The rise of Internet financing has eaten into the savings of traditional banking giants. According to official data released on April 15, the savings of four State-owned banks dropped by 1.9 trillion yuan ($305.41 billion) in the first two weeks of April.

The development of the Internet has provided better information for market players. And since the Internet and the financing business both need information to run their systems, they can work in tandem.

Statistics show that in 2013, China's M2 was 103 trillion yuan ($16.58 trillion) against its GDP of 56 trillion yuan. But small and middle-sized enterprises which accounted for 70 percent of the total jobs in the country could only get less than 20 percent of the total loans issued by financial institutions. This shows that China's banking system is distorted, with the price of money not representative of its true value. This is where Internet financing can play a vital role, because it can fulfill traditional financing functions as well as create a financial world in which more people can do business.

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Since the Internet has been attracting more users and capital by facilitating more and faster transactions, it can help better allocate resources through new modes of peer-to-peer lending and "mass funding", which have already attracted many investors. Besides, people can easily use the Internet to search for and compare various financial products - some new websites have already been designed to act like a financial supermarket to allow investors to choose their products (or investment vehicles). Internet financing also helps users diversify risks by providing a huge volume of data. An apt example of how a company or individual can minimize (or diversify) risks is Alibaba, whose petty loan lending - based on small businesses' daily performance - has crossed 170 billion yuan.

Internet financing can also create a new financial world. It has already broken the traditional segmentation of space and time, prompting more people to do business.

One of its leading applications is Yu'ebao; its users who have Alipay can gain daily interest on their deposits from a money market fund launched in June last year. Not only is the minimum required investment of just 1 yuan convenient for small investors, but also its annual yield of about 6 percent is much higher than the central bank's benchmark rate of return of 0.35 percent. No wonder, it has collected more than 500 billion yuan from over 81 million investors.

Internet financing has the added advantage of being low on cost and high in efficiency. Whether it is equity or bond financing, or financial derivatives, the essence of financing is the medium of resource allocation and risk sharing. Traditional financing institutions have high labor costs and asymmetric information because of their technological limits, while the marginal cost of Internet financing is zero which makes it a better medium of financing with more updated data.