Editor's note: This article is a speech by Long Baitao to the Executive Board of the Bundesbank, "Fintech and Large Technology Companies and Central Banks-Conflict of Interest or Common Mission? 》 Comment, readers can click the link to view the original text.
The Bundesbank Executive Board, Burkhard Balz, gave an overview of German fintech in his speech, analyzing the risks posed by large tech companies and their impact on public policy.
German fintech is at the stage of market maturity, which is reflected in two aspects. First of all, from the perspective of investment and investment methods: German fintech investment surged in the first half of 2019, an increase of nearly 80% over the last quarter of 2018, but the investment was no longer diversified but concentrated on several large-scale financing. Second, the number of cooperative venture companies between fintech companies and existing companies is increasing, which is a win-win result.
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Balz believes that large technology companies have become important competitors for banks with their large user base, technical expertise and financial resources. They are working hard to build a large closed ecosystem, exchange consumers' valuable data resources with free services, and dominate customer relationships with consumers, leaving banks at risk of disintermediation. Large technology companies have also expanded beyond payment services and have even entered the core area of the banking industry-currency creation. As a response, cooperation between banks is becoming more and more important. Only when the European banking industry as a whole can provide attractive solutions to customers can European banks be viable.
Balz believes that large tech companies pose many challenges to public policy, such as fair competition. But the supervision needs to supervise them in accordance with the principle of "same business, equal risks, and similar supervision".
For comparison, I want to compare the development and supervision of large technology companies in China and Germany.
If Balz were asked to work for Zhou Xiaochuan or Yi Gang in the People's Bank of China, he might find it too easy to work for the German central bank. The speed of business model iteration and evolution in the financial services sector of large Chinese technology companies, and the depth and breadth of their supervision, are among the best in the world. Ant Financial and Tencent have become the most typical representatives of large global technology companies. In addition to their huge user base, brand, huge technical and financial advantages, their development history is also inseparable from China's single market advantage and the relatively stable advantages of China's macro economy and finance after the 2008 Global Financial Crisis (GFC). .
The biggest regret of Germany (even expanded to Europe) in the Internet era is that it failed to form a large domestic Internet company. This is related to the European market that appears to be “single but actually fragmented”. The giants such as content are all American companies, and they are therefore the objects that Europe is most afraid of in this digital wave. In China, Alipay (the predecessor of Ant Financial Services Group) has cut into third-party payments in order to solve the problem of trusted third parties in e-commerce business, and has established a private network platform that connects directly with almost all important banks in China. Payment is the core of this network platform, which connects all economic activities on the platform, and these economic activities also generate new data, so the Alipay network platform can monopolize all the data passing through the platform. Based on these big data and Alipay's big data processing experience , the Alipay network can provide users with more customized products, so it attracts more users into the Alipay network. Alipay launched Money Market Fund Yu'E Bao in 2013. This is not the first. Paypal in the United States launched the American version of Yu'ebao as early as 1999, and reached a scale of one billion US dollars at its peak in 2007, but it was finally announced to close in 2011. The most important reason here is that after the GFC, the Federal Reserve implemented three rounds of large-scale quantitative easing policies leading to ultra-low interest rates. The policy of close to zero interest rates continued until 2015. The money market fund is essentially an investment behavior that collects retail savings funds to the interbank market for arbitrage. When the interest rate in the interbank market is close to zero for a long time, this arbitrage mechanism is invalidated, so money market funds have difficulty in making profits or operating losses. After the GFC, China's macro economy and finance have been thriving. The interest rate on funds in the interbank market has been above 3-4%, and it has fallen to around 2% only in the last two years. Therefore Yu'ebao can create stable returns for investors. As a result, Yu'ebao has also developed into the world's largest money market fund, with a scale of more than RMB 1,000 billion. Alipay leverages its strengths in big data and big data analysis to analyze and predict the liquidity model of the money market funds it manages, so it can effectively manage liquidity risks and use the balance of money market funds as a payment tool. As a result, they developed the digital currency business. In the process of Yu'e Bao's development of money market funds and payment (essentially RMB digital currency) business, this inevitably touched the interests of traditional banks. However, China ’s supervision has given Yu'ebao a certain “grace period” very intelligently, which gives them the opportunity to consolidate its advantages and develop into a large-scale technology giant with a DNA business model as its core. Therefore, the formation of Chinese technology giants is closely related to China's macroeconomic advantages and regulatory wisdom.
Alipay / Ant Financial and WeChat can provide a wide range of financial and non-financial services. The development of large technology companies has brought challenges to data policies, fair competition, and financial stability to public policies. China's central bank's experience in supervising large technology companies may have implications for global central banks.
Ant Financial and Tencent are both independent and closed ecosystems. They have developed a complete economic activity through payment. Their mobile payments have accounted for 16% of China's GDP. Different from the traditional bank-centric financial hierarchy, they have developed industrial organizations that focus on the payment business and extend financial services such as asset management, lending, and insurance. In fact, they have become information oligarchs, monopolizing the data value of their networks, and lacking interoperability with their peer network platforms, creating barriers to cross-network transactions and forming market fragmentation. The mandatory exchangeability of the digital currency and fiat currency issued by the People's Bank of China has reduced the transaction barriers set up by the payment network. The People's Bank of China is responsible for online payment settlement of non-bank payment institutions by cutting off the channel between banks and all third-party payment service providers and establishing a networked platform, thus weakening their power to monopolize data and creating a more fair for other small payment service providers The competitive environment. The central bank also reinstated their reserve accounts from commercial banks to the central bank, canceled the reserve interest rate, and increased the reserve ratio requirement from the initial 10% to 100%, thus eliminating the possibility and misappropriation of their reserve interest. Financial stability risks posed by backup funds (think of other ways). The central bank also set a ceiling of 10,000 yuan for a single currency fund daily withdrawal, effectively mitigating the liquidity risk of money market funds (the balance is used as a payment instrument). After the financial services of Ant Financial and Tencent have reached a considerable scale, the central bank has required them to hold the necessary financial licenses in accordance with the principles of traditional financial companies on a par with the principle of “same business, same risks, and same supervision”. Regulation is expected to be consistent.
Compared with the supervision of large technology companies, China's supervision of other fintech fields, such as P2P and crypto asset industries, is relatively simple, direct and rude. Either ignore the financial risks and let the industry run wild like wild horses, causing all the feathers in one place to be cut across the board and dump all the "dirty water and children" (for example, for P2P finance); After discovering the potential of the industry, we will give "super courtesy". If the practitioner rides a roller coaster, sometimes the bottom of the wave and the peak of the wave, it is not clear whether he is a gangster or a pioneer. Therefore, China's regulation needs to provide practitioners with a definite and predictable environment, and communication and collaboration between various public sectors should be strengthened to form a consistent and coordinated regulatory framework.
December 3, 2019