The rise of financial technology in China, exciting in a short moment, quickly degenerated into a widespread financial scam in the name of innovation. It brought heavy financial losses to countless investors, and incurred further costs in managing the subsequent social instabilities.
Thus one can conclude that China’s first FinTech boom ended up in failure. But questions remain unanswered as to how to define this failure, and how to reorient the Internet-based financial innovation. These are questions that people concerned about the future development of China must give serious thought to.
I. Internet Finance Is Still the Way to the Future
Mass innovation and entrepreneurship, and Internet+ are among China’s present national policies. The development of financial technology should be part of the general trend led by these policies.
The Internet, by nature, helps maximize the efficiency in the interconnectivity of information, and through which, a new rise in productivity. It enables a revolution represented by all-round digitalization and smart application in economic and social development. Internet-based financial service is one aspect of this revolution in productivity.
Financial business is by nature built on the credit relationship between the creditor and the debtor, with credit rating serving as the intermediary. Any case of finance is a combination of credit relationship and credit rating.
The dynamic operation of a society’s credit chain, linked by its myriad credit relations, is a lifeline for a modern economy. The Internet can boost the speed in its operation as it does in every field of business. Ultimately, it requires a change in the credit relationship and credit rating to adapt to the working of the Internet technology. This should be the nature of financial technology, or Internet-based financial service.
II. What Internet Means to Financial Business
Let us consider what the Internet essentially means to the financial business.
It means connectivity for information – in a transparent, participatory and efficient way. While what finance essentially means is the credit relationship, or the working of the credit relationship in a secure environment, so Internet finance is meant to allow for transparency, mass participation, efficiency, and security in its information network, in accommodating more credit relations and speedier capital flow in society.
Financial technology differentiates itself from the traditional financial business not by changing its basic princple of the credit relationship, but by increasing the efficiency in building credit relations and by helping the financial business move onto a more advanced stage of development.
Meanwhile, it sets a higher standard on the assessing and the reporting of the financial risk to the creditor. It is therefore a decisive factor for the success or failure of financial technology to structure a risk control system to reduce, if not eliminate, the sometimes worsening problem of asymmetric information between the debtor and creditor. In the last analysis, therefore, the challenge to financial technology is ultimately a challenge about risk control in credit anagement. It has to deliver an innovative model of risk control.
Viewing China’s recent boom in financial technology from this perspective, it is clear that its failure lies entirely in its lack of understanding of the very basics of the financial business, especially the importance of credit relationship and the protection of its security. More specifically, it reflected a lack of understanding about the role of credit rating as the indispensible intermediary of a credit relationship, and as the enabler of its stability.
In other words, when demand was on horizon for speeding up the mobility of capital flow to serve the development of productivity in the Internet era, people failed to define the would-be features of their technologies in the light of the financial business, and subsequently failed to develop a satisfactory solution. What was done was only a superfacial juxtaposition of the Internet and some financial functions, to single-mindedly chase the ease in transaction but without the knowledge that by doing so they would run into almost as many problems as they could manage to escape.
Little concern was shown to security when the Internet was employed to provide mass access for hastily-structured credit supplies. And little was done to involve the credit rating service when asymmetric information became rampant. Under such a distorted “speed only”model, the online financial market could only possibly result in its participants fleeting joy over their seemingly instant gains from investment but long-lasting sorrow over the losses from the bursting of the market-wide credit bubble. So much for the initial period of China’s financial technology.
A failure is not an end. It can be the starting point for doing the right thing. Putting financial services online is an inevitability. It will be the industry’s future. And inevitably, through the process, it will involve efforts to explore the uncharted waters, to learn from the past mistakes, and to embark on a new progress.
III.SilkRoadITFin.com as an Innovation in Financial Technology
At almost the same time as financial technology was developing in leaps and bounds, China came up with the “Belt and Road” Initiative, in a bid to build up bounds of co-development with its traditional trade partners along the Silk Roads.
Both the “Belt and Road” Initiative and financial technology are important new frontiers of development for China. Both will use the Internet in big ways. And both can be complementary. The need for interconnectivity in trade and in cross-border investment is in part a need for a workable model of Internet finance. SilkRoadITFin.com is designed to meet both types of need.
It is our conviction that the direction of Internet finance is to develop its capability of meeting the demand for a transparent, participatory and efficient a credit risk control system.
Guided by this correct direction, SilkRoadITFin.com has made great enough an effort in developing a unique model of credit risk control, thus paving the way for the new progress of Internet finance.
SilkRoadITFin.com’s credit risk control system has three key components:
First, a “Four-in-One” Risk Control System. It combines public disclosure by the debtor, public supervision by the creditor, monitoring and administration by professional credit rating agencies, and blacklisting of low-credit debtors. These components work together to provide an effective solution to the problem of asymmetric information between the creditor and debtor. This system constitutes SilkRoadITFin.com’s foundation.
Second, a Digitalized Credit Rating System. It is an industrialized rating credit information generating system on standardized data, digitalized analysis, and matrix application. It uses one database to carry three application platforms (one serving debtors and creditors, the second for auditors, and the third for managing credit rating information). It runs on Dagong’s unique technologies such as credit information map, credit engineering, computation of deviation, sources of repayment, liability balance, maximum liability, optimal debt structuring, etc.
Third, a Whole-Process Credit Management. It means placing the whole investment process in a complete and well-regulated environment of credit management to feature authenticity, professionalism, timeliness and sustainability.
SilkRoadITFin.com can fully satisfy the need for the creditors and debtors to build their relations on efficient and secure Internet technologies. It places the investment process in all-round credit management and risk control. It allows both creditors and debtors to reap values in Internet finance.
SilkRoadITFin.com sets a positive example of the right direction in Internet finance in China with its trendsetting, industry-leading model of service.
It is a milestone, indeed, in the development of Internet finance in China. It will serve as a major channel for cross-border capital investment between China and the overseas, and for all the countries that participate in the Chinese “Belt and Road” Initiative.