The development and application of the internet, cloud computing, big data, and artificial intelligence have profoundly transformed the financial sector, enhancing the efficiency and quality of financial services and reshaping industry dynamics. As digital technology evolves and iterates, so does fintech, presenting new demands for regulators. Looking ahead, how can we adapt to innovations in fintech? What role should regulation play in the development of digital finance? On November 8, at the 2024 International Forum for China Financial Inclusion (IFCFI), experts from industries and academia shed their light on this topic, re-visiting the impact of fintech on the financial sector.
The Inclusive Nature of Digital Finance
Digital technology is part of new quality productive forces, profoundly shaping the changes in the financial sector. The essence of the technology-driven financial revolution lies in the development of digital finance. Over the past decade, Hua Cheng, Associate Professor at the School of Economics at Renmin University of China (RUC), observed that the development of digital finance has followed a certain sequence. Financial services have progressed from payments to credit, and from insurance to other areas. Development domains have transitioned from the digitization of retail finance to wholesale finance. Business models have seen changes in channels, products, institutions, and eventually systems.
Therefore, fintech’s impact on finance, driven by the rapid iteration of digital technology, is dynamic and far from over. “The history of financial development is essentially a history of technological application. Finance and technology are two sides of the same coin”, said Ziwei Cao, Director and Party Secretary of Xiaomi Consumer Finance. Today, with the ongoing evolution of big data, cloud computing, and AI, finance is inevitably integrating with these technologies. This integration has significantly improved financial accessibility and inclusiveness, which many regard as a natural outcome of digital finance.
Ziwei Cao highlighted Internet finance as an example, demonstrating how the integration of Internet technology with traditional credit services has expanded the scope of financial regulation to a level unseen before, making inclusive finance truly inclusive. Additionally, it has enhanced transparency in financial services, transforming face-to-face microcredit in close-knit communities, often characterized by high interest rates and high risks, into online and unsecured formats, thereby preserving borrowers’ dignity and delivering great value.
Ziwei Cao believed that the integration of digital technology with credit services has positively stimulated China’s socioeconomic development. At its core, digital technology works to remove barriers, connecting individuals across different regions, social groups, and preferences. This connectivity enables finance—the “lifeblood of wealth”—to reach every part of society.
From an academic perspective, digital finance is naturally connected with inclusive finance. Hua Cheng emphasized that digital technology is by nature inclusive, and it lowers the cost of financial services and enhances its efficiency. Moreover, the development of digital inclusive finance in China is driven by emerging tech-financial institutions targeting markets not yet covered by traditional financial institutions, so it is naturally inclusive. “Digital technology and differentiated market competition have rendered digital finance and fintech inclusive in China. Therefore, future efforts should focus on high-quality development in digital finance itself, rather than see inclusiveness as an end goal,” Cheng stressed.
The Critical Role of Regulators
The iteration of digital technology fuels the dynamic growth of fintech, requiring both the market and regulators to keep up with the times. “How a country or market adopts and prioritizes digital technology determines the degree of financial development”, Hua Cheng remarked. In this context, regulators play a critical role in shaping the direction of fintech.
Digital technology blurs business boundaries, leading to finer and more specialized practices, necessitating regulatory rules to adapt to these changes. According to Ziwei Cao, fintech poses potential challenges, including the development of technology may reach a level where it may render the tangible part of finance insignificant, or it may include individuals unqualified for loans within the financial system, or it may lead to over-indebtedness. Therefore, regulators must clearly define boundaries for technological development.
Furthermore, regulation itself needs to digitalize to keep pace with the development of digital finance. Traditional regulatory approaches like on-site inspections and window guidance differ from digital regulatory practices. However, clear regulatory positioning is equally crucial in this process. Cao emphasized that regulation should serve as a tool for upholding fairness and justice. Regulation typically involves reacting to and addressing issues after they occur, so its primary role is to set market boundaries rather than guide specific market behavior. “Paternalism” should be avoided to prevent the coexistence of well-intent policies and less-than-ideal outcomes. Within a regulatory framework grounded in justice and ethics, the decisive role of the market should be given full play to create a unified and quality market.
From a technological perspective, we need to be innovation-minded toward innovation. Jun Zheng, CTO of the Financial System Department of Huawei China stated that technology development in the financial sector should uphold fundamental principles first, then break new ground. Upholding fundamental principles entails the following three aspects. First, it involves safeguarding the core productive forces of finance, ensuring stable financial operations, and fulfilling its role as the lifeblood of the national economy. Second, it requires aligning with the development direction of finance by elevating technology advancement to support the “Five Priorities”. Third, it focuses on maintaining financial security, with technological security being an integral part of financial security.
Jun Zheng pointed out that finance, as the lifeblood of the national economy, must contribute to new quality productive forces while ensuring core productive forces. Technologies such as large models, among others, can be widely applied to enhance transaction convenience, security, and the international standing of RMB.
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