Nearly 900 peer-to-peer (P2P) companies have quit the market since China's banking watchdog issued online lending regulations one year ago. Expert say the sector will eventually become limited to just a handful of big players.

P2P companies act as online intermediaries that assist individuals or small businesses in borrowing money from online investors. The Internet-based financing system was once seen as a savior to those who were unable to obtain loans from traditional financial institutions such as banks.

Last year, the transaction volume of P2P lending nationwide, which involves small businesses or individuals borrowing money from online investors, exceeded 2.8 trillion yuan (403 billion US dollars), an increase of 138 percent from 2015, according to a report by P2P001, a Shenzhen-based financial web portal.

But the growth rate dropped by nearly half in 2016, as the industry faced reshuffling amid a slew of regulations.

Regulation enforced in  August of 2016, set strict new demands on online lending participants, who were banned from holding deposits themselves, and had to channel all their funds through banks. 

Since those regulations were launched, no fewer than 882 P2P companies have quit the market. 26 percent of them went bankrupt or just disappeared, and the remainder suspended business. 

Many P2P companies shifted their focus from online lending to other businesses due to the strict regulations. Data from Wangdaizhijia show most have shifted to consumer finance and loan services. Others have been attracted by private fund management or have become financial information providers. 

“It was easy for them to switch to consumer finance and loan services. After the changes the P2P companies couldn't attract investments from individuals anymore. But they did have experience in risk-control, so it was easy for them to do wealth management. Still, most important reason for them to make changes was just that under the stricter government regulations, they just couldn't survive doing online lending,” said Chen Xiaojun, researcher from Wangdaizhijia Research Center.

Wangdaizhijia research indicates the number of P2P platforms with business problems fell from 114 in September last year to only 35 as of the end of last month. The average yield for lenders in the market has seen a gradual decline from some 10 percent to only 9.4 percent. 

And after a year of market rationalization, the public is also showing more confidence in online lending companies. As of the end of July, China has a total of 2,090 P2P companies still in the market, a decline of 23 percent from a year ago. 

Experts expect a number of small companies to continue to leave the industry in the following months, leaving the field to larger online firms.

“The reshuffle among Chinese P2P firms will last for a while, but the market will become highly concentrated. An oligopoly of just a few players, where only companies of large scale will eventually stay,” said Zhang Shishi, a co-founder of the Chinese P2P platform Renrendai.