Some 1.63 trillion yuan worth of transactions were made using third-party Internet payment tools in the first quarter of the year, according to Enfodesk.com, a 110.5 percent increase on the previous quarter, a figure inflated by spending before the Chinese New Year holidays. Just over three quarters (77.8 percent) were made using Alibaba's Alipay payment service.

The Internet has also provided a platform for a massive expansion of P2P, or peer-to-peer lending. This has led to a major increase in lending to small and medium-sized enterprises.

The leading company in this area is Credit Ease, a Beijing-based company launched eight years ago. It is now twice the size of its US equivalent, Lending Club.

Tang Ning, the company's founder and CEO, says the Internet is now leading the market.

"Technology has added wings to the finance sector. It has made the impossible become possible. Big data can now be used to check the authenticity of any documentation to solve fraud issues that were hard for us to solve before," he says.

Steve Owen, executive vice-president for global sales and marketing for NXP Semiconductor, a leading semiconductor company that provides banking technology solutions, says Internet banking poses a major challenge to the established players not just in China but globally.

"Now clients want to use smartphones and the Internet for banking. If you as a bank don't meet this challenge, you cannot catch up with changes in the market."

Albert Chan, leader of financial client services for international management consultants Accenture Greater China, says Internet banks are very good at meeting customers' needs.

"Although traditional banks already possess the technologies, they haven't formed a mode of thinking to properly provide services according to customer needs," he says.

Mu at the PBOC insists there is plenty of scope for collaboration between the established banks and the new players since in many cases they offer different services and are highly complementary to each other.

Internet financing sees solid growth amid challenges	Internet firms launch financial revolution