Wang Hongzhang: Problems in the practice of digital finance

Source: Sina Finance-Ruijian Economy

Wang Hongzhang: Digital finance has changed the way it serves entities

The 20th China International Finance Forum was held on December 14-15, 2023 in Hongkou District, Shanghai. Wang Hongzhang, former Secretary of the Party Committee and Chairman of China Construction Bank, attended and delivered a speech.

In his speech, Wang Hongzhang said that digital finance has changed the way it serves entities.

"In realizing the growth of the bank value chain, digital finance can support the financing of the supply chain of enterprises, promote the accelerated development of the industrial chain, and make the financial services of the real economy more efficient. Only by grafting financial digitalization to enterprise digitalization can the function of financial digitalization be fully demonstrated, and bank digitalization is a shortcoming in this regard. He said.

Wang Hongzhang pointed out that now the business community is promoting the integration model of industry and finance, or financial digital platform, which is a direction for digital finance to support the real economy in the future.

There are two problems that need to be solved here, one is that the production, operation management and economic subject information in the supply chain of the enterprise is insufficient, which leads to the failure of enterprise data, dishonesty and low integrity. The second problem is the separation of industry and finance, which leads to insufficient information between enterprises and finance. To solve the above problems, enterprises need to realize the whole process of industrial chain and upstream and downstream enterprise transactions based on artificial intelligence in the form of blockchain technology and aggregation platform, and the data interconnection of all links, so as to help banks identify the fraud risk of enterprises, see through credit credibility, and dismantle the asymmetric wall between banks and enterprises.

The following is a transcript of the speech:

Thank you, Moderator:

Honorable President Shang, President Ruoya, Dongrong, Ouyang Weimin, distinguished guests, good morning!

The report of the 18th National Congress of the Communist Party of China pointed out that doing a good job in digital finance is an inherent requirement for the financial sector to promote high-quality development and build a financial power. As an option of the times in the financial field, digital finance must take a good financial road in the future, and every financial institution needs to pay enough attention to it and give sufficient resources to build digital finance.

Digital finance is an important mission given to finance by the times, looking back on the computer computing technology in the eighties and nineties, improving the efficiency and service quality of financial services, and on this basis, credit cards and ATMs were produced, so that financial services benefit customers in the form of networks. Then developed to the end of the nineties, telephone banking, Internet banking, these technologies broke through the traditional way of service, making it possible to transmit information and data in space.

Virtual financial services explain that some financial services such as transfers and transfers can be handled without the need for physical outlets.

In 2011 or 2012, with the acceleration of financial internationalization, the diversification needs of economic entities and enterprises have increased significantly, the competition in the financial industry has accelerated, and finance has paid more and more attention to the combination and integration of finance and technology. In 2012, the development of hardware technology, such as information transmission technology and information storage technology, made big data, cloud computing, intelligent terminals and other software and services become the mainstream of financial innovation. At the level of adoption, financial technology has also leapfrogged from simple remittance, customer acquisition functions, and low-level system adoption concepts to starting from top-level design, taking the financial business value chain as the main line, building large-scale data centers, and based on this, through the use of intelligent technology, virtualization and high intelligence have become a symbol of financial digital transformation.

So what has digital finance changed?

First, digital finance relies on digital technology in the field of science and technology and is applied to the financial field, which transcends fields, industries and individuals and becomes a revolutionary phenomenon in the economy and society. Relying on communication networks, cloud computing, biometrics, the Internet of Things, etc., the financial practice field applies digital technologies such as blockchain, big data, and artificial intelligence to the financial industry to provide new products, new services, and new business formats. For example, crowdfunding, supply chain finance, digital currency, intelligent risk control, high-frequency trading, etc., and enable hundreds of millions of customers to complete financing, transactions, and payments at the same time, complementing the digital economy.

These phenomena show that digital finance has changed cost efficiency and security, but of course this change is a limited change, not an infinite generalization.

In the process of development, it is necessary to pay attention to two aspects, one is the financial business, products, tools and financial formats, which need to aim at advanced science and technology, and realize the application and management of the latest science and technology. Second, finance is not isolated, but serves the real economy, and the adoption and development of digital finance should be closely integrated with the needs of the real economy to form a benign interaction. The application of digital financial technology should not be belittled, nor should the role of digital finance be overestimated.

Second, digital finance is a high-level financial technology service, and another thing it has changed is the way finance serves customers, the mode of financial operation, and the financial risk control technology. This change does not represent a change in the nature of finance, it only refers to the level of technology adoption, so in the definition of digital finance, it does not matter whether it is new finance, old finance or traditional finance, it can only be said that in financial services, the level of technology application or the degree of application of technology in financial services.

No matter how advanced the technology is, it cannot change the credit nature of finance and the natural attributes of financial services, such as credit-focused financing activities, settlement-focused payment behavior, and the essential function of the capital insurance market.

Therefore, the development of digital finance does not depend on the use of technology, but on the degree of innovation and development of the essential business of finance, that is, the central government said, finance should serve the real economy, without the familiarity and innovation of the real economy, customers and financial business, digital finance will become a source of water, a tree without roots. Or, advanced cloud computing, big data, intelligent technology and other software services cannot be fully used, resulting in a waste of technology.

Third, digital finance solves the problem of personalized services. Historically, financial operators have had problems such as lack of personalized customer services, inability to provide differentiated services to corporate and individual customers, and homogeneous competition among financial institutions.

Digital finance can make each data distinguish the information differences of different customers, and this difference determines the different needs of each customer for finance in time, space, conditions and methods, digital finance uses big technology platforms, big data cloud computing and intelligent technology advanced technology methods to innovate financial products, business models, application services and business processes. It provides the possibility for this personalized financial service, and makes continuous arrangements for personalized services, which provides customers with highly personalized products and services according to customer portraits, so that each customer's requirements can be met.

Fourth, digital finance has changed the form of manual risk control, making it possible to control risks by machine, and greatly improving the efficiency and quality of risk control.

Digital finance needs to pay special attention to personalized customer risks when controlling technology to deal with common and conventional risks, just like differentiated services, which can be solved to a large extent by the current big data and intelligent technology. In the past, banks were often puzzled by the "28 Law", but with the adoption of digital financial technology, 80% of long-tail customers have made personal credit and evaluation based on big data information technology more accurate to track personal credit information, and their personal default risk is generally controllable.

However, we will also encounter another problem in practice, that is, when a certain type of customer group reaches a considerable scale, digital risk control may not be able to fully take into account the special circumstances and intentional breach of contract of some customers.

Therefore, the continuity of face-to-face communication and trust mechanism between people is still the most important in the risk control mechanism, and the risk control mechanism of giving 100% trust to nearly 10 million small and medium-sized credit enterprise customers, hundreds of millions of personal credit or overdraft loan customers, may make our risk control concept go astray, and will also bring hidden dangers to the current low non-performing loan rate. The function of outlets, the contact mechanism between account managers and customers, still play an irreplaceable role in the development of digital finance.

Fifth, digital finance has changed the way it serves the brick-and-mortar community. In realizing the growth of the bank value chain, digital finance can support the financing of enterprise supply chains, promote the accelerated development of the industrial chain, and make financial services more efficient for the real economy. Only by grafting financial digitalization to enterprise digitalization can the function of financial digitalization be fully demonstrated, and bank digitalization is a shortcoming in this regard.

At present, the business community is promoting the integration model of industry and finance, or financial digital platform, which is a direction for digital finance to support the real economy in the future. There are two problems that need to be solved here, one is that the production, operation management and economic subject information in the supply chain of the enterprise is insufficient, which leads to the failure of enterprise data, dishonesty and low integrity. The second problem is the separation of industry and finance, which leads to insufficient information between enterprises and finance. To solve the above problems, enterprises need to realize the whole process of industrial chain and upstream and downstream enterprise transactions based on artificial intelligence in the form of blockchain technology and aggregation platform, and the data interconnection of all links, so as to help banks identify the fraud risk of enterprises, see through credit credibility, and dismantle the asymmetric wall between banks and enterprises.

Digital finance can be connected with the digital platform of the enterprise to realize the integrated trading platform of industry and finance, and connect the credit evaluation, risk control requirements, and credit process of finance with the business entities, business activities, capital dynamics, and technological innovation of the enterprise supply chain into an integrated network platform of mutual trust and interaction, and form a trust chain and value chain between banks and enterprises by the industrial chain and supply chain.

In the integration of industry and finance, the principle of comprehensiveness is needed, because financial technology has the ability to cover economic fields such as production, circulation, and scientific research services, and provide services for various entities in the industrial chain, so that the industrial chain is more complete and the supply chain is continuous. Forward-looking principles, big data and artificial intelligence, including quantum technology, are being recognized by the industry, and need to be vigorously promoted and fully adopted to increase the mutual trust of the chain and lay a good foundation for the arrival of the intelligent era. Compatibility, the integrated operation of finance has become a reality, all kinds of functions, tools, and products are relatively complex, and how to connect with the enterprise port requires a lot of work. Trust and entrepreneurship are fundamental, system construction and model generation are based on historical data and historical experience, major decision-making or some uncertain decision-making, big data and artificial intelligence can not be replaced, and the success of digital finance requires the integrity and entrepreneurial spirit of both banks and enterprises.