Fintech will help boost real economy

Technology will potentially provide the tonic needed to get finance and business working efficiently in the near future

The latest Central Economic Work Conference of China has put boosting the real economy high on the agenda for 2017. A real economy that provides products and services is the key to a country's economic success and the finance industry should serve its development.

Due to information asymmetry, security problems and restrictions on time and space, the traditional finance sector presents many barriers to serving the real economy. However, in recent years, the appearance of Fintech (financial technology) has brought new opportunities.

Fintech refers to the technologies that can be used in the financial sector to help traditional companies innovate, such as the mobile internet, big data, cloud computing and the blockchain. It could help solve problems that traditional financing may have.

Technology could be the main driver for financial innovation, which would then stimulate consumption and encourage the development of businesses, especially small and medium-sized companies, and then boost the development of the real economy.

Financial products and services using Fintech would be more efficient and of higher quality compared with their traditional counterparts. Fintech would greatly influence some key aspects of the finance industry, such as risk, leverage and credit.

First, Fintech would make products and services safer and more efficient to support the real economy. For example, the common use of online payment tools such as Alipay and Wechat wallet, increases the efficiency of transactions and lowers costs. Moreover, a financial services system based on blockchain technology will make data produced by companies more accurate. Accurate data will greatly improve the efficiency of companies' operations.

Second, Fintech will improve China's economic and consumption structure. The upgrading of industrial and consumption structure is a key element in China's supply-side reform. Under the current traditional financial system, consumers face problems borrowing and companies find it difficult to get loans from banks. One report showed that in 2016 consumer credit accounted for only around 5 percent of the whole credit market, which is about 30 percent lower than the rate for developed countries. By the end of 2015, China had more than 20 million companies and 54 million self-employed entrepreneurs, but only about 10 percent of them were able to get loans from the banks.

Fintech provides a solution to this. In the individual consumption sector, credit instruments have become quite commonly used. For example, internet retail giant JD.com has launched an online financial service which allows consumers to borrow money for purchases and, if they pay it back within 30 days, pay no interest.

For companies, there are many peer-to-peer lending platforms emerging in China, which are based on big data. With Fintech, these p2p platforms could collect money from individuals and then lend to companies and individuals, based on an evaluation of their information, which would also increase the quality and efficiency of financial activities.

In the end, Fintech would provide a better way of avoiding risk, which is important to the stable development of financial activities.

The application of big data in the financial industry will make it easier to develop reliable risk control systems, which could supplement more traditional risk control systems based on the financial reports. If a company is likely to commit financial fraud, big data from online transactions, payments and other related issues could predict such a situation. This could help improve the financial institutions' ability to assess default risks.

Yang Wang, a researcher at the Hande Institute of Finance in Shenzhen, and Qu Shuangshi, a researcher at the International Monetary Institute of Renmin University of China.

The views do not necessarily reflect those of China Daily.