The head of the Chinese central bank has signalled the authority’s commitment to efforts to prevent big data and other forms of fintech leading to monopolies in the financial sector.
Yi Gang (易纲), the governor of the People’s Bank of China (PBOC), said that in future the authority will “make effective use of regulatory collaboration with anti-trust authorities to restrain monopolistic conduct such as abuse of advantageous market position, and actively respond to new trust issues such as discriminatory algorithms.”
Yi made the remarks during a speech delivered before the Bank for International Settlements (BIS).
“Chinese fintech has seen flourishing development with the gradual advance of technology,” said Yi. “In recent years artificial intelligence, big data, cloud computing, distributed ledgers, e-commerce and other emerging technologies have gradually seen in-depth integration with financial operations, accelerating financial innovation and driving new forms of business including mobile payments, online loans and robo-advisory services.
“In 2019 87% of Chinese consumers made use of fintech, while as of the end of 2020 Chinese-invested enterprises accounted for five of the world’s top online platform companies.
“The development of fintech has effectively assisted financial inclusion…China’s big tech companies have objectively raised the efficiency of funds allocation during the process of expansion, enabling remote areas, small and medium-sized enterprises and ordinary households to obtain more financial services, and expediting economic growth.”
Yi highlighted the challenges brought by fintech to Chinese financial regulation, including:
- Unlicensed financial activity. “China’s leading platform companies have obtained huge volumes of information on user identity, accounts, transactions, consumption and social interactions during the process of providing e-commerce, payments and search services, thus identifying and determining their personal credit status. They have engaged in cooperation with financial institutions under the name of ‘assisting loans,’ which is the equivalent of engaging in personal credit rating operations without permission.”
- Non-compliant conduct in the area of payments operations. “In the past the payments entities established by Chines platform companies have connected with as well as opened accounts with numerous commercial banks, creating final problems for settlements, and even potentially triggering systemic risk. Some of these platform companies have invested the payments deposits of these customers in various types of financial assets in breach of regulations. Platform companies have also embedded lending services such as Huabei and Jiebei in payments links, misleading consumers.”
- The use of monopoly positions to engage in inappropriate competition. “Platform companies naturally possess a ‘winner takes all’ character, which can lead to market monopolies, and reduce innovation and efficiency. Some domestic companies have used cross-subsidies and other methods to seize market share and engage in exclusionary policies after obtaining market allocation status, such as preventing competitors from entering platforms, or providing services or barcode payments operations which only support their own apps.
- Threats to personal privacy and information security. “In order to obtain the financial services of platform companies, Chinese consumers have often been required to provide personal information. The excessive gathering and even abuse of consumer information by large-scale companies is detrimental to the information security and privacy protections of consumers.”
- Challenges to the business model and competitiveness of traditional banks. “Chinese commercial banks enjoy marked traditional competitive advantages in areas including service scenarios and channels, customer information and funds. In recent years the rapid development of various innovative online financial products has challenged this, accelerating the run off of bank deposits, without including them under corresponding regulation. China also has approximately 4000 small and medium-sized banks, and their own resources are limited. They can only depend on the technology and platforms provided by large-scale tech companies to maintain customers, analyse credit and control risk, which can weaken their ability to obtain customers and the competitiveness of their products.”
