Finance + technology = Shanghai's future
New York, San Francisco, Singapore, London. Now it's Shanghai’s turn to become a hub for the convergence of technology and finance.
In January, Shanghai rolled out a plan to hasten that ambition, one year after China's central government made it a national priority.
The city ranks fourth among the world’s top financial centers, according to a March survey by think-tank China Development Institute and Z/Yen Partners in London.
The survey also compares the competitiveness of financial centers utilizing technology. Among that rankings, New York came first, followed by Beijing, Shanghai, London, and Singapore. Seven of the top 10 centers for financial technology are Chinese.
“Technology improves efficiency, and partnering with tech companies will be the general trend for established financial players,” an industry analyst surnamed Zhao told Shanghai Daily. “It is certainly a positive move for Shanghai to develop itself into a financial technology center.”
At the 12th annual Lujiazui Forum held in mid-June, city officials sought feedback from industry experts and leaders, both from home and abroad, on how to advance the city’s progress as what is called a “fintech” center.
Last year, China's major banks invested about 170 billion yuan (US$24 billion) in technology research and development, up 22 percent from a year earlier, Jin Yu, president of the Bank of Shanghai, told the forum.
The coronavirus pandemic, which has posed big challenges for the financial services industry, galvanized closer ties between banks and technology firms.
The banker said both sectors have exchanged information on product innovation and risk management.
"We have seen explosive growth of contactless financial services during the health crisis, but much work remains to be done,” Jin told the forum. “For example, how do we effectively meet our customers’ needs and manage operational risks, while delivering more digital banking services.”
Turning to the realm of Big Data, Jin said he wants to see a more open sharing of public information in areas related to the judicial system, customs and business registration so that banks can better serve clients, especially small and medium-sized companies.
iResearch, a third-party data provider, estimates that by 2022, “intelligent” customer services will replace around 80 percent of people working in financial institutions. It also predicts that blockchain will be the key technology leading a new financial infrastructure.
Jing Xiandong, executive chairman of Ant Financial Services Group, told a forum panel that Shanghai must increase support for digital technologies such as blockchain.
“We are now at the critical moment in a new round of technological changes, which have become more pronounced since the pandemic,” he said. “Consumers, authorities, the economy and society as a whole are entering the digital age.”
Shanghai Shuhe Information Technology, a local financial technology firm focusing on consumer credit, said the environment in the city is ripe for its own development.
“In the past, when we talked about financial technology, we mostly discussed cooperation between financial institutions and technology companies,” the company said. “But the goal of turning the city into a financial technology hub means that the government has become an important participant, which will be of great significance going forward.”
Denis Duverne, chairman of financial giant AXA Group, told the forum, “Most of our operations are headquartered in Shanghai, so you will understand that empowering the city as a financial center is something very important to us.”
He said the next success stories are likely to come from business-to-business financial technology players.
“Across the financial sector, incumbents -- be they banks, asset managers or insurers -- are busy transforming themselves,” Duverne said. “This process is far from over.”
He added that his company is transforming itself from payer of claims to partnerships with clients, by teaming up with innovative tech firms.
AXA has joined forces with Tencent Trusted Doctors/Qhealth, an integrated private medical service group, to address the growing demand for better healthcare management.
In Shanghai, the AXA Next Lab Asia team scouts technology innovators, seeking partnerships with the most promising start-ups.
For Shanghai to be seen as financial technology hub, it must offer a regulatory “sandbox” that will provide companies with an environment to experiment and test innovative products and services within a clearly defined space, said Toshiyasu Iiyama, representative director and deputy president of Nomura Securities.
Examples of experimental projects could include the issuance of corporate bonds through blockchain technology and the issuance of digital yuan.
At the same time, providing tax breaks and world-class housing, medical care and children’s education are also essential in attracting international professionals to financial technology companies, the Japanese investment bank noted.
Shanghai must formulate laws and regulations for the industry in a timely and reasonable manner so that business operations can thrive, said Wang Shiqiang, senior researcher at the Madai Institute.
The Shanghai-based think tank warns that many financial technologies are still in trial stages, and many have not yet delivered very fruitful results.
Smart-voice robots are one example. In the financial industry, they are mostly used to remind clients of due payments on loans. That sensitive interaction between lenders and borrowers might require a more personal touch.
Moreover, many lenders and financial technology companies that use Big Data to conduct risk assessment still have high bad-debt rates.
The coronavirus epidemic shut down a large number of tech firms, causing heavy losses to insurance industry partners.
While banks embrace technology, they are proceeding cautiously amid concern about information leaks. Many banks are still reluctant to adopt cloud-computing technology on a large scale, Wang noted.