Yang Kaisheng, CEO at Industrial and Commercial Bank of China, the largest bank in the world by market share and asset size, said recent moves by China’s regulators to limit the scope of internet finance will be good for innovation.
On July 18, the People’s Bank of China, in conjunction with the nation’s banking, securities and insurance regulatory bodies, issued new guidelines in reaction to the country’s stock-market crash.
The rules stipulate that client funds be held at recognised banks, that traditional bank accounts be used to channel large payments, and increased the disclosure requirements for online lending or crowdfunding platforms.
The regulators also clarified areas of supervision, with the PBoC to regulate payments, the China Banking Regulatory Commission to oversee internet lending and peer-to-peer platforms, and the China Securities Regulatory Commission to cover crowdfunding and the online sales of funds.
Yang, speaking through a translator at a conference in Sydney organised by the Boao Forum for Asia, said traditional and emerging business models are integrating. “Technology doesn’t change the financial risk of activities,” he said.
“There is a perception that when banks develop internet technology, it’s not regarded as ‘fintech’. Some people say this is a new idea, a new ideology that will get rid of agents and intermediaries, and that banks can’t adapt.”
Start-ups also say they welcome the new regulation. Joe Guo, founder and CEO at Quark Finance, a Shanghai-based peer-to-peer lender established in 2014, said the new regulations suggest a positive attitude among authorities. “Internet finance will grow” as a result, he said.
Many of China’s nascent P2P lenders are unprofessional, Guo said: “We need the government to keep a close eye” on the sector. Better regulation would help the fintech leaders, defined as not just those start-ups with the best analytics around loans and credit histories, but to those with the best understanding of their customers. He described Quark’s edge as marrying online risk assessment with offline business development among small enterprises and other business segments underserved by big banks.
Yang argued the government’s new framework for regulating financial technology is meant to ensure its long-term success, just as traditional banking requires regulation.
He dismissed the notion that more nimble technology companies in areas such as peer-to-peer lending are a threat to traditional banks, given banks’ vast pools of capital. For example, he said moving banking services to online and mobile have enabled ICBC to make great savings on headcount. Today ICBC employs 17,000 bankers among its retail branches, but without mobile and online services it would need another 300,000.
Li Ruogu, former chairman and CEO at Export-Import Bank of China, said technology and analytics have changed banking because it reduces the asymmetry of information that banks traditionally enjoyed. He said emerging-market governments need to support financial institutions in order to ensure they continue to mobilise capital to support development.