Editor's note
On June 17, the 9th online seminar of the "Huarui Fintech Salon Series", co-hosted by Shanghai Huarui Bank, the International Monetary Institute (IMI) and the Fintech Research Institute of Chinese Minmin University, and co-organized by the China Banking Research Center of Chinese University and the China Digital Finance Cooperation Forum, was successfully held. Zhang Heng, associate researcher of the Institute of Finance, Chinese Academy of Social Sciences, attended the salon and participated in the discussion, he systematically analyzed the digital transformation of commercial banks through various stages, and proposed that the mainland has entered the stage of "leading" finance with science and technology, pointing out that the digitalization of commercial banks can bring opportunities such as alleviating information asymmetry and transaction costs between the supply side and customer demand side of banks, but also faces challenges such as the lack of complex financial talents to support transformation. In view of the risk problems of digital digitalization of small and medium-sized banks, it points out the necessity of building a comprehensive risk management system and accelerating the top-level design of digital financial supervision. Finally, it is proposed that there is a complementary relationship between the traditional financial supply or the digital transformation of commercial banks and the development of digital finance, which is influenced by the formal system and the informal system.
The following is the full text of the minutes:
01
What is the development process of digital transformation of commercial banks?
The digital transformation of commercial banks has gone through several stages, from the earliest development of accounting computerization to financial electronics, and then to later networking and informatization, until today's digital transformation, science and technology play a very important role in financial business, from the initial technology "support" finance, to technology "boost" finance, to the development to science and technology "lead" finance. At present, it can be roughly divided into three stages: first, the electronic period from the 80s of the 20th century to the end of the 20th century, mainly to realize electronic interconnection; The second is the informatization stage from 2000 to 2012, mainly the construction of management information systems and application systems; The third is the stage of mobility and digitalization, mainly mobile banking, building a mobile payment system, building digital products and the construction of a financial open ecosystem.
02
What are the opportunities and challenges?
Opportunity:
First, it can alleviate the information asymmetry and transaction costs between the supply side and the customer demand side of banks. The information asymmetry between supply and demand is the fundamental reason for the lagging development of the current traditional credit market, and excessive transaction costs are the main obstacles to financial exclusion of vulnerable people and small and micro enterprises, and banking institutions use digital transformation to promote business innovation and product innovation, which can not only reduce labor costs and operating costs, but also integrate a large number of fragmented and unstructured network user information, reduce the risk of information asymmetry and adverse selection, and then provide credit support and credit enhancement plans for borrowers who lack collateral and guarantees.
The second is to promote healthy competition among banking institutions. On the one hand, banking institutions have developed their businesses through digital transformation, which not only has a certain impact on bank liabilities, intermediaries and assets, but also creates opportunities for new businesses and business models. On the other hand, digital transformation has a great driving effect and spillover effect on the development of banking institutions, enabling large commercial banks to take advantage of various advantages to quickly expand their business scope to fifth- and sixth-tier cities and rural areas, so as to compete with small and medium-sized banks, which will promote structural changes and efficiency improvements in the financial market to a certain extent.
The third is to solve the demand for personalized services and loan availability. On the one hand, with the help of digital transformation, commercial banks, especially small and medium-sized banks, can fully open up the "last mile" of financial services, so that vulnerable groups in remote areas can equally enjoy reasonable financial products and services. On the other hand, with the help of digital transformation, commercial banks can accurately obtain the "soft information" of more customers, improve their perception of consumers' financial needs, and then develop financial products or services that are more in line with customer needs. In addition, with the help of digital transformation, commercial banks can actively tap the financial needs of different types of customers, so as to customize personalized financial services for different customer groups and achieve "thousands of people".
Fourth, it is conducive to comprehensively promoting rural revitalization and solidly promoting the realization of common prosperity. In addition to the above advantages, for banks, digital transformation plays a great role in promoting farmers' innovation and entrepreneurship, rural green economy development, six-industry integration, and narrowing the income gap, which to a certain extent is of great significance for strategic goals such as financial services for the real economy, promoting high-quality financial development, and promoting financial support for common prosperity.
Challenge:
First, there is a lack of complex financial talents to support digital transformation. The digital transformation of commercial banks requires not only financial talents, but also talents who understand science and technology, but also talents who understand financial technology. However, at present, most banks not only lack talents who can lead overall planning and data analysis technology, but also lack a policy guarantee mechanism for digital talents, which can weaken the intellectual support of business lines to a certain extent and affect the iteration of digital upgrading.
Secondly, data asset management is difficult and data value mining is insufficient. On the one hand, most bank data asset management work is responsible for multiple technology departments, and it is difficult to effectively manage the data resources in the bank in a full-caliber and full-cycle manner. On the other hand, there is a lack of effective communication and collaboration mechanism between developers and users of data assets, and insufficient opening momentum for cross-border cooperation, which makes the utilization rate of data resources low and seriously restricts the mining and creation of data value.
Finally, digital transformation brings new risks. From the perspective of technical risks, network applications will infiltrate various financial scenarios during the digital transformation of banks, making the banking system more vulnerable to cyber threats and making data security and privacy protection more difficult. From the perspective of market risk, in the digital era, market risk models rely more on artificial intelligence and big data, model construction is more complicated, model verification is more difficult, and output results are more difficult to interpret, resulting in uncertainty in model application.
From the perspective of small and medium-sized banks, there are two main challenges:
(1) Limited investment. Digital transformation requires high investment, but compared with large banks, small and medium-sized banks have great disadvantages in terms of capital, technology, talents, etc., which are more about rebuilding new applications and new models, and professional and technical personnel are difficult to effectively identify and coordinate business and technology, resulting in insufficient support for their digital transformation.
(2) Insufficient support for platform differentiation. Taking agricultural business behavior as an example, the provincial association "emphasises" management and "light" services. On the one hand, rural credit cooperatives are mainly for marketing performance to have more motivation for digital transformation, while provincial associations will worry about the potential risks caused by digital transformation, which will stifle digital transformation to a certain extent in the continuous game between the two. On the other hand, in reality, although the provincial association has accumulated certain digital talents and digital technology, it can help rural commercial banks transform, but due to the region, its own characteristics, main advantages and shortcomings of each agricultural commercial bank are very different, and its positioning and goals for digital transformation are different. Therefore, when the provincial association uses the advantages of the large platform to support, it should also combine the operating characteristics and regional characteristics of different agricultural commercial banks and adopt differentiated platform support.
03
How should we address the risks posed by technological innovation?
First, accelerate the guidance of small and medium-sized banks to formulate clearer digital strategies. Digital transformation is essentially a systems engineering, involving multiple areas such as technology, organization, governance, business, products, human resources, and culture, which requires overall design and clear strategic planning. At present, the existing financial product and service models, approval technology and risk management models can be reformed to solve the current "stuck neck" problem, and necessary supporting measures and personnel can be established to follow up, otherwise the effect of banks' digital transformation may be greatly reduced. In addition, in the process of promoting digital transformation, the banking industry should also pay attention to prevention, first, data security risks, improve customers' personal information protection mechanisms, balance the relationship between open data sharing and privacy protection, and collect and use data in accordance with laws and regulations. The second is technical risks, and efforts should be made to prevent risks caused by the instability of digital systems and risks caused by external cyber attacks.
Second, take a huddle approach to deal with risks. The first is to cooperate with large institutions. Large institutional banks have rich experience in digital transformation, strong willingness to export technology or strategic expansion, and giant companies and fintech enterprises have natural technological advantages or data advantages, and their ability to serve financial institutions is outstanding. By cooperating with them, small and medium-sized banks can largely mitigate the risks arising from financial technology, technology research and development, data modeling, etc. Second, small and medium-sized banks huddled. As a single bank has a small institutional size and limited market size, it is difficult to cope with the risks arising from digital technology, and multiple small and medium-sized banks can consider the way to promote digital transformation and cope with risks. The third is alliances with industry organizations. Through the China Banking Association and other industry organization cooperation alliances, problems such as institutional technology sharing and lack of talents can be solved, and provide guarantees for coping with technological innovation.
Third, build a more comprehensive risk management system. On the one hand, to face the risks brought by technological innovation, it is necessary to deeply study and judge the risk points and types of risks that may arise, on the other hand, use machine learning, neural networks and other digital technologies to embed the risks brought by technological innovation into the whole chain of the financial risk prevention system, so as to identify customer risk characteristics, optimize financial risk prevention and control indicators and models, and reduce fraud risks.
Finally, accelerate the top-level design of digital financial supervision. Maintain an inclusive and prudent attitude towards financial innovation that meets market demand, and establish basic rules and standards for digital finance from data collection, interaction, storage, automated processing, and management, so as to safely manage and monitor bank risks. Maintain an inclusive and prudent attitude towards financial innovation that meets market demand, and at the same time focus on the new characteristics of deep integration of technology and supervision, and use the fintech regulatory sandbox to give new thinking, new models and new means to risk supervision.
04
How to understand the relationship between the digital transformation of commercial banks and the financial format?
Regarding the relationship between the digital transformation of commercial banks and the financial format, some theoretical studies have put forward two opposing views, namely "substitution theory" and "complementarity theory". A small number of scholars have proposed "substitution theory" or "gap theory", but they have not been supported by solid evidence. More theoretical studies believe that the digital transformation of commercial banks is a complementary relationship for financial business, especially for digital financial formats. Taking the digital inclusive finance represented by Ant Group as an example, although it breaks the balance and structure of the traditional financial market and crowds out the traditional offline business of commercial banks, from the perspective of loans, Ant Group's digital inclusive finance provides loan services to some customers at a lower cost through digital technology, and these services can reach remote areas and vulnerable groups that cannot be extended and reached by traditional commercial banks, forming a certain degree of dislocation competition. It can be seen from this that the scope and scale of digital financial business cannot replace the role played by traditional commercial banks in economic activities.
We have also recently found that there is a complementary relationship between the traditional financial supply or the digital transformation of commercial banks and the development of digital finance, and this complementary relationship is not only affected by the formal system, but also by the informal system. From the perspective of formal system, due to the significant differences in China's formal systems such as the degree of marketization, the intensity of financial supervision and the level of legalization, there are both "substitution" and "complementarity" between commercial banks and digital finance in different regions, which is not conducive to the development of the overall financial industry in the mainland in the long run. From the perspective of the informal system, due to the difference in financial needs, infrastructure construction and residents' awareness, the relationship between commercial banks and digital financial formats will also be very different. In areas with strong financial demand, risk aversion awareness and high social trust, there is a good and benign interaction between commercial banks and digital financial formats, which can promote the digital transformation of commercial banks and the development of digital finance through the promotion of digital RMB, while in areas with weak risk avoidance awareness and low social trust, some encouraging policies are needed to promote the digital transformation and development of commercial banks.
Opinion collation: Li Xinyu
Executive producer of this article: Shang Qian
Layout Editor|Zhang Hao
Responsible editors|Li Jinxuan, Jiang Xu
Director system|Vermilion frost
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