Abstract
ABSTRACT This paper explores the popularity of internet finance and its potential shocks to the business of traditional commercial banking in China. Using data on 200 commercial banks in China during the period 2011 to 2016, this paper investigates whether internet finance, measured by P2P (peer-to-peer lending) lending and third-party payment, has a negative impact on the profitability of commercial banks. It concludes that P2P lending and third-party payment has significant negative influence on the profitability of loans and deposits at China’s commercial banks. By intensifying competition, the development of internet finance has decreased the interest income of loans, increased the interest cost of deposits, lowered the growth rate of loans and deposit, and brought about more risk. City and rural banks and unlisted banks are more vulnerable to internet finance than large government-owned and joint-stock banks.
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