor demand, and only one or two players will survive," said He.
Tongbanjie is setting up a transaction structure for a loan product that will offer varied terms for those who invest. Some investors can choose to have priority when it comes to repayments of debt principal, and the interest rate will be comparatively low for these transactions. Other investors can choose to receive higher interest rates, but they will get their principal later and may even lose some of it.
For each transaction, Tongbanjie holds risk reserves in escrow. "We do not touch that money, which we deposit with commercial banks", He said.
China CITIC Bank Corp Ltd is responsible for the fund settlement supervision, which means that the bank oversees the operations involving Tongbanjie's own funds as well as those financed on its platform for P2P lending products.
"I look positively on Tongbanjie because He Jun is a genuine entrepreneur who has more than 10 years' experience in Internet finance. Also, the company is mobile-based and has good positioning when it comes to products and risk," said Liu Erhai, former managing director of Legend Capital, the private equity and venture capital arm of Legend Holdings Ltd.
In September, Tongbanjie received series B financing totaling $50 million from Legend Capital.
Liu said China's Internet finance sector can make a big contribution to the nation's economic development because it not only uses new technology to transform a traditional sector, but also promotes China's move to market-driven interest rates.
Liu said that policy uncertainty is now the largest source of risk for the sector, followed by such factors as the economic situation.
People's Bank of China Governor Zhou Xiaochuan said in March that the central bank would soon issue detailed policies for the Internet finance sector, which comprises online payments and crowdfunding, as well as using the Internet to sell financial products.
Dou Erxiang, a professor at Peking University, said that the Internet finance sector is a supplement to China's existing financial system. "But loss guarantees are the biggest risk for Internet finance firms," said Dou.
Lufax.com, the domestic P2P lending platform set up by Ping An Insurance (Group) Co of China Ltd, which had promised to guarantee investors against losses, had overdue bad loans of about 250 million yuan, according to China Business News.
Wanyan Wenhao contributed to this story.
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