Wang Xiaoming, | of China Finance: Improving financial services for individual industrial and commercial households

Individual industrial and commercial households are the most grass-roots market entities in China, an important support for China's economic resilience and employment resilience, and one of the key areas for financial living water to irrigate the real economy. Further improving the financial service system for individual industrial and commercial households and effectively improving the availability of financial services for individual industrial and commercial households will protect and stimulate the vitality of market players to a greater extent, which is of great significance for promoting development, expanding employment and benefiting people's livelihood.

At present, the difficulties of individual industrial and commercial households in financial services

Individual industrial and commercial households have three outstanding characteristics: small individual scale but huge total amount, limited single household business scope but wide overall coverage, and small resource investment but large leverage social benefits. At present, China's individual industrial and commercial households have exceeded 95 million households, which is the largest number of market players, driving the employment population to exceed 200 million, and playing an important role in prospering the economy, stabilizing employment, promoting innovation, and facilitating the lives of the masses. Providing effective financial services for individual industrial and commercial households can promote the continuous operation of individual industrial and commercial households, expand production, increase income, and bring positive externalities through the chain reaction of production, employment, income, consumption and reproduction, and promote the expansion of social benefits. At the same time, individual industrial and commercial households are also the most "fragile" market entities in China, and small inputs, light technology, lack of management, and thin profits are its basic characteristics. Due to the inherent inadequacy of small scale, poor standardization, lack of information, etc., coupled with the incompatibility of the financial service system and service capabilities, the availability of financial services for individual industrial and commercial households is relatively poor, and they have been in a financial supply depression for a long time.

From the demand side, the financial carrying capacity of individual industrial and commercial households is insufficient. First, the stability of business activities is poor. A large number of individual industrial and commercial households are concentrated in farmers' markets, catering and convenience stores and other fields, with serious homogenization competition, which are highly susceptible to changes in the environment, seasons and other factors, and lack of operational stability. Second, there is a lack of available collateral. Individual industrial and commercial households have a small scale of operation, small capital, few fixed assets in the assets they hold, most of the business premises are leased and used, and there is a lack of collateral that can be used to increase credit. Third, the standardization and availability of information are insufficient. A large number of small-scale individual industrial and commercial households lack professional operation and management, no financial statements or financial statements are not standardized, and the boundary between means of production and means of living is blurred, it is difficult to define and distinguish, and it is impossible to provide accurate and complete cash flow, accounts receivable, inventory and other information.

From the supply side, improving the financial services of individual industrial and commercial households faces three difficulties. First, the cost is high. Factors such as scattered self-employment locations, lack of collateral, unclear financial accounts, and unstable business activities lead to financial institutions needing to pay more manpower, material resources and resources when providing financial services to individual industrial and commercial households, and to bear higher customer acquisition costs, risk control costs and transaction costs. Second, the risk is large. Due to the geographical dispersion and cost constraints of individual industrial and commercial households, it is difficult for financial institutions to effectively carry out pre-loan investigation and post-loan management, and at the same time, the cost of credit default of individual industrial and commercial households is relatively low, and the problem of moral hazard and adverse selection is more prominent. Third, the matching degree of financial services with demand is not high. Individual industrial and commercial households have differentiated requirements for capital scale, interest rate, term, repayment method, timeliness, etc., and the traditional financial product and service model positioned by enterprises is difficult to effectively meet the diversified and personalized financial service needs of individual industrial and commercial households.

In general, to improve the financial services of individual industrial and commercial households, it is necessary to promote the improvement of financial supply capacity through policy guidance, and also to go beyond the traditional mode of thinking and the service framework of blocks, and solve the outstanding problems that restrict the insufficient financial carrying capacity of individual industrial and commercial households through integration and innovation.

Tianjin financial services individual industrial and commercial households new exploration

In recent years, China has continued to strengthen financial services in the fields of individual industrial and commercial households, from microfinance to microfinance to inclusive finance, and the financial policy system and service system have been continuously improved. At the same time, the new technology is widely used in the financial field, providing technical support for effectively resolving the difficult problems of financial services blockages for individual industrial and commercial households. In this context, Tianjin has innovated to create a "small two life" service platform to empower individual industrial and commercial households with "payment +", effectively alleviate the problems of difficult financing, expensive financing, and slow financing, and form a new model of inclusive and efficient, risk-controllable, and commercially sustainable financial support for individual industrial and commercial households.

Create an inclusive financial service model for aggregate payment. The Tianjin Branch of the People's Bank of China instructed financial institutions to build a "Small Two Life" service platform based on the UnionPay Cloud Flash Payment APP, with individual industrial and commercial households such as breakfast carts, vegetable stalls, restaurants, and convenience stores as the service objects. Banks and cooperative technology companies provide merchants with offline "aggregate collection codes" to support consumers to scan codes through multiple channels such as cloud flash payment, WeChat, Alipay, etc., and the funds are settled to the merchants' bank accounts in real time, saving merchants in cash withdrawal fees, and reducing handling fees within the limit to reduce merchant fees and expenses. At the same time, it can also provide merchants with value-added services such as cash bookkeeping, big data analysis, and consumption drainage. By aggregating merchant transaction data, an electronic ledger is established for merchants, which not only helps financial institutions to fully grasp the operating conditions of merchants and monitor the popularity of merchant operations, but also solves the problem of lack of merchant financial data and improves the financial carrying capacity of merchants. As of the end of June 2021, the "Little Two Life" service platform has accumulated 120,000 individual industrial and commercial households, accounting for 80% of the active merchants, with an average daily transaction of 700,000 transactions and 60 million yuan.

Alleviate the problem of "credit reporting white households" first loan difficulties. On the basis of merchant recognition, the "Little Two Life" service platform uses aggregate payment to collect merchants' daily transaction flow information and provide it to cooperative banks to form a single merchant's full operating data; by locking the transaction geographical location, comparing and analyzing the geographical location of store registration, transaction user data and acquiring account name and other information, the aggregated data is screened to ensure the authenticity of the transaction scenario. Banks develop a credit evaluation model, according to the merchant transaction flow information, combined with the industry and commerce, judicial and other diversified data to profile the business situation of the merchant, generally collect the normal daily transaction flow after 45 days can be credited, so as to help no loan records, no collateral but has a steady cash flow of the "credit white household" to obtain financial support. Merchant portraits and credit assessments are only used as the basis for bank credit granting, and are not provided or announced to the "Small Two Life" service platform to fully protect the security of merchant data. As of the end of June 2021, a total of 1.032 billion yuan of credit was provided to 12,000 merchants, and the pass rate of "credit reporting white households" of individual industrial and commercial households reached 80%; since June 2020, a total of 24,600 credit loans and 1.046 billion yuan have been issued, and the "lending of small businesses and serving the people's livelihood" has achieved remarkable results.

Meet the "short, small and urgent" capital needs of merchants. Individual industrial and commercial households apply for loans through bank APP, and banks use the Internet, big data and other financial technology means to conduct online batch analysis and processing of merchants' operating income data, and use the background data model to automatically approve without manual participation, effectively reducing the cost of bank loan review. Individual industrial and commercial households apply for loans and online repayment online, the procedures are simple and fast, it is convenient for merchants to obtain funds in a timely manner, and the credit line is repaid and recycled within one year, and the credit can continue to be granted after the expiration of the period. Under the "small two life" model, the average credit loan of individual industrial and commercial households is 60,000 yuan and the average amount is 42,000 yuan, and the average credit approval time is only 3 to 5 minutes, which effectively improves the matching of financial services and the "short and frequent" capital needs of individual industrial and commercial households.

Use policy tools to guide the reduction of financing costs. The Tianjin Branch of the People's Bank of China will include all credit loans of individual industrial and commercial households in the scope of support for refinancing and credit loan support plans, broaden the space for banks to make profits, and make policy dividends directly reach individual industrial and commercial households. At the same time, the bank is guided to rely on the "small two life" service platform to accurately evaluate the operating ability, profitability, development ability and solvency of individual industrial and commercial households based on real transaction data, improve the scientific pricing level, and reduce operating costs and loan interest rates. Through this business model, banks achieve benefits in terms of assets, liabilities, customer acquisition and social influence, and achieve the dual effects of serving the real economy and enhancing their own comprehensive benefits. The "Little Two Life" credit loan product has an annual interest rate of 3.95%, reducing interest expenses by about 30% per merchant on average.

International experience of small and micro business entities in financial services

Internationally, the business entities corresponding to China's individual industrial and commercial households include self-employed people, small and micro enterprises, etc. The international experience in financial services in this field has certain reference significance for China.

Dig deep into the application value of payment data. Through the application of digital payment systems, obtain transaction data of small and micro enterprises and merchants, and grasp their real operating conditions. The Central Bank of Argentina has developed a mobile digital payment platform (PPM), and the Central Bank of Mexico, in conjunction with the Mexican Bankers Association (ABM) and the Mexican Association of Mass Finance (AMSOFIPO), has launched a national digital payment platform (Cobro Digital) to facilitate merchants to use mobile devices for real-time fund payments, while improving the quality of merchant financial data and enhancing merchant credit availability. NetSTARS, a Japanese financial technology company, has established an aggregate payment platform to aggregate 37 mobile payment institutions, covering about 300,000 merchants, and on this basis, it provides merchants with value-added services other than payment, such as diversified financial technology products. Kopo Kopo, a Kenyan financial technology company, promotes the application of mobile aggregate payment among small and micro merchants, analyzing the historical payment data of merchants and providing them with corresponding financing services.

Implement the "open banking" development model. The UK introduced the Open Banking initiative in 2015, which allows banks to share and leverage data licensed by banks' retail customers, such as customer transactions, personally identifiable data and customer financial history, with third parties. Under the "open banking" model, banks can use more dimensions of data to optimize credit risk management and pricing systems, lend to merchants and small and micro enterprises, and provide customized credit products. Bank Santander shares data with fintech company Kabbage, using fintech company's data to grant credit to small and micro businesses. Swedish fintech company Tink has partnered with a number of banks, including ABN AMRO and BNP Paribas, to integrate fintech technology into the bank's mobile applications, supporting banks to use the diversified data they provide to provide richer financial products and services for small and micro enterprises. Australia supports and encourages financial institutions to develop financial products that better meet consumer needs by consumers by giving consumers the right to access data held by businesses and to provide them to third-party institutions recognised by consumers.

Develop digital recognition technology. A legal, unique and digitized identification code (ID) is a key element in improving the financing efficiency of small and micro merchants. Serbia provides a unique digital identification number for all merchants, which can simplify the due diligence process of banks to merchants and improve the efficiency of financial services. India has developed a national digital identity system (Aadhaar), which can associate the information of merchants and small business owners with the system, and financial institutions can review and collect evidence by querying the digital identity system when providing relevant financial services, reducing service costs.

Establish a service platform for credit institutions. Through data accumulation, sharing and development, we provide financial institutions with data support with financial attributes. The Small and Micro Enterprise Financial Data Platform (SBFE) in the United States focuses on lending institutions serving small and micro enterprises, and through the collection and aggregation of credit data of merchants across the United States, authorized credit reporting agencies to process and analyze, and form credit reporting products (including credit reports and credit scores) for credit institutions with platform membership. Japan's Ministry of Economy, Trade and Industry and the central bank jointly established a credit risk database (CRD) to provide banks with credit risk rating, certification, forecasting and other services to facilitate credit management for small and micro enterprises, after 20 years of development, members have covered nearly 70% of Japan's banks.

Launched a special period service plan. In response to the impact of the COVID-19 pandemic, some countries have strengthened financial support for small and micro business entities by providing low-interest credit loans and strengthening policy guarantees. The U.S. Small and Medium Enterprise Agency (SBA) has launched a Payroll Protection Program (PPP) for small businesses, self-employed people, and other groups, providing low-interest credit loans with an interest rate of 1% for paying wages, rent, utility bills, medical benefits, mortgage interest, etc. Micro Finance Ireland launched an emergency lending program for microenterprises, waiving interest payments for the first six months of lending, reducing the initial debt burden of microenterprises in times of crisis. The UK has launched a 'Bounce Back Loans' for micro-businesses, which provides 100 per cent government guarantees for loans up to £50,000. The German federal government has provided KfW with a €822 billion guarantee line to support its loans to self-employed and small and micro enterprises.

Further improve the quality and efficiency of financial services for individual industrial and commercial households

Individual industrial and commercial households are the "capillaries" of the national economy, and the importance and particularity of financial services are highlighted. To improve the financial services of individual industrial and commercial households, we must not only base ourselves on the present and strive to solve the outstanding blockages and difficult problems; we must also focus on the long term, adhere to the dual orientation of inclusiveness and commercial sustainability, improve financial policies and service systems, and provide individual industrial and commercial households with financial services with wide coverage, high matching degree and strong sense of gain.

Improve the level of digital financial services. Accelerate the digital transformation of financial institutions, fully apply the Internet, big data, cloud computing and other technologies, accurately profile individual industrial and commercial households, and develop personalized and convenient online credit products for individual industrial and commercial households of different types and levels to meet their "short, small and frequent" financing needs. Strengthen cooperation between financial institutions and digital payment platforms and local credit reporting platforms, expand and mine the application value of alternative credit reporting data such as payment and settlement data and government affairs data, explore new models of individual industrial and commercial households in financial services, and expand the coverage of financial services. Promote the development of "open banking", support financial institutions and financial technology companies to carry out integrated innovation in business development, information sharing, risk control and other aspects in accordance with the way of performing their respective duties and division of labor, especially using diversified data to provide individual industrial and commercial households with applicable credit products, and improving the matching, availability and commercial sustainability of financial services.

Strengthen credit enhancement support for the financing of individual industrial and commercial households. Lower the entry threshold for government financing guarantee institutions, increase the guarantee support for loans of individual industrial and commercial households, and appropriately reduce or waive guarantee fees. Deepen cooperation between government financing guarantee institutions and financial institutions, explore the development of guarantee models and guarantee products that meet the characteristics of the financing needs of individual industrial and commercial households, and guide financial institutions to give preferential interest rates to loans of individual industrial and commercial households that enjoy guarantees. Risk sharing is achieved through loan discounts, risk compensation, etc., and financial institutions are encouraged to increase the proportion of first loans and credit loans. Establish and complete credit archives for individual industrial and commercial households, bringing about the mutual sharing of credit information, increasing the intensity of information evaluation and application, strengthening punishments for untrustworthiness, and creating a good credit environment.

Improve the financial service policy system and supporting facilities. Strengthen policy support for the financing of individual industrial and commercial households, improve the accuracy and directness of policies, improve the statistical monitoring, assessment and evaluation mechanisms that match the financial services of individual industrial and commercial households, guide and support financial institutions to improve service capabilities, and enhance the matching degree between the supply of financial services and the needs of individual industrial and commercial households. Accelerate the establishment of a multi-level and diversified inclusive financial supply system, improve the availability and financing convenience of individual industrial and commercial households' first loans and credit loans, and reduce financing costs. Strengthen cross-departmental coordination and cooperation to support the development of individual industrial and commercial households, improve the efficiency of administrative coordination, effectively solve the outstanding problems faced by the development of individual industrial and commercial households, and promote the implementation of various financial support policies and supporting measures. Explore the establishment of a digital service platform for individual industrial and commercial households, study the establishment of a financing cultivation library for individual industrial and commercial households without loans, take tax payment, employment absorption and credit status as the basis for access, and provide infrastructure support for identity identification and credit assessment in the process of financial services for individual industrial and commercial households.

Author| Wang Xiaoming,"President of Chinese Bank Tianjin Branch"

Article | China Finance, No. 18, 2021

This article originated from China Financial Magazine