Section 3 China's new financial business forms under the background of Internet finance（2013 to present）

In 2013，Yu'ebao launched a no-threshold and high-yield Internet finance product in collaboration with Tianhong Asset Management，which kicked off the explosive growth of China's pure Internet finance business. Yu'ebao's move soon triggered the catfish effect in all sectors of society. The pure Internet finance model with P2P and crowd funding etc. at its core rose rapidly. Six Internet finance models，namely，online payment，online lending，equity crowd funding，Internet insurance，Internet wealth management，and Internet consumer finance achieved comprehensive development. Since then，the development of Internet finance，which emerged from scratch，has been continuously standardized，and its models have been strengthened and included into the existing regulatory system of “one bank and three commissions”. The estimated brand value and user pool of four Internet finance giants—Baidu Finance，Ant Financial，Tencent，and JD Finance（BATJ）—have exceeded or will exceed any modern financial organization，and their transboundary operations have broken the capability boundaries of modern finance，forced modern finance to accelerate diversification，facilitated the integration of Internet finance and modern finance，promoted the building of a well-organized financial market and the financial innovation capability. BATJ have been leading the world in the fields of online payment and online lending. In 2017，China's four major state-owned banks established close cooperation with BATJ to promote the development of fintech. The four banks also established their own inclusive finance departments in June 2017，which greatly facilitated the establishment of China's inclusive finance system，and promoted the return of finance to its original mission of serving the real economy.

Globally，Internet finance has no clear definition in academia and business circles. In the United States，there are related concepts such as network finance，online finance and e-finance. Given its scope，Internet finance can be defined as a financial business that relies on the Internet to provide financing services，which should be based on credit. Generally speaking，Internet finance refers to an emerging financial model that uses Internet technologies and mobile communication technologies to provide services such as financing，payment，and information intermediary. It is different from the indirect financing model between commercial banks or the direct financing model of the capital market. As the so-called “third financing model”，Internet finance is also known as the Internet direct financing market or Internet financial model（Xie Ping，Zou Chuanwei，2012）. Some definitions consider Internet finance as a philosophy—“openness，equality，collaboration and sharing”（Chen Jingmin，2013）.

The research and practice of policy makers show that Internet finance，as a financial innovation that integrates Internet technologies，has received attention and recognition from regulators at least in China. According to the tone of development and regulation，encouraging the development of Internet finance has become a widely accepted consensus. However，as an innovation，Internet finance has its own risks，and its impact on the financial system is also an issue that regulators need to consider. Some researchers have proposed the “Twelve Principles” of Internet finance regulation that encourage the integration of innovation and risk prevention and control（Zhang Xiaopu，2014）. Such a large batch of principles reflect that how to promote the development of Internet finance based on regulation and risk prevention has become a realistic policy issue.

With its unique business model and value creation method，Internet finance is affecting traditional financial services，and has gradually become a new form of finance that cannot be ignored in the financial ecosystem. On March 5，2014，Li Keqiang，Premier of the State Council，stated in the Government Work Report at the Second Session of the 12th National People's Congress that efforts should be made to promote the healthy development of Internet finance and improve the financial regulation and coordination mechanism. Understanding the innovative development of Internet finance and its impact on the financial system has become one of the basic tasks to promote the healthy and regulated development of Internet finance.

I.Internet finance is the manifestation of finance in the Internet age

The practice of Internet finance began in the 1990s. Xie Ping（2012）first proposed the concept of Internet finance and made it a topic of academic research. [12] In recent years，with the rapid development of Internet finance，the definition of Internet finance has been constantly changing and in dispute. Based on the widely accepted notion that Internet finance is the product of the integration of Internet technologies and finance，some have identified the use of Internet technologies by traditional financial institutions to carry out financial activities as primary Internet finance；with focus on producers of financial innovations，some believe that the financial activities that Internet companies engage in are Internet finance；some regard financial innovations with the spirit of the Internet as Internet finance；and some regard finance that uses big data as Internet finance. The China Financial Stability Report [13] issued by the central bank in April 2014 also provides its own definition of Internet finance，and believes that Internet finance is an emerging financial model that uses the Internet and mobile communication technologies to provide services such as financing，payment and information intermediary.[14] These definitions all reflect some characteristics of Internet finance in its development process to some extent. They are historically reasonable，but of course have certain historical limitations. In just five years after Xie Ping put forward the concept of Internet finance，the practice of Internet finance has undergone tremendous changes，and its definition must be continuously revised. To gain a comprehensive and accurate understanding of Internet finance，one must first learn about its history，and make forward-looking judgments based on its development trends.

Internet finance originated from “finance + Internet”—financial institutions brought in Internet technologies to serve their traditional financial business operations and improve work efficiency. China's Internet finance sprouted from China Merchants Bank Online Banking established in 1997，which was the first online bank in China. It mainly engaged in marketing and customer service to provide support for its offline business. It was only second to Security First Network Bank（SFNB），which was established in April 1994.[15] Internet finance at that time was dominated by traditional financial institutions，and Internet was only used as a tool，without exploring financial business innovation.

Internet finance grew from the innovation of “Internet + Finance”. At this stage，the development of Internet finance was led by Internet companies. With the rise of professional Internet companies，especially e-commerce companies，third-party payment developed rapidly. Taking advantage of the customer resources and experience accumulated through third-party payment，Internet companies gradually expanded into financial services. They relied on their own technological advantages to meet the financing needs of a large number of small and micro enterprises as well as fragmented personal wealth management needs with very low transaction costs，which promoted the innovative development of finance. Some Internet companies revamped and innovated traditional financial products. Some created new financial products and business models. In December 2014，WeBank obtained a financial license issued by the Shenzhen Banking Regulatory Bureau，becoming China's first Internet bank. Internet banks use business processes and models that are different from those of traditional banks to provide deposit and loan services，rely on scenarios to obtain customers，use big data to conduct credit investigation，and grant credits and recover loans through the Internet. Though Internet banks do not directly touch the business fields and models of traditional banks，their establishment based on business innovation indicates that Internet companies have entered the core area of traditional finance，namely，deposit and loan.[16]

“Finance & Internet” became the trend in Internet finance. The practice of Internet finance led by Internet companies motivated traditional financial institutions to pursue innovative development. Traditional financial institutions actively accessed the Internet，set up their own e-commerce platforms，and tried to enter the advantageous fields of Internet companies. Financial institutions and Internet companies relied on their respective industrial and technological advantages to develop along their own distinctive paths，while conducting transboundary operations and competing with each other. The industrial barriers of financial institutions and the technological barriers of Internet companies made it difficult for either side to engage in the other side's advantageous business. Greater integration of finance and technology was required to meet the social needs and to promote the business development of both sides. As a result，Internet finance began to feature cooperation between and integration of financial institutions and Internet companies. Recently，four major banks respectively signed cooperation agreements with BATJ，the four Internet giants. The deep integration of traditional finance and the Internet will not only generate more financial business innovations，but also represent the future development trend of the financial industry. It will be difficult for financial institutions to achieve sustainable financial development without Internet technology，and Internet companies will also find it difficult to develop Internet finance in depth without financial institutions. Only through cooperation and integration can the two sides achieve development. It can be concluded that Internet finance is a manifestation of the development of finance at a certain stage，and is a result of economic and social development in the Internet era. It is not just a financial model，nor is it the so-called emerging financial model that is independentfrom traditional finance. “Internet” is the mark left by the Internet era on finance.

Internet finance is finance in the Internet era. No matter what development path it has taken，what technological means it uses，and who promotes it，it still provides financial services such as financing，risk allocation，payment，and information intermediary. The only difference is that it uses the Internet and big data analytics to improve the financial system and business processes，enhance efficiency，and expand service scope. It does not change the nature of finance. In addition，with the development of blockchain technology，digital currency has become a foreseeable reality，and it will soon replace paper currency. Digital currency will be issued，circulated，settled and cleared，relying on the Internet. The Internet-based currency will further solidify the status of Internet finance.

II.Evolution of China's Internet finance innovation

Internet finance has been developing rapidly in China. In terms of the speed and scale of Internet finance development，China has far surpassed other countries in the world，including the United States of America that is the origin of Internet finance which boasts advanced Internet technology and the most developed financial industry. The US does not even have a specific term for Internet finance，which shows that Internet finance has not yet grown to a considerable scale in the country. In China，Internet finance has become an independent，profitable industry，and relevant business models and industry chain，as well as the third-party service system centered on Internet finance，are also maturing.

The reasons for the rapid development of Internet finance in China are as follows. First，China's long-term financial exclusion and inadequacy of inclusiveness have made it impossible to meet the financial needs of micro，small and medium-sized enterprises，fragmented personal wealth management needs，and consumer lending needs，providing a broad space for the development of Internet finance. Second，new technologies，especially Internet technology，has greatly reduced the cost of financial supply，making the fields previously excluded by finance profitable.[17] Third，e-commerce has been growing rapidly to a large scale，and has a huge demand for Internet finance services，particularly third-party payment. In the meantime，e-commerce platforms have obtained a large number of loyal individual and business customers and massive data，accumulating customers and data for expanding their Internet finance business. Fourth，Internet technology has solved key financial supply issues such as information asymmetry between the supply side and the demand side and lack of credit information of both sides. Fifth，the open attitude and support of the Chinese government is an important reason for the rapid development of Internet finance.

So far，China's Internet finance innovation can be roughly divided into three development stages.

The first stage featured the Internet-oriented development of the traditional financial industry from the 1990s to around 2005.During this period，the development of Internet finance in China was similar to that in the US and Europe. It was mainly about the IT popularization and networking of the traditional financial industry. The Internet was used as a tool to provide technical support，infrastructure and processes reengineering，so as to enable its integration with the financial industry. As a result，the traditional financial industry became Internet-oriented，technology was upgraded，efficiency was improved，and an interconnected financial information network was basically formed. Internet technology basically played a supporting role at this stage.

The second stage featured the booming of third-party payment from 2005 to 2011.During this period，the development of Internet finance in China was different from that in the US. Unlike the US，where the Internet-oriented development of traditional finance services was the major trend，and new types of Internet finance services such as online banking，online insurance，and online wealth management emerged，China witnessed the rise of third-party payment，which was closely related to the rapid development of e-commerce in China and China's relatively underdeveloped payment and clearing system. At this stage，Internet technology began to penetrate the payment clearing system，formed a competitive relationship with the traditional payment and clearing system，and began totouch major financial services.

The third stage featured Internet finance's expansion into substantial financial services since 2011.The development of China's Internet finance at this stage covered the second and third stages of the development of Internet finance in the US. In China，Internet finance began to expand into substantive financial services. In particular，the development of online lending，crowd funding，and Internet money funds transformed Internet finance into a typical financial disintermediation tool. This shows that，to some extent，Internet finance can replace and disrupt traditional finance.

China's Internet finance model is by far the most comprehensive one in the world，covering almost all advanced Internet finance models abroad. Based on the method of innovation，Internet finance practices can be classified into two categories. The first category features the Internet-oriented development and reengineering of traditional financial services. It provides two Internet finance models：（1）The Internet is only used as a technological means for the publicity，promotion，customer acquisition，flow processing，and customer service of traditional finance，that is，for moving financial services from offline to online. Examples include online banking and mobile banking provided by commercial banks，online securities trading provided by securities firms，online insurance purchase and settlement provided by insurance companies，and online wealth management provided by financial institutions such as fund companies and trust companies.（2）The second model features the Internet-oriented reengineering of traditional financial services：Internet technology and mindset are used to transform and innovate the methods，product forms，and flow processing of the traditional financial business. Examples include scenario-driven customer acquisition，big data-based credit investigation，and online credit granting of Internet banks. The second category features new financial innovations based on e-commerce，social media platforms，and search engines. It provides three Internet finance models：（1）third-party payment，that is，online payment which relies on Internet companies，including secured third-party payment and unsecured independent third-party payment；（2）Internet financing，that is，direct financing activities which rely on the Internet instead of traditional financial institutions，including e-commerce small loans，P2P online loans，crowd funding and other models；and（3）Internet consumer finance，that is，loan services for consumption on e-commerce platforms，such as Alibaba's Installment Purchase and JD Baitiao.

China's Internet finance has been developing rapidly，with a huge volume and increasing influence on society. It has penetrated into all aspects of the economy and society. It is expanding from the field of daily consumption to the field of production，and seeks to provide more services for the real economy. However，while growing fast，it is faced with some challenges concerning both industrial development and government regulation.

Firstly，Internet finance faces more complex risks. A large number of non-traditional financial institutions have entered the field of Internet finance，and launched lending business without the ability to control risks. There is also a lack of strict regulation of financial institutions. P2P lending has become highly risky business. Internet finance giants have been formed. After risks appear，they are “big enough to avoid failure”，which can easily trigger systematic financial risks. Information leakage and misuse cause greater risks to user funds. The use of technologies brings greater operational risks. Internet finance companies are vulnerable to cyber-attacks and system failure. Internet viruses and phishing websites cause huge losses to players of Internet finance trading. Internet finance has a large customer base，a large amount of funds，and fast business operations. Therefore，after risks appear，they will spread like wildfire and produce profound effects.

Secondly，Internet finance regulation lags behind business practices. Internet finance innovations have been growing rapidly，and new products，forms and models have been constantly emerging. But corresponding regulation methods and measures still lag behind the development of Internet finance practices，leading to a regulatory gap for Internet finance. In addition to third-party payment licenses，P2P lending and crowd funding also require effective regulation. The absence of regulation and the imperfect legal system provide a hotbed for illegal speculation. The financial franchise right（financial license）is not suitable for the new financial development trend and cannot cover emerging forms of finance. Supervisors cannot strictly regulate Internet finance institutions in the same way they regulate financial institutions. Regulation lags behind practice，which is a common phenomenon in the history of finance. It takes time for regulatory measures for new things to be recognized，adapted，evaluated，coordinated，and implemented. However，the impact of Internet finance risks is huge，meaning that there is little time for Internet finance regulation to grow to maturity.

Thirdly，data silos restrict the efficiency of Internet finance innovation and the building of a credit reporting system. One of the important reasons why Internet finance can operate with lower transaction costs than traditional finance is the use of big data by Internet finance institutions. Customer demand information mined from customer big data promotes the creation of financial products and improves marketing efficiency. Credit information extracted from customer big data reduces the need for collateral and improves loan approval efficiency. However，at present，Internet organizations with first-hand customer data often refuse to share relevant information with other organizations for the purpose of protecting themselves and maintaining profits. High-quality data held by financial institutions and government agencies have not been made public. This has restricted the innovation efficiency of Internet finance to a certain extent，and created some loopholes in personal credit reporting.

The booming of Internet finance results from the shortcomings of China's financial system（including its institution，structure，market，and product development）. But the development of Internet finance has overcome China's financial repression and lack of in-depth financial development to a certain extent. The mechanism for allocating funds at market price has been established，and the continuous development of Internet finance in the future is definite. Meanwhile，regulatory authorities seek a balance between encouraging development and conducting effective regulation. Their keynote is still encouraging and regulating development. Overall，the development of China's Internet finance has built a foundation for its continued development. However，both supervisors and the industry need to gain an objective understanding of the future development trend of Internet finance innovation.

Firstly，the space for the future development of China's Internet finance depends on the speed and depth of market-oriented reforms of China's financial system.The explosive growth of the Internet has specific foundation，especially the institutional foundation，which，however，may be gradually weakened with the deepening of market-oriented reforms. If China realizes the marketization of the deposit interest rate，the high-yield Internet finance innovations such as Yu'ebao will lose their institutional basis，and their yield rate will gradually move closer to that of ordinary money market funds，which is currently around 4%. Of course，at the beginning of the marketization of interest rates，the deposit interest rate will rise slightly，and the higher yield rate of Yu'ebao would still last for a while. However，in the long run，as a money market fund，Yu'ebao will move closer to the major yield rate. The downward trend of its yield rate is inevitable，but as Yu'ebao boasts a large scale and certain bargaining power，its yield rate may be higher than that of ordinary money market funds.

Secondly，the degree of financial disintermediation is not only subject to the needs of the real economy，but also to the adjustment of the risk-return relationship.The future development of Internet finance must return to the real economy. It can be concluded from the experience of the US that Internet finance is ultimately subject to the macro-level real economy. Once the rate of return decreases，the demand of the real economy for funds will be weakened，and the high yield rate of money market funds will lose its foundation. For example，once deleveraging appears，profit margins are reduced，and the default risk is increased，the risk-return relationship of money market funds and online loans will change. Take P2P lending as an example. In December 2013，the average annual interest rate of P2P online loans in China was as high as 21.98%，about three times the weighted average interest rate of bank loans. From May to December 2013，the average annual interest rate of online loans was as high as 25.06%. During that period，about 90% of P2P loans had a term of less than a year. Take P2P online loans in January 2014 as an example，the interest rate within the term of one month was 23.57% and 27.17% had a term of 1—3 months. Most Chinese SMEs have a return on net assets of less than 10%，and online loans have such a short term that they are more like working capital instead of capital formation. This means that online loans have extremely high credit risks and there are major problems with sustainability. Since 2013，credit risk incidents such as the bankruptcy of online loan platforms and the escape of lenders have been happening one after another.

Thirdly，the regulation of Internet finance will be increasingly strengthened. The regulated development and strengthened regulation of Internet finance is also a trend. Information security，identity verification，consumer protection，effective regulation and technical failures and other risk points all remain the focus of regulatory authorities. Strengthened regulation will also be a constraint on the expansion of Internet finance business.

Fourth，Internet finance has a competitive relationship with traditional finance to a certain extent. The response and counterattack of traditional finance will impact the system，market，customers and other foundation of Internet finance. It will be difficult for Internet finance to develop smoothly. In March 2014，some banks even collectively decided not to accept negotiated deposits from online money market funds such as Yu'ebao，while some banks significantly reduced the upper limit for single-day and single-month transfers from deposit cards to accounts of online money market funds. The Internet finance fever has been cooled by traditional finance. Relevant traditional financial institutions also focus on self-reflection，regression and transformation in their competition with Internet finance. Although people's demand for financial services and wealth appreciation is strong and specific，traditional financial institutions still have advantages in terms of customers，channels，funds and risk control.

Fifth，there will be a process of survival of the fittest and competition within the Internet finance industry. Unlike traditional financial institutions，Internet companies cannot participate in the expansion of credit scale in the form of deposits，mutual funds，securities，etc. It is difficult for them to satisfy their own large-scale needs for multilevel financial services by relying only on their own capital and absorbing funds from a limited number of entities. Take the competition between DiDi，Kuaidi and Alipay as an example. All of them use subsidies for passengers and drivers as an effective means to expand customer base and coverage. However，the profitability of third-party payment is still relatively low. For example，providing a subsidy of up to 20 yuan for the passenger and the driver in one ride is actually unsustainable. As a result，the subsidy for passengers has been gradually reduced to 10 yuan，5 yuan，and 3 yuan. In the end，some companies will not be able to bear the subsidy burden and will have to exit this competitive market. The same problem exists in the online loan market. A large part of online loans are guaranteed. The size of the market actually depends on the guarantee ability and risk tolerance of guarantee companies. The loan interest rate of more than 20% means that the default rate will be high，and many guarantee companies will eventually be unable to bear the default risk，which will lead to the exit of related online loan platforms.

Sixth，the development of Internet finance needs to address risk and technology issues. Internet finance would not be possible without its physical carrier—the Internet. With the deepening of this model，the risks of Internet finance will gradually become prominent，and the demand of market players for more secure and convenient technologies will continue to rise. Meanwhile，with the advancement of Internet technology and the deepening of its integration with the financial system，Internet finance will inevitably provide the market with a greater diversity of more secure payment and financing methods，and will also have a substantial impact on the existing business model（Zhu Jinchuan，2013）.

Seventh，traditional financial services will realize process reengineering by adopting Internet technology and mindset. Internet finance has gained extensive influence in all sectors of society，and people's work and life are becoming more and more Internet-based. In the Internet era，traditional finance will gradually lose its dominant position and even lose its value of existence，and will be replaced by Internet finance. Traditional financial services will continue to become Internet-based. This transformation is not only a physical change from offline to online，but also a “genetic recombination” created by Internet thinking. Traditional finance will more frequently use the Internet and big data technology in business processing，and its business models will more frequently apply Internet mindset.

Eighth，digital currency will trigger a significant improvement in Internet finance. In February 2017，PBC achieved milestones in the issuance of digital currencies. The digital note trading platform based on blockchain technology was successfully tested，and the fiat currency was given a trial run on this platform. The issuance and use of the digital fiat currency will change China's monetary and financial environment，make economic transactions more convenient and transparent，and create macro-level conditions and foundations for the transition from traditional finance to Internet finance.

Ninth，Internet insurance will become a blue ocean for the development of Internet finance. The insurance industry relies on the law of large numbers to design insurance products，predict losses and determine premium rates. With the improvement of big data technology，in particular，with the disclosure and sharing of people's health big data，mobility big data，and behavioral big data，insurance companies can obtain more accurate insurance data of each customer，so they can predict risks more accurately，design customized insurance products and provide the market with a greater diversity of insurance products；and provide more targeted insurance and premium solutions for each customer，and gain more customer surplus. It is foreseeable that Internet insurance will surpass the current online sales business model，realize broader business innovation，and have promising development prospects.

III.Impact of Internet finance innovation on the traditional financial system

Internet finance，as a representative of China's new financial models，has flourished in the past few years and has varying effects on financial services，financial sub-sectors，markets，and the entire financial system. Some believe that this effect is disruptive，while some believe that Internet finance tend to play a complementary role.

As an emerging financial business model，Internet finance is even regarded as the third form of finance. Its evolution and development will inevitably bring changes to the participants，structure，market，products and risk distribution of the entire financial system. Internet finance will have a significant impact on the entire financial system，and may have noticeable effects on financial innovation，the marketization of financial factors，the mindset and models of financial services，and even monetary policies.

Firstly，Internet finance will accelerate innovation in the entire financial system，and financial innovations will continue to emerge. As the result of the problems of its financial system，China has obvious financial repression or，in other words，its financial development lags behind and has a negative effect on its economic development. The emergence of Internet finance，which features a high level of availability，fairness and convenience，is an excellent innovative financial service for ordinary people and small and medium-sized enterprises. For example，after the launch of Yu'ebao，most of the state-owned commercial banks and joint-stock banks have launched similar innovative and competitive products. This has accelerated financial innovation for meeting the diversified financial needs of residents and enterprises and for improving the availability，convenience and affordability of financial services at the supply side. With the increasing diversification of Internet finance services，traditional financial services will also be innovated and become more diversified. In China，traditional financial institutions do not lack the ability to innovate，but have a lack of interest in innovation，as they enjoy institutional dividends and are not faced with effective competition.

Secondly，Internet finance is conducive to accelerating the transformation of the traditional financial industry. As a “barbarian”，Internet finance will force traditional financial institutions to accelerate innovation. Internet finance is not a zero-sum game. Every time the Internet enters an industry，it will bring profound changes and transformation pressure to the industry，helping improve the operating efficiency and intensify competition[18]. Take banks as an example. Internet finance has disrupted the landscape in which banks monopolize the payment market. Internet technology has changed and shaken the traditional customer base of banks. Internet finance has also changed the pattern of single credit supply by traditional banks. These developments require banks to accelerate transformation. Meanwhile，witnessing the development of Internet finance，traditional financial institutions have come to realize that the demand of residents for financial services and wealth appreciation is strong，specific and large. Related financial institutions should focus on self-reflection，regression and transformation in their competition with Internet finance. The need to reform the financial system and mechanisms becomes even more urgent.

Thirdly，Internet finance will accelerate interest rate marketization and effectively promote the marketization of financial factors. In terms of online money market funds and online loans，Internet finance plays a substantial role in driving interest rate marketization. Take Yu'ebao as an example. It has profoundly changed the capital supply and demand model and pricing mechanism dominated by Bank of China，weakened banks’ long-term institutional advantage of low capital cost，ended banks’ long-term enjoyment of higher interest rate spreads，and established a new mechanism for the pricing of funds provided by investors. The final result of these changes is that the pricing of capital is more market-oriented. The capital cost and income pricing of online loans also become more market-oriented，and the rate of return of fund providers is even higher than Yu'ebao. In December 2013，the average annual interest rate of P2P online loans across China was as high as 21.98%，about three times the weighted average interest rate of bank loans. Although the yield rate of online loans is falsely high，it reflects that the existing capital cost pricing mechanism has a low degree of marketization，and in particular，the rate of return of fund providers has been institutionally depressed. Internet finance can promote the marketization of interest rates by providing a model of market-based interest rates，and by forcing policy makers to liberalize the deposit interest rate as soon as possible to enable banks to compete with Internet finance products through marketization[19]. In other words，Internet finance has accelerated interest rate marketization at the deposit end，and liberalizing the deposit interest rate is the final and most difficult task of the interest rate marketization reform.

Fourth，Internet finance will accelerate the integration between financial sub-sectors and between the financial industry and other industries，and the trend of horizontal integration and vertical specialization of the financial system will become increasingly evident. Internet finance has blurred the boundaries between financial sub-sectors and between the financial industry and other industries. The trend of mixed or integrated operations in the financial industry will become more evident，and the trend of transboundary development will become more prominent. The participants of the financial system will be more diversified，and the production boundary of the financial industry will be greatly expanded. However，from a vertical perspective，the specialization of similar financial services and business units will become more important. Only when the market is accurately positioned and the vertical division is clear can competitiveness be highlighted. For example，basic financial functions such as payment，clearing and custody etc. require a higher level of specialization. And specialization is also required by data services such as big data，data processing，applied analysis，and big data-based pricing analysis. To this end，the financial system will evolve into a horizontally integrated，all-round，one-stop，vertically specialized，customized and integrated “matrix structure”（Tao Yana，2013）.

Finally，Internet finance may have a substantial impact on the monetary policy framework. Logically speaking，since Internet finance can affect the traditional financial system，it will certainly affect monetary policies that work through the traditional financial system（Zheng Liansheng，Sun Jiyue and Liu Yiping，2014）. Internet finance can greatly affect monetary policies through both the supply side and demand side，which，along with the virtual creation of currencies，has caused the central bank to think more about controlling the impact of expanding the currency base while formulating monetary policies.[20] On the supply side，Internet finance may increase the money supply. It will improve the liquidity of funds，speed up currency circulation，increase the currency multiplier，and endogenously promote the expansion of the money supply. For example，Internet finance will enable commercial banks to allocate funds faster and at a lower cost，reduce cash positions，and thus lower the excess reserve ratio. On the demand side，the development of Internet finance may lead to an overall decline in the demand for money. The high cost of holding money and high liquidity of assets will reduce the demand for money transactions，and the emergence of higher-yield fixed-income products will reduce the speculative demand for money（Qu Qing，Chen Li，Yu Wenlong，2013）. The monetary management authority has paid close attention to the impact of Internet finance on monetary policies，and it believes that previous policies，regulation and all the other efforts for control cannot fully adapt to the development of Internet finance and need to be further improved.[21]