The Impact of Internet Finance on Interest Income and Non-interest Income of Commercial Banks: Empirical Evidence from China

Abstract

With the development of the technology, internet finance has become one of the fastest-growing industries in China in recent years. Its business involves lending, savings, payment and investment, which coincided with the main business of banks. In order to study the impact of internet finance on the banking industry, this paper makes an empirical analysis using the data of 115 commercial banks in China from 2011 to 2018 and the data of two primary businesses of internet finance: P2P lending and third-party payments. The monetary funds in the third-party payment platform provides a higher interest rate than the bank account, and has similar security and flexibility, resulting many depositors transferring their deposits to the third-party platform. Compared with bank loans, P2P lending is handled more quickly and has lower collateral requirement, which leads some borrowers turning to use P2P lending platforms. Thus, the banks' credit business was negatively impacted by internet finance, resulting in a decline in the bank's interest income. On the contrary, because the development of internet finance promotes the diversity of financial markets and accelerates the circulation speed of money, internet finance has a positive spill-over effect on the non-interest income of banks. However, the main profit source of Chinese banks is still the spread between the deposit and loans, which leads to the decline of the return on assets of banks despite the positive impact of internet finance on non-interest income of banks.