Article/Xu Zhong, columnist of Sina Financial Opinion Leader Column (WeChat official account kopleader)
In payment, asset management and other fields, large technology companies may enjoy unfair and unfair competitive advantages due to the non-uniform regulatory standards. The financial business supervision of big technology companies should be involved in real time to avoid the relevant risks from being small to not worthy of attention, evolving to large and cannot be ignored, or even large and cannot be collapsed.
Fintech has become a universal development trend in the world. Of course, this process also reflects the impact of mobile communication, cloud computing, big data, artificial intelligence and blockchain technology on the financial industry. The impact of FinTech has started from the fields of financial facilities such as payment, identity management, credit investigation and information security, and has gone deep into core business links such as risk management and financial resource allocation. The operational risk, technical risk, model and algorithm risk related to FinTech will receive more and more attention in financial supervision. We need to balance innovation and risk prevention.
Globally, there are two countries with relatively good financial technology development: the United States and China. The development of the United States is related to the background of supply contraction of the financial industry under strong supervision and outsourcing of some business links after the financial crisis.
For China, profound changes have taken place in China's financial regulatory system this year. Previously, our regulatory system was not perfect, and there were more big banks than small banks in China, creating a great space for the development of financial technology.
There are many research issues related to financial technology. Today I want to discuss some specific issues about Big Tech's involvement in the financial field.
1、 The advantages of large technology companies in processing data and whether it has changed the financial intermediary model based on information processing.
Information asymmetry is always one of the core problems that financial intermediaries should deal with. Bank loan technology can be divided into transactional loans and relational loans. Transactional loans use hard information such as enterprise financial statements and information scoring, and relational loans use information accumulated from long-term and multi-channel contacts between banks and enterprises that enterprises cannot obtain from financial statements and open channels. These information are all soft information.
Technological innovation only introduces new information forms, such as non-financial information about clients collected by the Internet platform, and new information processing methods, such as artificial intelligence algorithms, into the activities of financial intermediaries. Technological progress has turned some soft information originally belonging to enterprises into hard information, that is, quantitative qualitative information. Decentralized information is collected and disseminated centrally on the Internet, and collected and analyzed through technical means. The original scenario of relationship loans can be transformed into transactional loans.
Big technology companies have some main advantages when using proprietary customer data generated by their platforms to score credit:
First, it can collect and process non-financial data about customers, so as to improve the efficiency of risk assessment, credit supply and pricing. In particular, it can serve some small and micro enterprises that cannot provide collateral because of the imperfect financial system.
Second, the credit scoring model runs faster, which can improve the efficiency of credit deficiency and customer experience. For example, online loans of some online banks are pure credit, without mortgage and loan, and the application can be received in three minutes at most within 30 seconds.
Moreover, many studies have shown that the credit scoring of big technology companies has a certain constraint on customer default. Therefore, the credit scoring technology can help big technology companies assess customer credit risk and alleviate the problem of information asymmetry. However, the quality of data and the representative variables of data actually affect the results of credit scoring.
In addition, the similarity between the calculation model and the business model will lead to homogeneous competition among technology companies, which may also lead to pro cyclical problems.
In short, big technology companies have their advantages in processing data, but they cannot change the financial intermediary model based on information processing. Some originally relationship loans may be transferred to transactional loans. But at the same time, due to the similarity of models, algorithms and patterns, it will bring about homogenization competition and pro cyclical problems. Of course, in this process, data quality and data representativeness will also affect their ability to manage risks.
2、 The possible impact of big technology companies' strong position relative to customers.
The stickiness of big technology companies' platforms to customers helps to control customers' credit risk, because once customers default, they may be excluded from the platform, thus losing the convenience of profiting from the platform. Essentially, it is through repeated games between customers and the platform to curb customers' opportunistic behavior.
However, the strong position of big technology companies relative to customers may distort the cooperation between them.
Some recent surveys have found that e-commerce platforms have continued to lengthen the period of accounts payable, exacerbating the shortage of funds for small and micro enterprises. The charging items of the e-commerce platform will also increase the operating costs of small and medium-sized micro enterprises, which may increase the financing needs of small and micro enterprises abnormally, thus creating demand for the financial business of the e-commerce platform. In extreme cases, small and micro enterprises may fall into the financial trap of e-commerce platforms.
3、 The relationship between big technology companies and inclusive finance.
In China, because there are many large banks and the development of small and medium-sized banks is insufficient, some small and micro enterprises are difficult to obtain loan services from large banks, because the authorized credit management chain of large banks is relatively long, and it is difficult to obtain soft information of customers. Relatively speaking, the credit scoring technology of large technology companies can help to make up for the lack of market in this regard.
Generally speaking, FinTech has more room for development in areas with insufficient financial supply. Therefore, in terms of small and micro enterprise loans, the credit supply of large technology companies and traditional bank loans are complementary.
For example, in 2016-2017, there was a loan aid mode of cooperation between Fintech companies and small and medium-sized banks. Some Fintech companies contacted customers through Internet channels and learned their repayment ability through big data analysis, but they were not qualified to lend. Some small and medium-sized banks have loanable funds, but lack high-quality loan customers, so financial technology companies can recommend their own customer resources to small and medium-sized banks.
In general, some large technology companies can rely on their own customer resources, capital strength and technical ability to form scale effects and strong market dominance when penetrating into the financial field. Through cooperation with banks, they can promote the development of inclusive finance.
4、 The relationship between big technology companies and data mining efficiency and privacy protection.
More data is helpful to improve the efficiency of credit evaluation, but when large technology companies excessively collect customer data, it may infringe the privacy of customers.
For example, some time ago, Facebook's data leakage event showed this possibility. In 2016-2017, during the period of rapid growth of cash loans in China, information transactions of borrowers occurred. Some technology companies take advantage of technology to seize the market and mix user data in different product lines, which also increases the difficulty of privacy protection.
Recently, the EU's General Data Protection Regulations have attracted much attention in China. At the legal level, the use of information generated by commercial activities, especially those involving confidential business, may expose users to legal risks.
Therefore, when collecting and using big data, attention should be paid to the protection of data sovereign rights and corresponding desensitization processing. In addition, if the customer's personal information is used for credit evaluation, it may affect the fairness of credit. Some indicators (such as gender, region, occupation, etc.) may explain the customer's repayment ability, but lending based on these indicators will involve discrimination against some groups.
5、 Impact on unfair supervision of big technology companies and traditional financial institutions
Big Tech, a large technology company, has set foot in the financial field, on the one hand because of its advantages in platform, technology, customers and data, and on the other hand because of its loose supervision. In terms of SME financing, large technology companies can form a better complementary relationship with financial institutions. In payment, asset management and other fields, large technology companies may form a certain competitive relationship with financial institutions, and may enjoy unfair and unfair competitive advantages because of the non-uniform regulatory standards. The financial business supervision of big technology companies should be involved in real time to avoid the relevant risks from being small to not worthy of attention, evolving to large and cannot be ignored, or even large and cannot be collapsed.
6、 What is the impact of the development of FinTech market on financial stability?
First, FinTech can reduce costs and improve customer convenience by expanding its product range. More diversity and competition in lending, payment, insurance, trading and other financial services can make the financial system more effective and resilient, thus improving economic efficiency. Despite these potential benefits, competition may also exert pressure on the operation of existing financial institutions and erode their capital strength, especially making some small and medium-sized financial institutions face greater risks, which may increase the risk of financial stability. For example, with the penetration of large technology companies with financial technology advantages into the county, some traditional small and medium-sized banks used to rely on relationship financing to provide services, and at the same time, they may have relatively stable interest margins and can operate normally. However, with the penetration of financial technology companies into these fields, they have eroded the customers of these small and medium-sized financial institutions, and their funds and loans have been greatly affected. Under such circumstances, what kind of impact may be needed for us to study in depth. How to give full play to the role of large technology companies in promoting inclusive finance and promote the healthy development of small and medium-sized financial institutions, there are still many problems that need our in-depth study.
Secondly, because of the great network effect, the entry of Fintech companies may lead to a higher degree of market concentration, especially some non-traditional financial service providers. For example, platform information companies are more likely to incur systemic risks if their market operations fail or network security incidents occur. For example, in May 2016, an optical fiber was damaged in Hangzhou, and a large number of Alipay users could not log in; In September 2018, the Hokkaido earthquake in Japan triggered large-scale power outages, making many residents face the problem of inability to pay. At the same time, if financial institutions highly rely on third-party data services such as cloud computing, it will also increase the risk of externalities. Although cloud computing services have not yet been used in the core business module of banks, if more and more financial institutions use cloud services to process key businesses, the interruption of cloud services will have an important impact on financial institutions using these services. In the case of highly centralized cloud services, once attacked by the network, systematic financial risks may also be formed.
In addition, the convergence of business models and algorithms will also lead to market fluctuations. The original bond market is an over-the-counter market, which is stratified and trades with customers through core dealers and dealers. In recent years, more and more electronic trading platforms have emerged, and the financial market has become flat. On the one hand, it has improved the efficiency and narrowed the interest margin between transactions, but on the other hand, once the market fluctuates and problems occur, there will be herd effect. In times of crisis, the profit margin will suddenly expand a lot. Is the traditional layered transaction mode bad? Is electronic trading platform better? How to deal with such a relationship? I think this issue also needs our in-depth study.
Today, I take this opportunity to extract and report to you some important issues I think about about the development of financial technology. To promote the healthy development of FinTech, I think it is necessary to grasp at least the following four aspects:
First, scientific and technological innovation is important, but it does not represent the system. In the process of scientific and technological development, relevant legal supervision systems need to be improved.
The second is to handle the relationship between innovation and regulation. Under the current irreversible trend of financial technology development, financial supervision needs to consider how to promote innovation and prevent risks.
Third, how to deal with the relationship between the efficiency of data use and privacy protection when Fintech companies are increasingly using big data.
Fourth, in view of the development of financial technology, the form of financial risk has developed and changed. How can supervision keep pace with the times.
(About the author: Xu Zhong, Director of the Research Bureau of the People's Bank of China)
