From FinTech to Finlife: the future of ... - skbi.smu.edu.sg · PDF fileFrom FinTech to...
Transcript of From FinTech to Finlife: the future of ... - skbi.smu.edu.sg · PDF fileFrom FinTech to...
From FinTech to Finlife: the future of FinTech and Digital Inclusive
Finance
Chen, Long
Chief Strategy Officer, Ant Financial
August 18, 2016
Inclusive Finance
Digital Inclusive Finance
Typical 20-80 rule in financial development
25%Traditional credit reporting
system
covers<25% of the
population
23%Loans in rural area
account for 23%
of total loan balance
10%Only 10% have credit
card
21%Among those with financing
nedds, only 21% get loans
from formal FIs
72%72% of adults lack
basic financial
knowledge
2 billion2 billion people without bank
account
In China
In developing
countries
The largest corporates and the wealthiest individuals are not that thirsty for financing, but it remains
a global challenge how to expand financial coverage of SMEs and more individuals.
Key components of satisfying inclusive finance
普
可得性ACCESSIBILITY
惠
可负担AFFORDABILITY
全
服务全面、优质COMPREHENSIVE &
QUALITY
商业可持续性和消费者适当性SUSTAINABILITY AND CUSTOMER
SUITABILITY
可持续
Why is there insufficient financial supply? What is the key
challenge in finance? Is more finance always better?
The key challenge is information asymmetry
• The key challenge in finance is the information asymmetry problem
– Akerlof (1970): Due to information asymmetry, lemons may take over the market and result
in market failure.
– Stiglitz and Weiss (1981) : Due to information asymmetry, adverse selection and moral
hazard may limit supply of financing from FIs.
• Finance is not a case of “the more the better”; oversupply of finance is unsustainable
– Financing with insufficient risk identification will bring loss to businesses
– Oversupply of finance may hurt consumers who lack financial knowledge and may even
lead to crisis (cases of U.S. and India)
• Calls for information and risk disclosure
Why digital inclusive finance works?
Big data technology
helps assess risk
Cloud computing
reduces the costs of
inclusive finance
Mobile technology
makes inclusiveness
more accessible
Mobile changes the approach and efficiency of accessibility
Anytime, AnywhereBarriers of time and distance
network ATM POS
Users
……Account
Manage
r
Users
PC
……
Biometric technique
for personal
identification
Wearable
devices
Smart
phones
Scenario-based finance:combination of finance and scenarios
Finance
ShoppingCommercialSocialShopping
Commercial
Social
Finance
Three key pillars for sustainable digital inclusive finance
Regulation
Compliance
Technology
Driven
Scenario
Based
Traditional finance…
Changed……
• KYC(Identification)
• AML(Anti Money Laundering)
• Investor Suitability
• Information Disclosure
• Risk Management
• Finance serves different scenarios and
controls risk endogenously
• Acquire real data more efficiently in lower cost
• Risk control based upon real transaction
• Big data greatly improves risk
assessment
• ‘Cloud Computing’ make the risk control
more efficiently
• Bio identification identifies targets reliably
Cases of Digital Inclusive Finance in China
Fintech Finlife
26 56 128 263 461
787
1,304
1,971
2,818
3,835
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Strong growth in China online payment market
Online Retail Transaction Value in China (RMB billion)
3rd party Online Payment Transaction Value in China(RMB billion)
total retail
sales/social co
nsumer goods
0.3%
Data source: Eguan, iresearch
12.74%
1,011
2,204
3,659
5,373
8,077
11,867
2010 2011 2012 2013 2014 2015
High technical capacity to cope with growing transactions
300/s
IOE
2010 2011 2012 2013 2014 2015
1000/s
IOE
3800/s
IOE
15,000/秒Cloud computing
38,500/s
Cloud computing
85,900/s
Cloud computing
New technology significantly lowers the cost of payment
SMEs can enjoy a payment processing fee as
low as 0.6%, significantly lower than the
average level in USA
Alipay’s per-transaction cost is below 0.02 Yuan
Tens of millions of cyber attacks each day drive digital
payment security to world-class level
Leading traditional
US payment
1/100
1/1000
Alipay
Less than 1/100,000
Leading US
new payment
company
Fraud loss rate
Three pillars of Alipay
Regulation Compliance
Technology Driven
Scenario-based
Traditional
Innovations
• Big data screens out fraud risks
• Cloud computing ensures
efficiency and system stability
• Information security system
guarantees CIA(Confidentiality,
Integrity & Availability)
• Compliance and custody of client funds
• Customers’ real-name registration
• Daily management of merchant accounts
• AML/Counter Terrorist Financing
• ……
• Forming strong ties with
customers based on transaction
scenarios
• Forming customer risk profiles
based on data from transaction
scenario
Pain points of inclusive wealth management
16陈龙
Unaware of
product offerings
Difficult to
understand
Lack of access
channels
Inconvenient High fees
Yu’e Bao (over 290 million customers) makes a difference to
inclusive wealth management
Make the
poor feel
like a king
Perfectly
smooth
experience
Scenario-
based
Purchase threshold
starts at 1 RMBStraightforward function
T+0 redemption
No fee for purchase and redemption
Daily yield updates
Yu’er Bao directly available for
Consumption
purchases and
Transfer payments
Three pillars of Yu’e Bao
Regulation
Compliance
Technology Driven
Scenario-based
Traditional
Innovations
• With law of large numbers, big data
analysis on Yu’er Bao clients greatly
enhances liquidity forecast accuracy.
• Based on big data analysis, asset
allocation is updated daily, and can be
prepared in advance of the “Single’s Day”
peak demands.
• Almost no leverage
• Liquid assets
• Short duration assets
• Secure assets
• Comply to or exceeds the regulation
requirements of “Measures for the
Supervision and Administration of Money
Market Funds”
• Most clients are frequent online
shoppers, and are insensitive to interest
rate fluctuations.
• Payment demands from clients are
steady, which make liquidity demand
predictable and greatly reduce liquidity
risk.
Ant Fortune——An open platform of wealth management,
which makes wealth management simpler
Release on August 18, 2015
Digital inclusive credit: serving SMEs and individual clients
Internet mobilizes advantages in data, client channels, and funding sources to bring financial service to
SMEs and individual clients.
SMEs
/Individual
clients
Risk management based on
big data
Affiliated with business
scenarios
Direct access to funding
sources
Risk assessing model leveraging big data
Data analytics
Default Pro
PolicyMarketingRisk
Collection rating
Credit Pricing
Prediction Anti fraud
Acquisition Cross sale
Attrition Life cycle mgnt
Growth strategy Event marketing
Product ……Close-loop marketing
……
Entry policy Granting policy
Consumer credit
Credit payment
Business Management & DecisionProcedure
Data sources Taobao platform Alipay platform External dataB2B platform
Marketing
Approval
Granting
Drawdown
Supervision
Collection
Crediting system
Credit scoring
Micro loan Wealth Management Insurance Consumption
Prudent risk management procedures
4. Post monitoring• early-warning
mechanism
3. Loan approval• credit rating mode
• auto credit decision mechanism
• supplementary manual check system
1.Customer screening• predictive models
• risk management model
• seller classification model
2. Credit investigation• target marketing
• bulk credit
Prudent RM
proceduresEfficiency
Effective
Risk control
Big Data
Modeling
Achievement in the past 5+ years
4 Million Small & micro business served
about 5 times of the total volume provided by the Grameen Bank in 39 years
RMB 700+ BillionLoan disbursed cumulatively
<RMB 40KAverage loan ticket size
With ‘310’ experience
Average NPL rate around 2-4%
Digital insurance: more than channel innovation
• Provide insurance to the long tail users
• Reduce the operational cost
Distribute channels
reconstructionBig data pricing
Product innovation
based on the scenarios
Shipping Insurance for returned purchase
25
• Premium of 0.5 Yuan per policy
• Total users over 270 million
• On Nov11th, 2015, 308 million
shipping insurance were sold within
one day.
Digital credit scoring:Zhima Credit serves many
scenarios based big data technology
Fraud and credit management Fraud and credit management
Facilitate Customer Identification
Post payment service to high
value client based on Zhima
credit rating
Lending E-commerceOnline
Dating
Travel
Penetration increases active users in multi-user scenarios
Highly Engaged Users
Data Security and Privacy Protection
Data desensitization watermark encryption Manual review
Data processingIntranets
Data collection
Serving rural customers, bringing prosperity to rural economy,
empowering employment and entrepreneurs in rural area
Promote rural
consumption
Support
entrepreneurs in
rural area
Increase income
for rural population
Enhancing
capability of FIs in
rural area
Alleviate disaster
loss to agriculture
More than 130 million
clients.
Innovative products like
“wind index
insurances”
More than 150 million
active Alipay users
in rural area
Serving180 thousand
rural SMEs, cumulative
loans more than 130
billion RMB
More than 40 million
wealth management
clients in rural area
Cloud service for
about 100 FIs in
rural area
Payment Micro loans
Wealth
Management Insurance
Cloud service
for FIs
蚂蚁金融服务集团 版权所有
After adopting Ant Financial cloud service, Paytm in India overcomes bottleneck and leaps forward, with the
number of customers exceeding 100 million, which has increased by 5.6 times from last year; payment
volume has increased by 2.6 times.
From China More than China
Share with the world an inclusive finance model featuring wide coverage, low cost, high
efficiency, and robust security
From China, more than China case: inclusive finance in India
蚂蚁金融服务集团 版权所有
A chronicle of the development of Inclusive Finance
2005 Systematic inclusive
finance
An inclusive financial
system that is
comprehensive.15
thC
en
tury Loans from religious
organizations
Monks in Italy initiated
loan services to
suppress growth of
usury.
16
thC
en
tury Cooperative loans
“Loan fund” was born in
Ireland, which provides
interest-free micro
credit to poor farmers
from donated funds.
70’s
in
th
e
20
thC
en
tury Group lending model
Modern micro loans, taking
the form of group lending,
emerge in Bangladesh and
Brazil, with joint guarantee
liability among members of
the group.
90’s
in
th
e
20
thC
en
tury From micro loan to micro
finance
More and more countries
and organizations believe
that, to fight poverty, just
providing loans is not
enough.
Charity
Local
Loans
Manual
Business
Global
Finance
Digital
2014 Ant Financial digital inclusive
finance
Utilizing mobile internet, cloud
computing, big data, Ant Financial
builds a more comprehensive
inclusive finance system featuring
credit scoring, payment, wealth
management, insurance, and loans.
2016 G20 advanced
principles in digital
inclusive finance
Advanced principles
in digital inclusive
finance establish a
globally recognized
model.
Lessons of Unsustainable, Excessive Finance
Lessons from oversupply of credit
Sub-prime mortgage crisis in the U.S. Micro loan crisis in India
Encouraged by the government, Fannie Mae & Freddie Mac increase
sub-prime mortgage with insufficient credit support to a targeted
group (low-income, in area with insufficient financial service
coverage) , which became the initiation point of an economic crisis.
3950
7150
10000
2003年 2004年 2006年
Sub-prime loans by Fannie Mae & Freddie Mac
(in 100 million USD)
Government of India relaxed regulation control on micro loan
institutions, with the hope of quickly satisfying demand of
financing. Subsequent over expansion of credit created a giant
debt bubble and resulted the micro loans financial crisis in India.
Oversupply of credit is associated with relaxed regulation environment, which
results in irrational expansion of FIs and oversupply of credit.
Gross loan portfolios (USD) of India’s six largest MFIs
Case sharing——P2P in China
P2P crisis in China
Fail to meet regulation compliance:
-Lacking regulated custody of investors’ fund
-Lacking truthful disclosure to investors
-Lacking proper screening of investor
suitability
……
Lack of technology capability:
-No data-driven risk management capability
No interaction with scenarios:
-Lacking first-hand data from interaction with
scenarios that can contribute to effective risk
screening
Platforms in
normal
operations
1702
44%
Problematic
platforms
2133
56%
Operation status of P2P
platforms in China
As of February 29, 2016
Policies and Regulations
Top-down planning: Adopt digital inclusive finance as
national strategy
On July 24, G20 Finance Ministers and Central Bank Governors Meeting issued
G20 High-level Principles for Digital Financial Inclusion
to encourage adoption of these principles for broader coverage of inclusive
finance planning, in particular with digital inclusive finance
In 2016, the State Council issued
“Development plan for promoting inclusive finance(2016-2020)”
Elevating inclusive finance to the level of national strategy
Emphasizing promotion of inclusive finance with innovative financial products and services
Finance as crucial element for social development,
Digital Technology as breakthrough point for financial development
Technology drives Finance, Finance propels Economy
Proportionate Regulation: reserve space for innovation and
enable its growth
UK FCA initiated SandBox pilot project in May 2016
Simplify market entry standard and procedure;
Under the condition of consumer rights protection, entrepreneurs may carry out
innovative financial products and services in the “SandBox” ;
The outcome of pilot projects help FCA to decide whether to promote the service
China Taiwan in 20th Century:
Payment card industry used to be
dominated by a domestic monopoly
brand, which subsequently failed to face
off outside competitors
U.S. in 20th Century:
Payment card industry grew from “domestic
competition” to “global giants”
>>Encourage
orderly
competition
>>Encourage
beneficial
innovation
Service Provision: promote financial infrastructure
construction and incubation of innovation
Connection gateway: develop internet and mobile Internet
Data sharing: public data from government and credit record
from the central bank
Simplify procedure: facilitate innovation under the condition
of compliance
Local government support: preferential tax policy to support
growth of innovative FIs
Consumer protection and education: secure consumer's
financial rights; educate consumers in financial knowledge
Consumer Protection
Financial Compliance
Custody of client funds
Information disclosure
Suitability screening of investors
Information Security
Privacy protection
Prevention of unauthorized use of information by
third party
Risk Mitigation
Clarify consumers’ rights and responsibilities, and
mitigate consumers’ liability
Insurance against risks
Collective funds against risks
Consumer Education
Regulative
authorities
Self-regulatory
organization
Academic research
institutions
Market participants
KYC: client identification based on big data and biometric
verification KYC is a key challenge in providing
remote financial servicesRisk Management with big data
Compared to traditional approach
Security Reliable, low false alarm rate
Thorough Comprehensive and
multi-dimensional
Accurate Accurate risk control without
sacrificing user experience
Real-time Accomplished in real-time
Biometric verification
• Remote account access and risk
screening with biometric ID by face,
fingerprints, retinal scan, etc.
• Makes financial access possible for
countries and regions with under-
developed financial infrastructure
Assessment and Monitoring: effective assessment and
measurement of digital inclusive finance
Inclusive Finance Index sorted by provinces
Data source: “Peking University Digital Inclusive Finance Index (2011-2015)”
2011 2015
Establish a comprehensive digital inclusive finance
development plan with long-term effectiveness
Top-down
Planning
Appropriate
Regulation
Service Provision
Consumer
Protection
Financial
EducationKYC
Assessment and
Monitoring
Protect consumer’s rights in
the entire process
Effective assessment and measurement
of digital inclusive finance
Promote construction of
financial infrastructure
Adopt digital inclusive
finance as national strategy
Reserve space for
innovation
Establish a unified technology-
driven client identification system
Educate consumers in
financial knowledge
陳龍
•Thank You!