Article from WeChat public account:Banker Magazine (ID: The-Chinese-Banker) , author: COLLECTED ESSAYS, from FIG title: Oriental IC
Financial Technology (FinTech) has become a hot spot for venture capital in recent years, but its development model is still controversial, such as P2P network lending , big data risk control, etc. At the national level, in August 2019, the People’s Bank of China issued the “Financial Technology Development Plan (2019-2021) (Silver Hair [2019] No. 209), made a top-level design for the development of China’s financial technology. From the perspective of policy measures, the contents of the Plan and the October 2018 International Monetary Fund (IMF) and the World Bank released “Bali The financial technology agenda “(THE BALI FINTECH AGENDA) has many similarities, emphasizing the efficiency of financial technology in the existing financial industry, inclusive finance The role of development, risk prevention and control.
However, in the practice of financial technology development, there is a bias in how to theoretically explain financial technology. The author believes that according to the “credit capitalization” theory, the biggest influence of financial technology on the financial industry is to make credit truly become a kind of capital, so that the development of the financial industry is based on “credit”. Based on the basic theory of credit capitalization, this paper reinterprets financial technology, and based on this theory, re-examines the problems existing in the development of financial science and technology, and proposes countermeasures accordingly.
Credit Capitalization: Explaining a New Perspective on Financial Technology
The financial industry has always been at the forefront of adopting advanced information technology. New information technology represented by artificial intelligence, big data, cloud computing, etc. has been applied to the financial sector. The core of its promotion is “credit capitalization” (Credit Capitalization).
The basic meaning of credit capitalization and its development process
“Credit” is an important factor in organizing human society. In the self-sufficient small-scale peasant economy stage, credit appears as a moral factor in society under more circumstances. The stage of regulating social activities is the stage of “credit moralization”, and capital has obvious personality characteristics. In the era of industrialization, the scope of transactions and contacts has expanded to the entire society. Market-oriented institutions have entered credit markets as an “information product” and are mainly used to evaluate the reliability of commodity transactions. This stage is the stage of “commercialization of credit”, and capital no longer has the characteristics of personification.
In the information age, with the large-scale application of financial technology, credit has developed to the stage of capitalization. The integration of economic resources through credit has largely liberated human economic activities and social activities from the dependence and idleness of tangible economic resources, and credit has become the capital to allocate and integrate social resources. “Credit capitalization” has become the core of financial technology.
The explanation of the rise of financial technology by credit capitalization theory
It is generally believed that the rise of financial technology is mainly based on improving the efficiency of information processing in the financial industry, thereby significantly reducing the cost of financial services. According to the theory of credit capitalization, financial technology provides a brand-new credit evaluation model through large-scale data collection, processing and analysis, and makes credit evaluation dynamic and fully integrated into the production and life process, thus making credit a real Capital, thus solving the problem that “credit” in the industrialized era cannot play a greater role in finance.
First, the evaluation of individual credit based on big data can accurately describe the integrity of the individual and its future income, which will help financial institutions to make more accurate judgments. That is to say, credit is equivalent to a kind of capital. For individuals, the network becomes the carrier of trust transmission, and the individual’s data identity is increasingly compatible with the actual identity.. Data becomes the basis for credit assessment. For enterprises, based on the data of industrial Internet and digital supply chain, it can analyze the whole process of production, marketing and inventory of enterprises, thus opening the black box of enterprise production, so that financial institutions can generate trust to enterprises. Financial technology companies began to use big data to correct the original credit evaluation model and risk control model.
Secondly, financial institutions can use credit to make decisions about whether or not to finance individuals. Financial technology can use hidden information to make an overall assessment of an individual’s credit, so that financial institutions can use credit to make decisions about whether to give individual financing, and credit acts as a hard asset.
Viewing the development of financial technology from the perspective of credit capitalization theory
The existing financial technology development is based on efficiency theory rather than credit capitalization theory, which raises many questions:
First, the traditional financial institutions that use financial technology ignore the role of credit capital, and it is difficult to alleviate the financing difficulties of small and medium-sized enterprises. Existing financial services rely on asset collateral rather than data, making it difficult for small and micro enterprises to obtain financial support. The key to preventing and controlling financial risks is to identify credit. But existing financial institutions assume that all counterparties are untrustworthy or have no credit. Therefore, there is almost no room for “credit” in all financial activities, which directly leads to rising transaction costs, low transaction efficiency, and serious unfair financial resource allocation. For the whole society, since credit cannot be directly reflected in value or capital, it is meaningless to accumulate credit capital, and the whole society is caught in the predicament of not speaking credit.
Traditional financial institutions did not fully use financial technology to improve their risk assessment and credit evaluation after the introduction of financial technology, but played a role in financial capital, but emphasized the improvement of existing service efficiency, which did not completely solve The aforementioned problem of insufficient use of credit capital.
Secondly, technology-based financial technology companies emphasize the use of business model innovation to achieve broad financial coverage, ignoring customers’ credit capital, and generating certain financial risks. With the rise of next-generation information technologies such as big data, cloud computing, artificial intelligence, and blockchain, the possibility of using technology to make financial decisions is increasing, which makes smart finance, big data finance, and districts Blockchain finance and so on began to appear, and tried to reconstruct the financial business system, business model and risk control system, so that the integration of financial industry and technology is deeper. However, many technology companies attach great importance to business model innovation after they are involved in finance, emphasizing the Internet to expand customers.The high efficiency, while ignoring the basic role of “credit” in the process of financial development, makes these financial technology-based financial business model innovations accumulate certain risks in the development process.
Thirdly, there is still a lot of room for the reform of the financial supply side in the issue of credit rationing under the mitigation of risk identification. Under the existing financial risk assessment model, due to information asymmetry, financial institutions often cannot effectively identify “good” in the loan market. (Honest and trustworthy , prepare for repayment) the borrower and the borrower of “bad” (low credit, no repayment), so it The loan interest rate is determined by the average credit quality of all borrowers, and the quality of the assets they own is used as the basis for credit rationing. In the case of information asymmetry, credit rationing is the basic tool for banks to control credit risk to improve information asymmetry. It is the long-term equilibrium of credit under the banking system, that is, banks choose to lend loans to a small number of customers who meet the bank’s risk management requirements. Not a customer with full repayment ability.
Because of credit rationing, the supplier (banks and other financial institutions) has the dominant position in the market, and the market clearing interest rate level will be further Lishui, which will enable low-risk borrowers to choose other channels for financing. High-risk borrowers are not sensitive to interest rates, market risks are increasing, and financial institutions will further reduce the size of credit business, leading to a shrinking credit market.
The goal of fintech is to identify low-risk borrowers who have been killed by bank credit rationing. To do this, you need more data dimensions, in addition to using hard information (including financial statements, asset valuation reports, business conditions, collateral, etc.)
The collection of such information is difficult, and most of them are unstructured information. Traditional financial credit evaluation models tend to ignore this part of information intentionally or unintentionally, and collecting and processing such information is exactly what financial technology is using to its strengths. local. The role of soft information is an important part of the structural reform of the supply side of the financial industry, but it needs a good data foundation and a continuously optimized credit evaluation model. At present, the ability of financial technology in these two areas still needs to be further improved.