Internet-facilitated lending entering new phase

Bank customer managers introduce financial and loan services to viewers during a livestreaming session in Hai'an, Jiangsu province, on Feb 10. XU JINBAI/FOR CHINA DAILY

A year after China tightened rules governing internet-facilitated lending, the once rapidly expanding sector is now entering a new phase, marked by shrinking bank partnerships, tighter risk controls and rising compliance demands.

As banks reduce their reliance on online platforms, leading lending-assistance providers are increasingly repositioning themselves as technology service companies rather than traffic and funding intermediaries.

Issued by the National Financial Regulatory Administration, the "Notice on Strengthening the Management of Internet-Facilitated Lending by Commercial Banks and Improving the Quality and Efficiency of Financial Services" officially took effect on Oct 1, 2025, prompting small and medium-sized lenders to undertake major overhauls of their internet-facilitated lending businesses.

Internet-facilitated lending mainly refers to a cooperation model in which licensed financial institutions rely on third-party internet platforms for functions such as customer acquisition and risk-control support.

The NFRA said that regulating commercial banks' internet-facilitated lending business is an important measure taken by the administration to comprehensively advance risk prevention, strengthen supervision and promote development. Strengthening the regulation of internet-facilitated lending will help ensure that commercial banks continuously improve their compliance standards, better leverage the positive role of such services, and effectively protect the legitimate rights and interests of financial consumers.

Now, one year after the rules took effect, the direction of the industry is becoming increasingly clear. China's leading lending facilitation platforms are generally making a return to the core of technology services being the focus of their rectification efforts, proactively scaling back areas of ambiguity in their previous business models.

Zeng Gang, director of the Tianfu Liyan Financial Research Institute, said, "As a landmark regulatory document in the online lending sector, the new regulations do not merely restrict the industry's development; their core purpose is to clarify the boundaries of rights and responsibilities among banks, lending facilitation platforms and credit enhancement institutions, reinforce the primary responsibility of licensed financial institutions for risk management, and guide the loan facilitation industry from traffic-driven scale expansion toward a new phase of high-quality development characterized by controllable risks and a balance of rights and responsibilities."

In recent years, financial regulators have introduced a series of measures requiring lending institutions to take full responsibility for risk management, while addressing problems in online lending such as mismatched rights, responsibilities and benefits, unreasonable pricing mechanisms, and inadequate protection of financial consumers' rights and interests. In line with the regulatory direction, many lending institutions have been systematically reducing their reliance on lending facilitation platforms.

The latest lists of partner institutions disclosed by banks show that internet-facilitated lending businesses have contracted significantly, although strategies vary from bank to bank.

Privately owned banks have made the most sweeping adjustments. With relatively few offline branches and a weaker customer base, China's private banks had previously been the most dependent on internet-facilitated lending channels, and have therefore made the sharpest cuts. For example, customer-acquisition partners of Jilin Yillion Bank Co, the first privately owned bank in Northeast China, fell from 56 in November 2024 to 10 in July 2026, a decline of more than 80 percent.

Zeng said the implementation of the new lending facilitation rules has already begun to meet regulators' expectations, as reflected in the shrinking number of partner institutions, tighter platform access requirements, the return of core risk-control functions to banks and adjustments to business models.

He said the previously extensive growth model of using lending facilitation platforms as a substitute for banks' own retail capabilities is being corrected.

A photographer takes pictures of the display screens of MYbank's AI bank product during the 2026 Inclusion Conference on the Bund in Shanghai on Sept 12. CHEN YUYU/FOR CHINA DAILY

Hu Xu, head of research at the Chinese Academy of Financial Inclusion at Renmin University of China, said internet-facilitated lending still has value, but cooperation with lending facilitation institutions cannot replace a bank's independent risk management, nor should it turn banks into mere funding channels.

For private banks and city commercial banks, Hu said, reducing cooperation with lending facilitation institutions is only the beginning. The real challenge is to strengthen their own customer acquisition and risk management capabilities while properly managing their existing loan portfolios.

Since last year, a number of regulations have taken effect, including the new rules on the management of internet-facilitated lending by commercial banks and regulations requiring lenders to clearly disclose the comprehensive financing costs of personal loans.

In addition, the "Measures for the Administration of Online Marketing of Financial Products" came into effect on Sept 30. Zeng said this means compliance costs will rise further. Small and medium-sized lending facilitation platforms that lack sufficient capital, risk management capabilities or differentiated businesses are likely to be acquired or exit the market, while leading platforms will consolidate their market share by leveraging their advantages in funding costs and technology capabilities, further increasing industry concentration.

"From funding sources and product pricing to advertising and marketing, financial regulation now covers the entire business chain. This marks the internet-facilitated lending market's transition from a period of extensive growth to a new stage of more standardized, transparent and sustainable development," said Dong Ximiao, chief economist at Merchants Union Consumer Finance and executive director of the Shanghai Institution for Finance and Development.

"Over the next three to five years, lending facilitation institutions are expected to gradually shift from traffic channels to technology service providers. Compliance will no longer be a competitive advantage, but the basic requirement for doing business," Dong said.

Wang Pengbo, chief analyst at market consultancy Botong Analysys, said small and medium-sized lending facilitation institutions that previously relied on multiple layers of customer referrals and profited from reselling traffic through various channels will be rapidly pushed out of the market. Wang expects that in the future, competition across the industry will shift from simply competing for traffic to competing on compliance capabilities.

Tian Lihui, a finance professor at Nankai University, said the old business model based on the formula of high interest rates to cover high risks and multiple layers of customer referrals to spread costs has effectively been dismantled by three sets of constraints: caps on comprehensive financing costs, mandatory disclosure requirements for marketing and stricter standards for debt collection.

Tian said demand for credit has not disappeared, but is instead shifting from marginal borrowers whose risks are difficult to price, toward mainstream borrowers whose risks can be more accurately assessed and priced.

Industry experts said the focus of the internet-facilitated lending sector has now shifted from extensive scale expansion to more refined customer selection and risk cleanup. Lending facilitation institutions are gradually eliminating customers with weaker credit profiles and higher risks and tightening lending standards to meet regulatory compliance requirements. At the same time, the industry as a whole is accelerating the process of clearing out risks.

Some lending facilitation institutions said they will leverage the technological capabilities they have accumulated in risk-control technology, system development and user operations to provide standardized technology solutions to licensed financial institutions.

Looking ahead, Dong said lending facilitation institutions will develop a clearer complementary relationship with banks and other financial institutions and play a positive role in promoting inclusive finance, supporting consumption and helping micro and small businesses grow.