From November 11th night to 12th, 2016, Institute of Digital Finance of Peking University (short for IDF) held its first annual conference focusing on “Inclusive Finance in the Digital Age”.

The picture shows the site of the annual conference

 

At this annual conference, IDF published three research reports. On the night of November 11th 2016, IDF published a research report Digital Technology to Promote Inclusive Finance ( short for Report 1 ). Report 1 is commissioned by the International Department of Bank of China, and completed by the IDF research group independently. Report 1 summarizes the current practice of China in the field of digital inclusive finance, analyzes the universal problems and risks of the industry, and puts forward corresponding countermeasures.

 

In that night, Director of IDF Huang Yiping and other members of the research group delivered a speech on this report. Experts from Bank of China, Tsinghua University, Zhejiang University and other institutions had a heated discussion on the relevant areas covered by the report.

 

The evidence from Peking University Digital Inclusive Finance Index fully demonstrates the value of digital finance according to Report 1. The index has increased from 40 in 2011 to 220 in 2015, with an annual increase of 53%. The provincial index shows a large difference, but the gap is narrowing rapidly. The subindexes of cities and counties also confirm the fact of the rapid narrowing of differences in the digital inclusive financial area.

 

However, there are still many imperfections in the practice of China's digital inclusive finance. Report 1 analyses the difficulties encountered in the development of digital inclusive finance in China: First, digital inclusive finance is not quite" inclusive "enough; Second, the application of digital technology still needs to be improved; Third, the regulation either does not set the threshold or does not give new licences; Fourth, the digital inclusive finance has become a high-risk area; Fifth, the digital security has obvious hidden dangers; Sixth, the lack of a wide coverage and high efficiency national credit information system.

 

According to Report 1, many problems of digital inclusive finance are related to the lacking or improper supervision. In order to protect the healthy development of digital inclusive finance, an effective regulatory framework must be established as soon as possible. However, it must be noted that regulation is not overall control but a balance between innovation and risk.

 

How to balance? Based on the characteristics of digital inclusive finance, Report 1 provides the following recommendations about how to establish the regulatory framework: The first is to set uniform regulatory standard and framework; The second is to implement comprehensive supervision and functional supervision; The third is to set up the threshold and withdrawal mechanism; The fourth is to establish appropriate standard of information disclosure; The fifth is to adjust the legal supervision policy keeping pace with the times; The sixth is to improve unified and open credit information system; The seventh is to strengthen investor education and consumer protection; The eighth is to carry out the information security system with high standard and openness .

 

On the morning of November 12th, Chairman of Global Partnership for Financial Inclusion( GPFI ), Deputy Director of Consumer Financial Protection Bureau of Bank of China Sun Tianqi, commented that Report 1 had a positive effect on promoting the further implementation of G20 digital inclusive financial principles in China. He suggested that we could start with reform and opening up, and observe the application of our country’s science and technology in financial field. He also emphasized that when implemented comprehensive and functional supervision of Internet financial institutions, we should implement prudential and behavioral supervision at the same time. In addition, how to help vulnerable groups to eliminate the digital divide is also a problem that should be focused on in the future.

 

Xie Xuanli, Senior Researcher at Institute of Digital Finance, represents the institute publishing the research report Analysis on the Internet Strategic Transformation of Commercial Banks (short for Report 2).Report II summarizes the current strategic reaction to the Internet finance of domestic commercial banks from three levels -- cognition, organization and practice. On such basis, Report II will remain the banks with at least one-year annual report from 2010 to 2014, build the Internet transformation index of commercial banks through three dimensions -- cognition, organization and products, and ultimately show the transitional Internet strategy of following commercial banks in China:

 

1. From 2010 to 2014, Internet transition of Chinese commercial banks were continuously deepening, gradually penetrating from eastern coastal areas to the west. However, the overall transition is still at its early stage, and the pressure of transition remains enormous.

 

2. In terms of cognition, organization and products of Internet finance, Internet products, especially electronic bank products, have been developing and popularizing most rapidly, while the Internet financing, credit, business and other financial products are still at a low penetration rate.

 

3. The Internet transition of organization lags behind that of products. Obviously, the establishment of Internet institutions, the enrollment of talents and the cooperation between banks and Internet companies are insufficient.

 

4. In terms of bank groups, the state-owned banks are in the lead of transition in light of time and degree on average, but clearly unable to always sustain its leading position. In recent years, joint-stock banks have developed rapidly, and become the main force, while there was a discrepancy among small and medium-sized banks such as urban and rural commercial banks, which rose the fastest. A few excellent banks and lots of lagging banks make the average level still lag behind.

 

5. In terms of individual, small and medium-sized banks in some key areas have surpassed traditional big banks, leading in the Internet transition. Among Joint-stock banks, China Everbright Bank and Minsheng Bank have developed the fastest, exceeding China Merchants Bank who had initial advantages. What’s more, Industrial and Commercial Bank of China is the model of continuous transition of state-owned banks.

 

6. In terms of specific strategy for transition, commercial banks can be divided into three clusters (leading strategy, centered strategy, lagging strategy), two strategies (theory, practice) and a problem (organizational lag).

Report II points out that difficulty in transition, lack of depth and completeness and high similarity in characteristics of products are the prominent features of current layout of Internet finance of commercial banks. In the future, commercial banks ought to mainly focus on the following aspects—strengthening cooperation with Internet companies, reforming business process of commercial banks, matching in terms of organization.

 

Li Lihui, a member of Financial and Economic Committee of NPC, former chief executive of Bank of China has commented on the report. Li suggested that on the basis of report II, the research group could carry out the second round of research from the aspects of bank cost, substitute rate of bank business, bank benefit, security of operation of bank business and experience of bank client, thus making a more in-depth analysis.

 

In quantitative analysis of Peking University Internet Financial Sentiment index, small emotions of Internet finance as a concept was put forward, which has aroused all kinds of controversy, along with different voices from different sources and attitudes. So far, although the development of Internet finance can be measured through a large number of structured data and index, there is no effective quantitative analysis for unstructured information like news reports.

 

To this end, the IIF team has used nearly 15 million full-text news data, processing with natural language, in-depth learning and other methods to compile a set of Internet Financial Sentiment index covering data from January 2013 to 2016 September. (Simplified as "index”). On the morning of November 12, the index was officially released at the annual meeting. Wang Jingyi, the doctoral candidate in National Development Institute, Peking University, gave a detailed introduction of the index.

 

This first Internet Financial Sentiment index in China indicates that the overall attention of Internet Finance follows a tendency of volatility and rising. In terms of overall positive or negative attitude, the oscillation is quite intense. The sub-categories of Internet finance, in the aspects of degree of attention and positive or negative attitude, have a greater divergence.

 

To be more specific, in the respect of overall attention and attitude, since January 2003, Internet Finance has been paid more and more attention. From the beginning of 2016, attention has fallen significantly.

 

The oscillation of index, by comparison, is more intense. From 2013 to 2014, the index was mostly in a negative range except for several brief moments. This may demonstrate that, although the public's interest in Internet finance is on the rise, their opinions are not optimistic. In 2015, the index has kept in positive range, even in the latter half of 2015 when the P2P platform experienced frequent risks. It was in July 2015, after the introduction of guidance for promoting healthy development of Internet finance, the index appeared a "deep V". From the beginning of 2016, the index has been falling into negative range. However, recently it has been close to the historical average level.

 

By comparing indices of attention towards different sub-categories of business, we can find that the hot issues have changed in the past three years.

 

So is there any relationship between the index and the development of business? If we make a comparison between Internet investment and development index in Peking University Internet Financial Development Index and the index of attention towards P2P in the Internet Financial Sentiment index, we can see the positive relationship between these two. From the beginning of 2014, the two indices have followed much the same tendency of changing. After the beginning of 2015, the two indices had several inflection points, but were still relatively synchronized, such as the fall after December 2015 and the rise after February 2016. Before making any further analysis, it is impossible to make sure whether such a synchronic relationship is significant in terms of statistics and whether there is a causal relationship between these two indices.

 

What is worthy of expectation is that the research group of Peking University Internet Financial Sentiment Index will publish all the source code of the index and welcome anyone who are interested to join in.

 

Xu Zhong, the inspector of the Financial Market Division of the People's Bank of China, gave his own suggestions on the construction of the thematic model in the index, and fully affirmed the academic value of the index. In his point of view, the establishment of a scientific and systematic index is very important for the study of financial markets. It is recommended that the research group should figure out relevance and apply the index to the financial markets besides Internet finance.

 

The annual meeting was hosted by institute of Internet Finance, Peking University, Shanghai New Finance Institute (SFI) and National Development Institute, Peking University. During the meeting, experts of Internet finance in fields of politics, business and academia launched a lively discussion on China's Internet wealth management in intelligent era, P2P industry reforms and challenges in post-regulatory era, innovation and risk control system of financial big data and how to balance the innovation and risk of supervision over Internet finance, etc.

Photo of all participants