Prof. Huang Yiping
During this year's Boao Forum in the southern province of Hainan, I participated in a seminar about big data and trends in the financial industry. Xie Ping, the former head of the research bureau of the central bank, said at the seminar that data can be divided into structural and behavioral data. Data about financial balance sheets and people's ages belong to the first category, while shopping records are in the second.
Xie said the key characteristic of big data is sharing. Without it, data controlled by individual institutions like hospitals and schools can be seen as isolated. He predicted that with the development of big data, direct financing will become more important. Different financial services, such as banking, securities and insurance, will become more interlinked. Even the boundary between financial and non-financial businesses will get blurry. For instance, some e-commerce companies have started to grant credit to customers.
The essence of finance is capital flows. And the biggest challenge for financial intermediaries to tackle is information asymmetry, which creates room for adverse selection and moral hazard. If big data can eliminate information asymmetry, it is possible that we will never need financial intermediaries.
Will financial intermediaries eventually disappear? Perhaps in the distant future. In the meantime, big data technology is indeed reducing information asymmetry and making changes in the financial industry.
Alibaba Group Holding Ltd.'s financial arm, Ant Financial Group, has offered loans to more than 1 million small and micro businesses, all through the Internet. The company said it only takes one minute to file a lending application and a second minute for a review. In the third minute, the money can be in an applicant's account. Of course, the precondition for rapid processing is that Ant Financial has done risk assessments of its potential customers. Based on Xie's idea, the data controlled by Ant is also isolated, but it has cut the costs for making assessments.
Both Alibaba and Tencent Holdings Inc. have launched Internet-only banks. This is a new trend in the banking industry that is being propelled by Internet technology and big data.
But there are debates on how far Internet finance can go. We have frequently heard experts say that there is no massive Internet finance system in the United States and the development of the industry in China only relies on policy loopholes. When supervision improves, Internet finance will burst as a bubble.
But Chen Long, the chief strategic officer of Ant Financial, said that compared to the West, where the Internet has undergone long development, China has an opportunity to overtake it on the corner. There is no doubt that the United States has the most advanced financial system in the world, but that system is under the strictest supervision to control risks. This supervision also kills innovation, which always emerges in a regulatory vacuum.
China has led the development of Internet finance because there is room for innovation. First, for a long time, a large number of enterprises and individuals could not access the financial services they wanted due to policy controls. Small and medium-sized businesses had difficulties getting bank loans or financing from stock and bond markets.
Second, the country's huge population, especially its number of smartphone users, provides a good testing ground for Internet finance. Six hundred million smartphones have been sold in China. Social media platforms, such as the Twitter-like Sina Weibo and the Tencent messaging application WeChat, each have more than 200 million users. This provides a huge potential market for Internet finance.
Third, the development of big data and cloud computing has made risk controls based on data processing possible. Although no company controls big data in the true sense, data analysis has shown its power. With big data playing a greater role, financial intermediaries will no longer need a large number of brick-and-mortar offices and employees. Financial services will not be limited by region and time.
China is at the starting point of the development of Internet finance. Some experts say this is an opportunity for the country to catch and surpass others. This opportunity is being created by policy, market and technological factors.
Internet finance is growing into an important part of China's finance industry and it is bringing about revolutionary changes. It makes financial services more accessible to ordinary people and pushes forward the liberalization of capital markets. It also eroded the role of financial intermediaries by providing platforms for financial institutions to reach customers directly.
However, it is still far too early to predict the impact that big data will have on financial intermediaries. It is impossible to get all the information about an individual or institution, and big data cannot entirely remove uncertainties. So using the technology will partly replace financial intermediaries, but not completely. Data analysis will to a large extent replace spot checks. Networks and huge teams, which helped financial institutions succeed in the past, will no longer be necessary. Despite this, brick-and-mortar banks are still needed because data analysis cannot take care of everything. This means that data analysis will drive the financial industry to continue evolving and we should be prepared for the changes.
Huang Yiping is a professor at Peking University National School of Development