Yang Tao, "Voice of Think Tank": The current status, focus and future trend of the payment industry

Editor's note

On October 23, the 4th online seminar of "Huarui Fintech Salon" jointly hosted by Shanghai Huarui Bank, the International Monetary Institute of Chinese University and the Institute of Fintech was successfully held. Yang Tao, member of IMI Academic Committee, Director of Payment and Clearing Research Center of the Institute of Finance, Chinese Academy of Social Sciences, and Deputy Director of the National Finance and Development Laboratory, participated in the discussion. He believes that the current payment industry is facing unprecedented complexity, mainly behind the three considerations of regulatory policy, technology and demand. In terms of regulatory policies, in the future, it will mainly focus on the evolution characteristics of conventional supervision and non-conventional supervision and the trade-off of basic elements in the regulatory process. On the technical side, comparative advantages in the world and some issues of principle need to be considered; On the demand side, looking forward to the future, the development prospects from the B side are greater than the C end, and the cross-border aspect is a major growth point that cannot be avoided in the future.

The following is the full text of the speech:

The value and role of payment in the current economic and social development, business model expansion and financial activities are becoming more and more prominent. The development of China's payment market has both some common characteristics facing the world and some characteristics based on the national conditions of the mainland, and I mainly want to talk about several aspects of views for your reference.

First, the complexity of the entire payments industry is unprecedented. Whether from a global or continental point of view, payment is not only a channel that carries the payment behavior itself, but also superimposed on more connotations. From the perspective of the situation in the mainland, 1) There are many participants in the payment market: mainly all kinds of licensed institutions (mainly more than 4,300 payment and settlement service institutions such as banking institutions and financial companies and more than 200 licensed payment institutions), in addition to a large number of upstream and downstream enterprises in the payment industry chain, including outsourcing service institutions (most of them are registered with the China Payment and Clearing Association, there are nearly 12,000), financial technology companies, software and hardware equipment suppliers, testing and certification institutions, etc. There are also a number of infrastructure operators. Therefore, the total volume and composition of market entities are currently more complex than ever. On the one hand, this complexity is closely related to the corresponding model of the mainland's new economic development and completely different from overseas, and also related to its own market structure and regulatory environment. 2) From the perspective of instrument level and payment channels, the situation is more complicated: non-cash payment instruments include bills, bank cards, credit transfers. At present, both banking institutions and non-bank payment institutions have some electronic payment business, and there are some statistical crossovers between the two, but there are also many participants and the situation is more complicated. In addition, we also need to focus on cross-border payments. When discussing cross-border payments, it is generally mainly about the cross-border development of small retail payments, but in addition, the cross-border development of large-value payment settlement systems is also a top priority for all countries. In the past, mainland China mainly focused on correspondent banks, clearing banks or NRA accounts in RMB, but now mainly focuses on cross-border issues in CIPS and securities clearing systems.

Although it is a little broader, overall, China's payment industry chain is now more complex than ever. To understand some specific elements in the development of the industrial chain, on the one hand, it is necessary to base on the common characteristics of the development of the global payment industry chain, and on the other hand, it is necessary to further analyze it in combination with Chinese characteristics. It is necessary to see the law of the evolution of the payment industry itself, and also see some regularity characteristics of the service objects and real economic sectors that accompany the development of the payment industry.

Second, no matter how you look at payments, there are three main factors behind it: regulation and policy, technology and demand. Previously, the Bank for International Settlements (BIS) mentioned in a working paper that the next step of fintech development is mainly three elements: the supply-side factor is technology and regulation, and the demand-side factor is the evolving customer preferences. Such an understanding is also worth mining in payment, because the entire payment field is at the forefront of the combination of technology and finance. Combining these three elements, we can make a new observation on the future development of payment.

1. Regulation and policy: This level, to a large extent, not only affects market expectations, but also has a profound impact on future development models and business models. From the perspective of supervision and policies of the payment industry, there have been some changes in regulatory trends since 2017, the earliest is the rectification of some individual links, and later developed to the standardized development of the entire payment process, to a large extent, to achieve the closed loop of supervision of the payment industry chain, so that the commonly known payment transactions, clearing, settlement and other different functional links are clearer, and the risk responsibilities of participants are more clear. Especially in the past two years, in the payment supervision, in the face of the increasingly complex payment format, the emphasis is mainly on the payment business itself and its attached financial business, technical services and data support to achieve clear rights and responsibilities, and reduce the accumulation of cross-zone risks. Now the regulatory authorities are also emphasizing the concepts of "supervision according to law, appropriate supervision, classified supervision, and coordinated supervision".

There are two aspects that may need to be paid attention to in the future: on the one hand, the evolution of conventional regulation and unconventional regulation. Conventional regulation is more based on the trade-off between efficiency and security issues in the payment industry itself, and some of the regulatory ideas mentioned above will continue for some time to come. Unconventional regulation is a problem based on Chinese characteristics. From a global perspective, telecommunications fraud has developed very rapidly in the past two years, and the challenge of telecommunications fraud faced by the mainland is also very prominent. Therefore, it is necessary to identify the security issues and risk issues related to this aspect, although it has been gradually incorporated into the payment regulatory system as an important influence variable, but in the long run, it is necessary to pay attention to how to properly distinguish the conventional supervision thinking from the unconventional supervision thinking, not only attach great importance to the risks and safety issues faced by unconventional supervision, but also avoid being too entangled with sustainable conventional regulatory goals. Another aspect is the trade-off between the essential elements of the regulatory process. Ultimately, regulation considers the trade-offs of several essential elements, including cost, safety, efficiency, and effectiveness. 1) Cost is closely related to price, which refers to the comprehensive judgment of related costs in the entire payment industry chain, that is, the so-called resource cost that can be measured by capital and labor in the payment process, and the manpower, capital, equipment, venue, etc. consumed directly affect the price of market services. 2) Needless to say, security is the lowest support for payment. 3) In terms of efficiency, the efficiency of real-time payments that everyone now emphasizes is a typical representative. 4) In terms of effect, it is necessary to consider what kind of benefits can be brought by payment innovation and development, whether it can support major national strategies, promote the development of new economies, or help promote employment.

2. Technology: On the one hand, the payment field has been at the forefront of the entire financial digital transformation in the process of embracing financial technology, and it seems that the degree of technology application is already very high; On the other hand, when considering the issue of payment technology in the future, there are many issues worth thinking about from the perspective of supply-side structural reform, and it is still necessary to further promote the underlying technological innovation.

First of all, from the perspective of the technical types of payment applications, including big data, artificial intelligence, distributed technology, interconnection technology, security technology, etc., on the one hand, there are common characteristics in the application process of the financial field, on the other hand, there are some differentiated and characteristic requirements in the application of payment business. At present, whether it is the central bank's financial technology planning or the strategic choice at the national level, it is emphasizing the need to pay more attention to the innovation and development of key core technologies, and in the past, the development of both financial technology and the payment field itself largely relied on the driving force from the demand side. At present, although there are many financial technology patents, including in the field of payment, there are still some deficiencies, and there are no outstanding comparative advantages and characteristics in the world.

At the same time, payment technology applications also need to consider some principle issues, the core is to consider the trade-off between efficiency and security. The core element currently affecting the global retail payment system is the impact and impact that the pursuit of real-time payment efficiency may bring to security, because the faster and more efficient the payment, the more likely it is to have an impact on payment security and payment withdrawal.

In addition, in terms of payment mode, for example, from the perspective of the payment core model, the future is nothing more than based on a bank account or going to a bank account. At present, whether based on the views of various countries on retail payment or the regulatory thinking of regulatory authorities, it can be seen that when considering payment services, it is gradually moving away from the perspective of tools and turning to more from the perspective of payment models, that is, considering whether the relationship between payment and bank accounts is strong or weak.

In addition, in terms of technical functions, there are differences in whether the technical functions focus on the payment itself, or the additional functions of payment +, or the payment information function.

Finally, there is the problem of the core technical route, which is inseparable from the contradiction between centralization and decentralization. From this point of view, although the evolution of payment + technology is very fast, when considering the role of technology in the future, there are still various issues worth further consideration.

3. Demand: Discussing the demand perspective is ultimately to illustrate which customer needs the innovation of digital payments ultimately aims to meet and how it benefits the real sector.

Generally speaking, to understand the demand, we can first grasp the domestic C-end and B-end (this B-end is generalized, it can also include the G-end), in addition to cross-border related demand, these three areas have undergone some subtle changes. From the C-end point of view, in a general sense, the mainland's current payment satisfaction degree has been very high, this field of future market to have a huge growth is still relatively difficult, for example, from the perspective of tools, the mainland from the mobile payment market increment, has been leading in the world, payment service efficiency, payment service cost has a very special position in the world. Even in the United States, according to previous statistics by the U.S. Treasury, credit cards accounted for 28% of the major payment instrument market last year, debit cards accounted for 29%, cash accounted for 20%, in addition, some similar clearing houses or other channels also occupy a certain position. Only about 3% come from mobile payments, and the mainland is largely the opposite pattern. In fact, I personally believe that the development space of the domestic retail payment market based on the "pearl" (mobile payment) in electronic payment is actually limited, and it is more about the relationship between existing participants. More prospects on the C-end come from making up for shortcomings, and whether it can make more contributions on the original basis in combining digital inclusive finance is closely related to the policy direction and the direction of the market itself.

From the B-side, although everyone is optimistic, it is not easy to do. The overall space is still relatively large: now the emphasis on improving total factor productivity and improving the economic structure is to a large extent to enhance industrial digitalization, in the process of industrial digitalization, how to better integrate payment technology with the market, industry, B-end, and various large and small enterprises to contribute, is the main concern. At this time, "payment +" is not only the payment + finance that the past regulatory concerns about, but also needs to pay attention to whether there can be more expansion points in payment + information, payment + market, and payment + industry scenarios. Looking ahead, the development prospects from the B side are definitely greater than the C side.

In addition to this, there is the cross-border aspect. Cross-border is a major growth point that cannot be avoided in the future, because the domestic is relatively saturated, more to go abroad, and the world is paying attention. Cross-border payments are an area of urgent need for further development globally, and the Bank for International Settlements (BIS) made an estimate earlier this year that cross-border payments for the whole of this year will be about $39 trillion. The mainland's RMB cross-border receipt and payment current account and capital account reached 36.6 trillion yuan in 2021, although it has declined slightly under the epidemic conditions, the market space is still very large. Since 2020, the G20 has made improving the efficiency of cross-border payments the most important priority. In the past, the cross-border payment system was actually a very rigid and huge network, among which, SWIFT did not do clearing, but only acted as a message transfer organization, connecting all participants at the bottom, payment systems in major currencies provided guarantees for cross-border clearing and settlement, and some synchronous settlement facilities to control risks, bank card organizations focused on card-related cross-border retail, and many direct facilities for transaction settlement. In addition, third-party payment institutions in various countries are embedded in different ways such as electronic wallets, and there are some transaction models that are not intermediated by clearing organizations, many people do not pay attention to this, and a large number of them are still not carried out through clearing organizations through correspondent banks, of course, this situation is also changing.

In such a complex network system, the biggest problems in the past were high cost, slow speed, limited channels, insufficient transparency, low efficiency, the more complex the network system, the more asymmetric the information, the more the original participants hope to maintain this pattern to obtain industry benefits. Now with technological changes, rule changes, and the emergence of new players, some so-called innovation and development space has begun to appear in this field.