Online finance, an emerging and booming financial service, achieved impressive results in 2017, connecting online and offline services.

Alibaba Group Holding Ltd, China’s e-commerce giant, announced on Feb. 1 that it would purchase a 33 percent stake in its finance arm Ant Financial, which ignited the online finance sector. In 2017, traditional banks in China, including the four state-owned banks, established cooperation with BATJ – the four Internet giants: Baidu, Alibaba, Tencent, and Jingdong, to achieve win-win results in the financial sector.

The financial industry will take on a new look this year, owing to the cooperation between online and offline financial services. The first changes will take place in the financing mode and financial infrastructures.

Online financing used to be considered separate from that of physical banks, but gradually, the two channels will be integrated into one. In the future, online and offline banks will share co-developed systems for credit, risk evaluation, industry analysis, and client data.

On the other hand, brick-and-mortar banks and online finance companies are likely to smash the wall between the two customer groups. Banks are favored by large enterprises and older customers, while the online finance enterprises attract more small- and micro-businesses and younger customers. The gap will be gradually bridged as more online customers use offline services and vice versa.

Moreover, the integrated development will help securities, insurance, and other traditional financial services to grow online, eventually leading to a full integration of the whole financial industry.

A large number of small-sized online loan companies have sprung up in recent years. Without designed consumption use and high interest rates, these emerging companies will easily fall into the pit of usury and bring more determined regulation from authorities.

Online finance can be a double-edged sword. The innovative financial services provided by inital coin offerings and small loans based on technology can effectively solve the financing difficulties of small- and micro-businesses, and add fuel to the industry as long as they are regulated.

In fact, the new service has long been out of financial supervision, which means it is likely to bring risks to financial stability.

Authorities should closely supervise online financial activities and prepare an emergency plan to deal with any risks or misconduct, and also avoid excessive regulations for the sake of the sound development of online finance.

Note: The author Xi Junyang is an associate director of the Research Center for Modern Finance at the Shanghai University of Finance and Economics.