Ba Shusong, chief Chinese economist at the Hong Kong Stock Exchange: Blockchain is a cure for the problem of the credit market

A few days ago, the State Council executive meeting pointed out that credit is the basis for market players to settle down. Strengthening credit supervision is the foundation and the key to perfecting the market system, which can effectively improve supervision efficiency, maintain fair competition, and reduce market transaction costs.

According to the information of the websites of dozens of branches of the People's Bank of China in Beijing, Shanghai, Guangdong and Shandong, the author found that since the publication of the Regulations on the Administration of Credit Information in 2013, the number of institutions that have obtained the license for enterprise credit registration exceeds 130. However, about 20 of them have already canceled the corresponding qualifications due to business adjustment or long-term non-substantial credit investigation. The clear requirements put forward by the State Council executive meeting and the move by the People's Bank of China to restart the corporate credit reporting channel mean that China's credit information market may enter the fast and standardized development path with the help of supervision.

The market is increasingly demanding the credit industry

With the sustained and steady development of the economy, the overall size of China's credit market has continued to grow rapidly, with the development of personal credit business particularly rapid. According to the China Banking Association, credit cards, for example, have issued 790 million credit cards by the end of 2017, with an average annual growth rate of 17.4% over the past nine years. Since 2013, the market size of China's Internet finance and consumer finance has also expanded rapidly. At the same time, the scale of corporate credit is also growing year by year, but the growth rate of corporate credit is also the non-performing loan ratio of financial institutions. Taking commercial banks as an example, according to data released by the China Banking Regulatory Commission, the non-performing loan ratio of Chinese commercial banks rose from 1.04% at the end of the first quarter of 2014 to 1.83% at the end of the fourth quarter of 2018, and the corresponding non-performing loan balance rose to 20,300. 100 million yuan.

Risk control is one of the core of financial business, and the importance of credit reporting as a basic tool for financial risk control is not necessary. The continuous increase in the scale of credit business requires the credit system as a support, and the rapid development of new credit business and the emergence of problems such as non-performing loans have put forward higher requirements for the improvement of the credit information system.

From a global perspective, the main models of the credit industry are broadly divided into three categories, including government-led, market-driven and membership.

China is different from the credit industry in most countries in Europe, and its model is not for profit. The overall pattern of the industry is dominated by the People's Bank of China, supplemented by private credit reporting agencies. The People's Bank of China Credit Information Center has led the construction of China's credit information system, collecting corporate and personal credit information from various financial institutions, enterprises and institutions, establishing an archive of corporate and personal credit information, and providing conditional enquiries.

In market-oriented countries such as the United States, the United Kingdom, and Canada, the overall pattern of the industry is dominated by commercial credit reporting agencies that can collect and process corporate or personal credit information to produce credit reports and earn Take the proceeds. In this model, the main role of government agencies is to develop laws and regulations in the credit reporting industry and to supervise the implementation of laws and regulations. Under the membership model, industry associations lead the construction of a non-profit, centralized credit platform. Members of the association upload their own corporate or personal credit data to the platform, and can use the platform to query the credit data uploaded by other member institutions. Currently, the representative country of the membership model has Japan.

The People's Bank of China began to build a bank credit registration and consultation system in 1997. In 2002, the system was completed and completed the “level office – province, city and city” level. From 2004 to 2006, the People's Bank of China transformed the bank credit registration consultation system into a corporate credit information system, and at the same time completed the establishment of a personal credit information system.

Although the credit information system led by the People's Bank of China was launched in 2006, its rapid and standardized development in China's overall credit industry began in 2013, because the credit management industry was promulgated this year. The Regulations and the Measures for the Administration of Credit Information Agencies, and China's Internet finance industry have also shown rapid development potential. Due to the filing system of corporate credit reporting, the threshold is far lower than the personal credit information business. In 2014, many organizations that sniffed business opportunities actively carried out credit investigation and filing work in various branches of the People's Bank of China, and waited for the first personal credit report. The license is 100 years old, and it is 2018 years after four years.

Due to the non-profit and non-market positioning, the coverage of the existing data of the People's Bank of China Credit Information Center is relatively limited, and there are still many credit households. In addition, the People's Bank of China Credit Information Center has relatively high requirements for access institutions. Most non-bank financial institutions fail to meet their thresholds and cannot access the credit information system, resulting in the rise of Internet finance in the People's Bank of China's credit reporting system. The reality of the lack of coverage in the consumer finance industry. However, in fact, these emerging financial sectors have a short development time and a fast growth rate, and are in the stage of requiring strict wind control to support their steady development. In the past two years, there have been many incidents of “violent thunder” on the P2P platform. A considerable part of them are caused by blind expansion and lax control, which has brought losses to investors. At the same time, due to the huge demand for data and the lack of corresponding channels to obtain data, some financial institutions are forced to purchase data from informal channels, but often such informal channel data have problems such as poor quality and serious water seepage. Unable to meet the requirements for conducting subsequent data analysis services.

In addition, due to information asymmetry, financial institutions are unable to obtain detailed SME credit information, which has caused SMEs to suffer from long-term financing difficulties and financing problems. If we can help financial institutions to establish accurate credit images of SMEs through the circulation and sharing of information, we can solve the financing problems that SMEs face for a long time.

For institutions in the emerging financial industry, the first is that they do not reach the threshold of accessing the credit system of the People's Bank of China. Second, there is no suitable commercialization credit institution in the market. Therefore, can we share the credit data with the organizations in the industry with reference to the Japanese membership model? The answer is that it is difficult but not impossible. The main problem that needs to be overcome is the question of trust that has existed between agencies. The parties are reluctant to share their data with others, preferring to hold it in their hands, eventually leading to the formation of “data silos” and “long-term lending”. Fraudulent incidents such as “fraudulent loans” and credit defaults have occurred from time to time, and the non-performing loan ratio remains high. Therefore, if the problem of trust can be solved, the “island of data” will be opened up, and in the case of ensuring the interests of the data owner, the credit data will be standardizedly flowed and shared among financial institutions, and big data analysis will be carried out on this basis to meet The diversified and personalized credit demand of the industry will become the development direction of China's credit information industry in the future.

Blockchain provides solutions for shared credit reporting

According to the definition of the China Electronics Technology Standardization Research Institute of the Ministry of Industry and Information Technology, the blockchain uses a cryptographic technique to add a consensus-confirmed block to form a distributed ledger. The essence of the block is a distributed ledger, peer-to-peer transmission, consensus mechanism, encryption algorithm, etc. Collection of technologies:

The first is the distributed ledger. Distributed ledger refers to the fact that transaction accounting is done by multiple nodes in the chain, and all nodes record the same complete set of books, so each node can participate in verifying the legality of the transaction.

The second is point-to-point transmission. Point-to-point transmission refers to the direct communication between nodes on the chain without the need for traditional centralization mechanisms (nodes) for information interaction.

The third is the consensus mechanism. The consensus mechanism refers to the rules that all billing nodes in the chain follow to determine and verify the validity of the transaction.

The fourth is the encryption algorithm. The encryption algorithm refers to a cryptographic algorithm for protecting the privacy of data on a blockchain.

The blockchain is defined by the Economist magazine as a “credit machine”. Its core value lies in connecting the nodes that are not trusted with each other to realize the transmission of the trust mechanism, and has characteristics such as non-tamperability, traceability, and privacy protection. . As the underlying architecture, the blockchain network can interface with the application layer through interfaces to implement data interaction. Applying the blockchain to the shared credit information field can achieve the following value enhancements:

First, the encryption algorithm can realize the privacy protection of the data owner, and realize the data sharing and sharing under the premise of protecting privacy.

When each organization uploads data as a node, the blockchain network encrypts its plaintext data. The data on the chain exists in the form of ciphertext. Each organization has a different private key. The private key allows the organization. Adding, deleting, changing, and checking your own data. Without the authorization of the affiliated party, the organization cannot view or perform other operations on the other party's data, and ensure that the data privacy of the organization is not violated. With encryption algorithms, information can be shared accurately and flexibly. For example, when the organization on the chain wants to view the plaintext data of other participants, the application for decrypting the authorization may be initiated to other participants, and the party to the data may decrypt and authorize according to the situation, and the authorized granularity may reach the field level. It is also possible to authorize by time period or business role.

In addition, the zero-knowledge proof technique using the encryption algorithm can realize the information verification in the ciphertext state, which means that the transaction participant can verify the third-party transaction ciphertext without decrypting the ciphertext. That is, the zero-knowledge proof can enable the prover to believe that the assertion about the proof information is correct without providing any prover information to the verifier. Using the zero-knowledge proof, the participants on the chain can share the information based on the credit information to others without having to disclose their own plaintext data.

Second, the blockchain can guarantee the unchangeable modification and traceability of the credit data. Each financial institution in the chain participates in accounting as a node, and the books of each node are unique and unique, which can effectively prevent tampering of the credit data. At the same time, the data is uploaded with a time stamp and recorded in the block, and each block can only be connected to each other in a sequential manner, so that the data can be traced and the default cost of the institution or individual is increased.

Third, when a node contributes to the network, the blockchain can automatically motivate it. When each financial institution uploads the credit data it owns to the blockchain network, if other participants query the data, they will motivate all parties to the data, thus encouraging organizations to actively share and update the data.

Fourth, through the consensus mechanism, the blockchain network can achieve the unity of data sharing dimensions among databases of different organizations. In the credit information scenario, especially in the fields of Internet finance, consumer finance, etc., there has not been an industry standard for credit data, and there are differences in the classification and management of credit data by various agencies, and the consensus mechanism can guarantee the data sharing dimension. Consistency.

Fifth, when the node contributes to the network, the blockchain can use the intelligent contract to realize the automatic and fair incentive mechanism without the centralized background. When each financial institution uploads the credit data it owns to the blockchain network, if other participants query the data, they will motivate all parties to the data, thus encouraging organizations to actively share and update the data.

Sixth, the blockchain network can ensure the security of information. Since there are multiple distributed nodes in the network, when some of the nodes fail, the remaining nodes can still operate normally, and the information interaction can be interrupted. When the node is troubleshooting, the remaining nodes can copy their accounting books to the failed node, thus ensuring that they can still participate in accounting afterwards.

Seventh, the blockchain network has extremely high scalability. Each organization can participate in the blockchain network by the identity of the node, and use the API port to connect the application layer to the bottom layer of the blockchain in a flexible manner, which is easy to meet the sharing requirements of the credit data in the sub-sector.

Therefore, within the segment of the financial industry, financial institutions can jointly establish a coalition chain, encrypt and share their own data and query other information by means of the identity of the independent nodes of the blockchain and API docking. Since the data of all parties are encrypted and stored in the chain, the other party can only use the zero-knowledge proof to conduct the hidden query. In theory, there is no problem of illegally leaking customer data, and at the same time, the trade secret of the data owner can be guaranteed. . In addition, the alliance chain can design and follow the principle of “who contributes, who benefits”, guarantee the interests of the data owners, and help the institutions to achieve risk insight and early warning.

Through the above methods, the problem that the organization shares the data willingness, the update is slow, the manual collection of information takes a long time, and the cost is high, the access threshold is lowered, the dimension of the data source is enriched, and the platforms of various industries can also be based on the industry. Specific needs, customized development of big data analysis capabilities, flexible to meet the organization's requirements for wind control. At present, financial institutions in the market have begun to apply in the area of ​​regional blockchain sharing and credit reporting.

Explore multi-dimensional data interconnection

Despite the strong market demand in the credit reporting industry, the “Regulations on the Management of Credit Information Industry” also has clear provisions on the protection of the rights and interests of information subjects. For example, “collecting information should be approved by the information subject, and may not be collected without the consent of the person”, “ The information provider shall provide the credit information agency with personal bad information and shall inform the information subject in advance." The "Data Security Management Measures (Draft for Comment)" issued at the end of May this year also clarified the rules for network operators to collect personal information and data collection and processing applications. For example, network operators must not discriminate on the service, or use the default authorization. In the form of functional bundling, forcing or misleading individuals to agree to authorize the collection of personal information.

How to share the credit data in the form of the underlying network of the blockchain under the condition of ensuring legal compliance is the need for enterprises to explore together with the regulatory authorities. Digital certificates (CA) are one of the possible solutions. Program.

In addition, the data of the current blockchain sharing credit application is mainly concentrated on the blacklist sharing, but in fact, each organization can also exchange more dimensional data information through the underlying network of the blockchain. For example, the "silver tax interaction" policy proposed in recent years is to use the authoritative tax information of the national taxation department as a reference to help small and medium-sized enterprises solve the problem of "financing difficulties", and the blockchain can achieve the opening between the application agencies of government agencies and financial institutions. And bring value enhancement in terms of privacy protection, encryption sharing, and transmission efficiency for data interoperability between the two. Similarly, the power company also owns the company's power data, and can also serve as another authoritative information to assist SMEs to obtain loans. Data interaction between the power company and the application layer of the financial institution will also involve similar problems, and the blockchain also provides a very suitable solution.

Credit is the cornerstone of the entire financial industry. The degree of completeness of the credit information market is directly related to enterprises, especially the financing situation of small and medium-sized enterprises that contribute most of the employment volume. It is also related to the cost and risk of financial institutions, and even the sum of social benefits. Upgrade. In addition to the credit data, whether the organization can conduct more dimensional data interaction through the blockchain underlying network, and further promote the improvement of risk control capability, efficiency improvement or business expansion, is also the direction worth exploring in the future.

Author | Chief Economist of China Banking Association, Chief Chinese Economist of Hong Kong Stock Exchange Ba Shusong

PhD student Wang Menghan, University of Science and Technology of China

Source | China Securities News·China Securities Network