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Academic Afternoon Tea: How Does Digital Technology Re-shape Finance?

Dec 07-2023   



On December 4, Prof. Huang Yiping gave a lecture on digital technology’s impact on finance at Academic Afternoon Tea, a serial lecture event of the NSD aiming to promote cross-disciplinary exchange and academic collaboration among faculty members and students.

 

With a lead-in on the recently held Central Financial Work Conference, Prof. Huang highlighted the major role of digital finance in assisting in the fulfilment of two policy tasks: improve financial services and prevent and defuse risks. He said that digital technology will not alter the nature of finance, but will bring changes to its mechanisms and traits. For example, traditionally the 20/80 rule would mean that clients in the top 20% tier contribute 80% of businesses, while providing services to the remaining 80% of clients is difficult and costly. However, digital technology might re-write this rule.

 

Prof. Huang introduced some major work of PKU Institute of Digital Finance, including the research project ‘Digital Inclusive Finance – Innovations, Risks, and Supervision’ (funded by the National Social Science Fund of China), research and publication of ‘Digital Finance Revolution (in conjunction with the Brookings Institution), compilation and upcoming publication of a textbook on digital finance, and policy research on digital finance entrusted by the State Council’s Financial Stability and Development Commission. Another long-running project, ‘PKU Digital Inclusive Finance Index’, has received high attention from the government, businesses, and academia.

 

After tracing the evolution of payment modalities in China, Prof. Huang dove into his main research area in recent years: Big Tech credit. It is about leveraging Big Tech platforms to reach mass users while applying big data and machine learning to build new credit models for credit risk appraisal. Such models can effectively help traditional financial institutions to improve client acquisition and risk control, and enabling businesses that lack financial data and collaterals to obtain loaning service. Though truly inclusive in nature, Big Tech credit also faces challenges and doubts related to the small size of loans, high annualized rate, and subsceptibility to impact brought by financial cyclical changes.

 

Prof. Huang also drew attention to ‘smart investment advisory’, which is supposed to provide intelligent and customized wealth management services to middle-class households, but has achieved limited progress so far. Is it due to the distrust of clients in algorithm, or poor quality of algorithm, or insufficient development of the financial market? Prof. Huang believed much exploration and research await the corporate sector and academia to conduct.

 

Prof. Huang and his collaborators also found that digital finance not only impacts on the functioning of financial business, but also has major influence on the macro-economy. One typical example is Big Tech credit’s ability to substitute data for collateral, which mitigates or even eliminates mechanisms that cause financial instability. Further research should be done concerning the exact mechanisms that enable digital financial innovations to exert enormous impact on macro-economic stability and monetary policy conduit, he said.

 

Following Prof. Huang’s lecture, the participants had heated discussions on topics such as the prospect of smart investment advisory against the backdrop of population aging, as well as digital finance’s impact on CPI.

 

Academic Afternoon Tea: How Does Digital Technology Re-shape Finance?

Dec 07-2023   



On December 4, Prof. Huang Yiping gave a lecture on digital technology’s impact on finance at Academic Afternoon Tea, a serial lecture event of the NSD aiming to promote cross-disciplinary exchange and academic collaboration among faculty members and students.

 

With a lead-in on the recently held Central Financial Work Conference, Prof. Huang highlighted the major role of digital finance in assisting in the fulfilment of two policy tasks: improve financial services and prevent and defuse risks. He said that digital technology will not alter the nature of finance, but will bring changes to its mechanisms and traits. For example, traditionally the 20/80 rule would mean that clients in the top 20% tier contribute 80% of businesses, while providing services to the remaining 80% of clients is difficult and costly. However, digital technology might re-write this rule.

 

Prof. Huang introduced some major work of PKU Institute of Digital Finance, including the research project ‘Digital Inclusive Finance – Innovations, Risks, and Supervision’ (funded by the National Social Science Fund of China), research and publication of ‘Digital Finance Revolution (in conjunction with the Brookings Institution), compilation and upcoming publication of a textbook on digital finance, and policy research on digital finance entrusted by the State Council’s Financial Stability and Development Commission. Another long-running project, ‘PKU Digital Inclusive Finance Index’, has received high attention from the government, businesses, and academia.

 

After tracing the evolution of payment modalities in China, Prof. Huang dove into his main research area in recent years: Big Tech credit. It is about leveraging Big Tech platforms to reach mass users while applying big data and machine learning to build new credit models for credit risk appraisal. Such models can effectively help traditional financial institutions to improve client acquisition and risk control, and enabling businesses that lack financial data and collaterals to obtain loaning service. Though truly inclusive in nature, Big Tech credit also faces challenges and doubts related to the small size of loans, high annualized rate, and subsceptibility to impact brought by financial cyclical changes.

 

Prof. Huang also drew attention to ‘smart investment advisory’, which is supposed to provide intelligent and customized wealth management services to middle-class households, but has achieved limited progress so far. Is it due to the distrust of clients in algorithm, or poor quality of algorithm, or insufficient development of the financial market? Prof. Huang believed much exploration and research await the corporate sector and academia to conduct.

 

Prof. Huang and his collaborators also found that digital finance not only impacts on the functioning of financial business, but also has major influence on the macro-economy. One typical example is Big Tech credit’s ability to substitute data for collateral, which mitigates or even eliminates mechanisms that cause financial instability. Further research should be done concerning the exact mechanisms that enable digital financial innovations to exert enormous impact on macro-economic stability and monetary policy conduit, he said.

 

Following Prof. Huang’s lecture, the participants had heated discussions on topics such as the prospect of smart investment advisory against the backdrop of population aging, as well as digital finance’s impact on CPI.