Recently, Bank Of China Limited(601988) held a performance conference to announce the achievements in 2021. According to the data, in the past year, Bank Of China Limited(601988) accelerated the digital transformation, and invested 18.618 billion yuan in science and technology in the whole year, with a year-on-year increase of 11.44%.
Digital transformation is a national self revolution, and banks are an important participant in the efficiency revolution of the whole society. In fact, in order to better assist the growth of enterprises, the digital capacity-building of the banking industry has never stopped. Digitization is one of the most important genes of the banking industry.
Behind this self genetic reconstruction, banks have also gone through detours and pits. The bank once failed and became a capital channel. The app of the Internet giant turns the bank savings card into a capital transfer station. The virtual account in the app bears the payment function in the process of real goods and transactions, but it is not counted by the existing financial system.
Today, driven by more advanced network information technology and financial system, banks regain the initiative and are building their own “rocket” with the help of financial technology.
At present, more and more commercial banks begin to use financial technology to reshape the banking system and improve the efficiency of links, data and decision-making. In 2020, Bank Of China Limited(601988) industry continued to increase investment in financial technology. The investment in information technology of listed banks in A-Shares reached 207.8 billion yuan, a year-on-year increase of 25%, accounting for 10.7% of the net profit of 1.94 trillion yuan of banking industry in that year.
the following is a summary of the core viewpoints of this paper:
1. Bank digitization has experienced twists and turns, from the pioneer of informatization to the laggard, and then to today’s take-off;
2. Third party payment is one of the biggest variables of bank digitization, which rises and falls all the way;
3. China’s policies promote direct payment between banks and enterprises, and fintech companies enable banks to explore digitalization, so that enterprise payment is back on track.
01 from offline to online
You may not believe that now we seem to be a “outdated” bank. More than 20 years ago, it was a pioneer of informatization.
In fact, in order to better assist the growth of enterprises, the digital capacity-building of the banking industry has never stopped. Digitization is one of the most important genes of the banking industry.
Although, the digital construction of banks is difficult, complex and tortuous.
Just as it takes three steps to put an elephant in the refrigerator, so does the bank’s digital transformation:
First, online, transfer offline manual business to online;
Second, digitalization, using modern network technology, through recording, analyzing and reorganizing online business data to realize business guidance;
Third, intelligentize, analyze and refine online data, identify financial risks within appropriate accuracy, provide proactive services for enterprises, and increase the value of enterprises. Intellectualization is the process from manual, automatic to autonomous;
Back in the early 20th century, with the rise of the Internet and mobile electronic devices, e-banking, which meets the functions of online transfer, statement, and electronic bill payment, is widely used. The original counter handling business has been gradually replaced, and online business handling has become a trend. Users can even carry out financing, lending and other behaviors directly online.
Another witness of the obvious online trend is that with the improvement of China’s financial system and the maturity of communication and information technology, the total number of outlets has entered the downlink channel in recent years. According to the statistics of financial license information of the China Banking and Insurance Regulatory Commission, 2809 bank outlets chose to exit in 2021, and the number of exits continued to remain high, and more than 2000 bank outlets withdrew in 2020.
02 initial water test of bank enterprise direct link: increasing cost and reducing efficiency
At the same time, data and intelligence are also driven synchronously Bank Of China Limited(601988) digital and intelligent cognition is mainly reflected in the creation of standard interface, opening the functions of account balance, real-time query of details, acquisition of electronic receipt and so on, so as to attract more enterprise users.
At that time, China had not fully opened its financial system, and large-scale banks actively promoted various products and systems of cash management, hoping to obtain more high-end enterprise and institutional customers, which also made more enterprises pay attention to the function of cash management.
Generally speaking, the business of enterprise finance that originally needed to be operated through enterprise online banking can now be operated through the internal financial management system of the enterprise. The premise is that the system has opened the bank enterprise direct connection interface with the internal system of the bank.
In other words, banks should make efforts to build interfaces, enterprises should strive to build internal systems, and there should be communication between the two.
At that time, the four major banks headed by Industrial And Commercial Bank Of China Limited(601398) opened the curtain of direct contact between Chinese banks and enterprises.
It is reported that Zhou Xingxing’s team was responsible for Industrial And Commercial Bank Of China Limited(601398) R & D interface at that time. Zhou Mingxing can be regarded as the chief architect of China’s first generation fund system planning. He once founded the product market team of softcom power fund management system and implemented more than 100 projects. Later, he founded the fund management SaaS enterprise treasurer cube with Li Jing and served as the CTO of the company.
After improving the bank system, Zhou Xingxing also stationed in PetroChina to assist in the establishment of PetroChina’s fund management system and connect with Industrial And Commercial Bank Of China Limited(601398) company. So far, China’s first case of bank enterprise direct connection has been completed.
Following the steps of Industrial And Commercial Bank Of China Limited(601398) , Agricultural Bank of China and Bank of China kept up and began to build their own standard interfaces.
The internal fund management system of the enterprise is also being improved.
Since 2000, in order to better connect with banks, Sinopec, CNOOC and SINOCHEM have begun to explore and practice the centralized management of group funds. In 2003, China Construction Bank Corporation(601939) undertook the first large-scale treasurer service project in China; In 2004 Dongfeng Automobile Co.Ltd(600006) company implemented the first large-scale enterprise treasurer management construction project in China.
In terms of the types of customers used, they are mainly large banks and large state-owned enterprises. It is not difficult to guess the reasons behind it. The development cycle of single interface of a single bank is nearly 2 months, and the cost is as high as 270000. If an enterprise wants to meet its basic survival needs, it must open at least five bank accounts at a cost of up to one million yuan.
This does not include the development cost of enterprise technology platform. Zhou Mingxing once said that the workload of system development was completed, and the budget was planned to start at least 10 million yuan, which was only the price in 2004.
Li Jing, CEO of treasurer cube, once wrote on her microblog, “at that time, it was a high price of 30 million yuan in the Chinese market, and not necessarily someone dared to connect with the construction of enterprise end fund management system.” “Limited by the de IOE policy and in order to better adapt to Chinese enterprises, everyone will prefer domestic software. However, domestic substitution is weak and the supply is limited.”
Not every bank can break through the complex organization and put technology in an important position outside the main business of financial business.
Not every enterprise can bear the high cost. In addition, due to the excessive manual intervention caused by immature technology, the efficiency is also reduced, and there is a serious imbalance between market demand and supply.
Therefore, the exploration of the initial water test of bank enterprise direct connection did not achieve the purpose of reducing cost and increasing efficiency, but increased the cost and efficiency of banks and enterprises.
As a result, both sides are in a difficult choice. Bank enterprise direct payment is the future, but no one can judge how far the future is and how complex it is to reach the future; At present, the first growth curve has reached the end, and the decline is only a matter of time.
03 third party payment fills the market gap
The vigorous development of China’s Internet has shortened the time of hesitation.
At this time, e-commerce is gushing. The unit price of e-commerce customers is not high, but the number of transactions is large. If it is still in accordance with the past practice that users place orders and pay for online selections, the merchant sends the details to the acquiring bank (the organization responsible for processing their payment), and the acquiring bank must contact the customer’s Bank to approve the transaction. Assuming that the bank approves the transaction, it will send the authorization code to the recovery bank through the credit card network. Then, the acquiring bank sends the information to the merchant, and the merchant will eventually provide you with products or services.
But this is not the end of the whole process. Users may get services or products, but merchants will have to wait for a long batch, clearing and financing process to be completed, which may take more than a week before your funds are deposited into their bank account.
1) seeing a third party pay for a high-rise building
In order to cope with the rapid growth of e-commerce transaction data, a new bank enterprise connection mode was born. Chinese entrepreneurs have created a new business model – third-party payment, which not only meets the needs of economic development, but also conforms to China’s actual situation.
The operation logic of third-party payment is: the third-party payment company opens an account in the bank and connects directly with the bank to enable the enterprise. The enterprise has a virtual account in the third-party payment company, which can transfer funds for collection, payment, audit and other functions. This process is equivalent to Alipay’s direct docking with banks, opening bank accounts, and personal users to deposit funds in Alipay’s virtual accounts for transactions.
With a more flexible system, stronger product innovation ability and better service experience, third-party payment institutions have cut into the traditional core businesses of commercial banks, such as payment, loan, deposit and financial management. In addition, the provision interest that allows Payment institutions to “lie and earn” and the dark gray products, third-party payment institutions have obtained huge benefits in a short time.
In addition to third-party payment, there are also four-way payment formed by aggregating multiple third parties, all of which are the products of that specific era.
2) seeing the third party paying guests
At that time, the status of third-party payment license was high. If each bank is called the “eldest son” of the people’s Bank of China, the third-party payment is the “second son” of the people’s Bank of China.
This seems to be a win-win situation. The emergence of third-party payment organizations extends and supplements the function of bank payment services and presents cooperative relations with banks. The one-stop access service of third-party payment enables banks and businesses to avoid the high cost of one-to-one access. Some organizations also provide credit guarantee institutions and other value-added services for sellers and buyers, which not only restricts transaction behavior, but also provides better service innovation. But in the end, the app of the Internet giant turned the bank savings card into a capital transfer station.
Long term dependence on head customers and neglect of long tail customers, now long tail customers are taken away by third-party payment, and commercial banks are completely reduced to the capital channel of Payment institutions, resulting in a substantial outflow of funds.
The third-party payment has grown into a system equivalent to the bank payment system, and most of the transactions and funds have poured into the virtual account of the third-party payment.
These virtual accounts bear the payment function in the process of real goods and transactions, but they are not counted by the existing financial system.
Payment disintermediation (payment disintermediation refers to the process in which non bank institutions carry out payment business and gradually erode bank payment business in the field of market-oriented payment services) has taught banks a vivid lesson. Even large national banks are powerless in the face of the “dimensionality reduction” competition of Internet companies.
3) seeing the third-party payment building collapse
When the bank cannot view the data of each transaction, the supervision will be reduced.
The clearing center of the people’s Bank of China can view the flow information of third-party payment institutions, but it can’t view several virtual accounts one by one, and the transaction volume of these virtual accounts has built a part of China’s Internet economy.
For the people’s Bank of China and regulators, every transaction needs to be traceable in real time, so as to ensure economic security.
The people’s Bank of China will not allow these enterprises to develop freely. Before long, the good days of lying and earning will come to an end.
In 2017, the supervision began to hit hard. The central bank’s 209, 238, 281, 296, 248 and other documents resounded through the industry, requiring third-party payment to be disconnected and directly connected, which must be connected to the Internet platform and then forwarded to the bank for processing. The scope of supervision covers clearing organizations, financial institutions, Payment institutions, acquirers and aggregate Payment institutions from top to bottom.
The third-party payment license has become a hot potato from a pastry that is regarded as franchising and difficult for outsiders to enter.
04 commercial banks take off with the help of financial technology companies
Governance “chaos” is the means, and development is the purpose.
Notice of the general office of the people’s Bank of China on strengthening the management of payment and clearing business of clearing institutions in August 2021. The document points out that the clearing center of the people’s Bank of China is responsible for the credit business without transaction background (insurance claim settlement (dividend), government services, payroll and credit issuance, etc.); The business scope of UnionPay, online Federation, rural credit and urban credit has been reduced.
The new regulation defines the business boundary of clearing institutions, and China’s B2B payment is back on track, reaching the same level as foreign countries. Chinese policies promote direct payment between banks and enterprises, and Chinese enterprises look for compliance solutions.
In such an environment, commercial banks must make profound changes. The necessity and urgency of digital transformation are unprecedented.
Different banks have different perceptions of digital and intelligent transformation. Some banks are willing to spend a lot of money to build their own R & D teams and open the road of independent innovation; Most commercial banks are willing to cooperate with external technology companies to build their own systems for transformation.
No matter which model is chosen, a more open bank will be displayed in front of the public and become a new favorite of the market, and the process of digitization and intelligence will be greatly improved.
The essence of “open bank” is a new banking business model. According to the needs of customers, commercial banks will provide customers with full process and efficient financial services by sharing data, processes and other business functions with other partners.
In a popular sense, an open bank is like a USB interface of a computer, which defines a unified shape, kernel, transmission protocol, etc., so that all electronic equipment manufacturers can achieve seamless connection. Although the open bank is named “open”, it strictly controls the API, SDK and other interfaces to provide universality to the greatest extent and strictly abide by the security of user information
The logic of open banking is to go deep into the scene to find users and serve users.
With the in-depth development of open banks, more and more commercial banks began to use financial technology to reshape the banking system. In 2020, Bank Of China Limited(601988) industry continued to increase investment in financial technology. The investment in information technology of listed banks in A-Shares reached 207.8 billion yuan, a year-on-year increase of 25%, accounting for 10.7% of the net profit of 1.94 trillion yuan of banking industry in that year.
1) why do enterprises need to access open banks and build direct links between banks and enterprises
Open banks will sublimate direct payment between banks and enterprises. This is a lower cost and more convenient payment method for enterprises. Enterprises can use their own financial system to complete balance details query, transfer and other functions without logging in to online banking.
At the same time, some banks are gradually opening the interface of electronic bills and bill pool, which also brings more convenience to enterprise financial management. Under the traditional model, due to the characteristics of enterprise customers, such as information asymmetry, uncertainty and risk, commercial banks dare not provide services for small enterprises.
Bank enterprise direct connection is the road to establish the connection between enterprises and banks. After opening the payment, the open bank can be used as a financial empowerment to output all the financial functions of the bank, such as account, data, payment, financial management, and even lending. For example, an airline calls the interface of a bank, and airline members can directly buy insurance, finance and even borrow a travel emergency fund on the app.
2) why do commercial banks need fintech companies
Traditional commercial banks have customer and data base, but limited by the stability requirements of financial system and the high cost of technology development and transformation of financial technology application, the digital transformation of commercial banks is slow and the effect is limited. With the help of “external forces”, it has become a realistic choice for more and more financial institutions. The combination of banks and financial technology companies has become a trend under reform.
The bank is not a talent without the ability to build payment products, but because a company committed to payment can focus on all local integration and edge cases, resulting in faster experience, higher acceptance rate and less fraud.
The epidemic situation in recent three years is a powerful catalyst for digital transformation, which makes the digital and intelligent level of banks once again become the focus of the industry. Through “non-contact service” and customer contact, the digitization of banks began to show strength.
Fintech companies also rely on financial technology technologies such as big data, artificial intelligence and blockchain to help banks’ digital transformation and become one of their core forces.
A bigger gear is slowly driving. Fintech companies have become the invisible engine of smart banks to escort the digitization of banks. Bank digitization has attracted more enterprises to accelerate the establishment of fund management system and better connect with banks with the help of fintech companies.
