As an emerging financial industry, Internet finance can produce influence on liquidity creation of commercial banks through deposit competition. Deposit competition is divided into deposit scale competition and interest payment cost competition. Based on the unbalanced panel data of 106 commercial banks in China from 2007 to 2018, this paper constructs a multiple intermediary effect model to empirically test the internal transmission mechanism of "Internet finance → deposit scale/interest payment cost → bank liquidity creation". Research shows that Internet finance has squeezed the scale of deposits and increased the cost of interest payment to weaken the liquidity creation of commercial banks. Compared with Internet channels, Internet payment and settlement formats, Internet resource allocation formats, Internet wealth management formats, and Internet financial segmentation have more significant deposit competition effect on squeezing the scale of deposit and increasing the cost of interest payment. In terms of deposit scale competition, state-owned and commercial banks with higher asset scales and high capital levels are currently squeezed more savings; and in terms of interest payment costs, stock and urban commercial banks as well as the commercial banks with smaller asset scale and lower capital level are increased more interest payment costs. Internet finance has played a very similar intermediary role in weakening banks’ on and off-balance sheet liquidity creation process. And in these two ways, the deposit scale competition and the interest payment cost competition mechanism significantly exist. Therefore, government departments should correctly guide and control the expansion of internet finance, commercial banks should actively push forward the business transformation and continue to optimize financial ecological chain.