Author: Bai Shi Pan (National University visiting professor at Singapore, former president of the Singapore Institute of Monetary Authority); Ding-chang election (Deputy Director of the China Securities Regulatory Commission); Yan Li (Nanyang Technological Strategy Department Senior Lecturer and bilingual MBA academic director of the University Business School )
Editor's note: This article was originally published in Singapore's Lianhe Zaobao.
Singapore's "Smart Country 2025 Development Plan" describes the future development of Singapore's financial industry as the world's leading innovative smart financial center. Looking at the increasingly complex global financial activities, the effective integration and synergy of FinTech with traditional financial institutions is an important way to achieve this goal and stay ahead.
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Finance essentially trades the right to receive returns based on expectations of returns and risks. The transaction itself does not create value, it is just an exchange between values, and exchange has two requirements, namely fairness and efficiency. Whether it can achieve the greatest degree of fairness depends on people's credit, and the key to credit issues is information asymmetry, which causes a series of problems such as transaction friction in the financial market, which increases transaction costs and weakens the financial market Effectiveness. Traditional financial institutions have been facing difficulties in effectively dealing with information asymmetry. At the same time, like other large multinational companies, most international financial institutions have problems such as insufficient flexibility and agility in organization and operation, and poor consumer experience.
In the tide of the fourth industrial revolution, "subversion" has become synonymous with the promotion and development of various types of science and technology. However, we must clearly point out that fintech is not used to subvert traditional financial institutions! Fintech will provide effective technical support and business model innovation for the development of traditional financial institutions, inject new impetus and open new directions for the development of the industry. With the development of big data analysis technology, credit evaluation is continuously improved. The data acquisition and evaluation capabilities of traditional financial institutions are no longer sufficient to support the credit evaluation required by contemporary people's growing financial service needs. Fintech supplements the shortcomings of traditional financial institutions' insufficient data acquisition and analysis capabilities.
Fintech uses the rapid development of information technology to minimize the problem of information asymmetry, facilitate transactions, and improve the consumer experience. So it is not difficult to understand that we have witnessed the cooperation of banking institutions with major Internet or technology companies, such as in China, ICBC and JD, Bank of China and Tencent, China Construction Bank and Ant Financial, Agricultural Bank of China and Baidu; in Singapore, DBS The bank and GoJek, UOB and Grab, OCBC Bank and Xiaomi have all established cooperative relations to complement each other and achieve mutual benefit. Recently, the Singapore government also announced that it will issue five digital banking licenses to companies in the non-financial industry. This policy was interpreted as favorable by the market. On the day of the policy announcement, the stock prices of the SGX and local banks increased significantly. Is the best example.
Traditional financial institutions do not lack the ability to innovate, and the innovation of various financial derivatives can be said to be beautiful. However, we have to point out that most innovations are still a little distant for ordinary people; for qualified investors, they are more or less over-innovated. The most prominent advantage of fintech is innovation, which can break through the development bottleneck of the inclusiveness of traditional financial institutions. Traditional financial institutions have difficulty serving SMEs and vulnerable groups with relatively low credit ratings or lack of credit records.
At present, fintech can widely use information technology to obtain big data, use advanced algorithms such as cloud computing, deep learning to analyze and process information and even non-financial information, and extract applications, promote microcredit, and promote the development of micro-finance. Many small and medium-sized enterprises and individuals who cannot obtain the services of traditional financial institutions are included in the scope of financial services. As Dr. Kaifu Li said in the book AI-Future:
"In addition to obvious financial indicators, artificial intelligence uses analytics that loan reviewers consider to be irrelevant, such as the rate at which a user enters a date of birth, how much power is left in a cell phone battery, and thousands of other data. These data are It is not seen to be related to the risk of loans, because it is difficult for humans to identify the hidden relationship in massive data. But artificial intelligence uses millions of loan data to train algorithms and discover thousands of weak characteristics related to credit. These Unusual indicators have become the 'new aesthetic standard' for reviewing loans, replacing traditional standards for personal credit reporting. "
Fintech can promote the upgrading and upgrading of the infrastructure of traditional financial institutions. Fintech's foothold is the application of information technology. Information technology can be used to informatize and intelligently transform the traditional financial institutions' logistic support, contract management, investment strategies, service terminals, etc., and build the technological ecological environment of traditional financial institutions. Improve management, efficiency and consumer experience.
Fintech can deepen the value chain and risk control capabilities of traditional financial institutions. Traditional financial institutions focus on the evaluation of existing historical information, it is difficult to fully tap the potential information, it is difficult to pay attention to the entire value chain of customers, and it is more difficult to meet customers' financial service needs in a timely and dynamic manner. Fintech can use the advantages of information technology to encourage customers to actively share the application scenarios of production and operation activities by establishing information platforms and customer incentive mechanisms, to dynamically track important links in the value chain, and to dynamically understand the financial product and service requirements of enterprises, effectively Seize the entry point of financial business and share with customers the value created by the successful implementation of new solutions.
Fintech can promote the innovation of financial products and business models of traditional financial institutions. Traditional financial institutions are characterized by high security of assets, but for ordinary people, the types of financial products and services are very limited. Fintech companies can use their strong financial product and service R & D capabilities to leverage the asset security advantages of traditional financial institutions to form synergies and develop new financial products and services on a lower cost basis. At the same time, fintech methods are infiltrated into all aspects of the business of traditional financial institutions, creating new business models to make up for the shortcomings of poor consumer experience in traditional financial institutions; improving financial efficiency, enhancing time flexibility and geographical space Convenience. Just like the "Open Banking" model that is currently emerging in the UK and Europe, banks establish and open API: Application Programming Interface (API) ports to allow third parties, such as fintech companies, to acquire bank customers When authorized, access and apply financial data of bank customers through API ports in order to design and provide better products and services. As a result, the relationship between fintech companies and banks has changed from competition to cooperation, just like the relationship between mobile phone application software App developers and mobile phone operating systems! The Monetary Authority of Singapore (MAS) also publishes the Fintech API Register through its website. Financial institutions can register voluntarily, share customer data and other information with fintech startups, and encourage development similar to "open banking."
When we discuss "subversion", traditional financial institutions should not be regarded as a stumbling block to fintech. Traditional financial institutions provide broad development space for fintech. The attributes of fintech are first and foremost technology, and technology itself does not have financial functions. Only when it is effectively combined with finance can it reflect financial value. The demands of traditional financial institutions for the upgrading and transformation of existing businesses and the innovation of financial products and services can be regarded as the driving force for cooperation with fintech companies to jointly expand business opportunities, create customer value, and achieve a win-win situation. If you want to say "subversion", then it should be our existing outdated and conservative thinking mode. Fintech is a major driving force for our financial industry to develop towards Technology-Based Finance and realize the future of traditional financial institutions. Opportunities for development and innovation. Just as "competition" is the source and driving force for the development of a market economy.