By Zhang Chenghui, Zhu Hongming, Wang Yang, Chen Ning, Sun Chao & Zhang Shaofeng

Research Report Vol.20 No.3, 2018

Over recent years, the rapid development of Fintech has promoted overall reform of the financial industry. Fintech has played a great role in serving the real economy, preventing and controlling financial risks, supporting innovative development and enhancing supervision. Still there are problems and chaos, so it is necessary to provide orderly guidance and improve supervision to regulate the development of Fintech.

I. Connotations and Current Status of Fintech

Fintech is the latest international appellation of “Finance + IT”; it covers and expands the notion of “Internet Finance”. According to Financial Stability Board (FSB), Fintech refers to the financial innovation enabled by technology; it creates new business modes, applications, processes or products, and thus exerts big impact upon the financial market, financial institutions and provision of financial services. Specifically, Fintech applies technology innovations such as big data, cloud computing, mobile internet, artificial intelligence, and block chain to financial sectors such as payment clearing, loan financing, wealth management, retail banking, insurance, and transaction settlement to highly integrate finance and technology, thereby enhancing financial efficiency, optimizing financial services, and improving financial supervision.

The Fintech development occurs at the right time in China. Traditional finance has many drawbacks which need to be addressed in new ways. For example, deficiencies are found with the finance serving real economy in addition to the cumbersome procedures, high costs and increasing frauds related to financial services. Meanwhile, the IT industry develops rapidly by riding the new wave of technological revolution in the world; the leading technologies represented by big data and cloud computing already provide new technological solutions to the development of other industries like the financial industry. The match between supply and demand leads to the in-depth and rapid application of IT in the financial sector.

Based on the rapid application of the Internet and especially the mobile Internet, China leads the world in terms of the Fintech development speed. The report on the 2017 Fintech Rankings Top 100 List released by the international famous Fintech investment company H2 Ventures and the international accounting and consultation agency KPMG shows Chinese firms hold the top three spaces, and 5 among the top 10, 8 among the top 50 are all Chinese companies, including Antfin, Zhong An Insurance, Lufax and JD Finance.

II. The Positive Role of Fintech

1. Promote the development of inclusive finance

Currently, Fintech is primarily used in inclusive finance and great headway has been made in this regard. The big-data technology is most suitable to be applied with the scattered and small-sum loans offered to a big number of small and micro-enterprises and individuals. The Fintech helps financial institutions identify risks, reduce search and transaction costs and increase risk pricing capabilities; matches the large-scale supply and fragmented demand, lowers the financial service threshold, and enables the small and micro-enterprises and individual consumers to have access to financial services at a lower cost. As thus, the coverage of financial service is effectively expanded. Fintech boasts particularly prominent advantages in improving the rural financial services, increasing micro-credit supply, and helping the e-commerce platforms do a good job in the supply chain financing.

2. Increase the efficiency of financial operation

The application of big data technology can help to address the difficulties in various links of financial transactions and significantly enhance financial operation efficiency. First, with the clients’ authorization, it helps financial institutions to acquire information, analyze customers in multiple dimensions, precisely target customers and conduct marketing correspondingly, and endeavor to win potential customers in a deep-going way, so as to expand the customer base of financial institutions. Second, it helps the small and medium-sized financial institutions overcome such problems as big operation risk, availability of limited products and high transaction cost and provide them with intelligent solutions. Third, it stimulates innovation in the commercial modes of financial institutions, like to help large financial groups build the product sales platform, data operation management platform and innovation service platform that feature the telephone-Internet-mobility integration, online and offline combination, and interaction among multiple financial products, and foster their customer-oriented comprehensive service capabilities.

3. Enhance risk prevention and control capabilities

Fintech provides technological support for risk prevention and control of financial institutions. Currently, the credit information system of the People’s Bank of China just covers 300 million people, with the major information source being the banks’ lending data. The Fintech companies hold multi-dimensional data about enterprises and individuals as well as other financial and para-financial institutions, including online lending platform data, government data, operator data, consumption data and social data. They provide financial and para-financial institutions with supportive services regarding the key links including the multi-dimensional APP management, credit investigation and loan application verification, management after loan, debt collection and disposal of non-performing assets, and asset-liability management. They help increase the verifiability of the real-name accounts opened online, guard against frauds and credit risks, like transaction fraud, online fraud, telephone fraud, gang fraud, evil intermediaries, lending from multiple sources and overdue loans, and detect such non-compliant behavior as mis-operation, sale misguidance and information leakage, to increase internal control efficiency and keep operation risks in control.

4. Enhance financial supervision efficiency

Fintech can help enhance financial supervision efficiency at multiple levels. First, it is to help financial regulators timely detect potential risks, build an effective financial risk pre-warning mechanism, take the initiative to prevent and defuse risks rather than passively guard against risks as before, and leverage the big data technology to greatly reduce the supervision cost. Second, it is to help the financial regulators and financial institutions to improve the compliance auditing effect, and build a mechanism for timely feedback on regulatory policies, with a view of propelling the financial institutions to carry out business in compliance with rules and regulate the transaction behavior of investors. Third, it is to set the investor education columns with various APP platforms to spread education in financial knowledge, increase the risk awareness of financial consumers and investors as well as their self-protection capabilities.

III. Development Trends of Fintech

1. Profound impact upon and restructuring of the financial industry

Fintech’s impact upon the financial industry is reflected in the following aspects: First, it plays a positive role in addressing the short boards of traditional finance and especially inclusive finance; second, Fintech’s impact upon the financial institutions has expanded from commercial banks to non-banking financial institutions like insurance companies and securities companies; third, it is to further enrich the product types, business modes and organization systems of traditional finance; fourth, it is to gradually expand to in-depth financial innovation as reflected in the issuance of private digital currencies; fifth, it is to promote fragmentation of traditional financial products, businesses and procedures, break down the single product chains of financial institutions and externalize them into multiple vertical industrial chains, deepen socialization of financial services and reconstruct the financial industry.

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