Digital finance and platform economy guide future development

Visitors examine a smart city system at an international big data expo in Guiyang, Guizhou province, in May. [Photo/Xinhua]

The platform economy, as an economic activity that takes advantage of digital technologies, has had a positive impact on the financial sector as well as economic growth. Digital platforms and technologies have solved many challenges facing the financial system, especially in the area of ​​inclusive finance.

China has seen momentum in the development of mobile payments, online investments, technology credit and digital currency, all of which play an important role in promoting inclusive finance. These regions are expected to play a vital role in the country’s future economic growth.

To begin with, the platform economy has a big impact on the financial sector, which can be reduced to “three increases and three decreases”.

The “three increases” means that the platform economy has helped “increase the scale of the business, improve efficiency as well as improve the user experience”. As the platform can serve many customers at the same time, costs are minimized, which naturally improves overall efficiency.

Digital platforms also offer personalized services. With advancements in technology, these services will be much smoother, more convenient to use, and more popular with consumers.

Imagine, if mobile payments fail, users are less willing to use them. If 2G communication technology were still used today, online payments and other web-based activities would be very inconvenient. Advancements in technology have therefore continuously improved the overall user experience.

The “Three decreases” refer to “cost reduction, risk reduction and contact minimization”. In terms of risk control in particular, the user data accumulated by the platform will be very useful for identifying risks upstream.

Based on the above changes, digital platforms will also have some impact on the rules or even the laws of economic activity and trade. This will make users more dependent on the platform itself, but the platform will also be closely tied to the economy.

China first embraced the internet in 1994, which gave birth to the first internet company, Yinghaiwei. Since then, a group of internet giants like NetEase, Baidu, Alibaba, Tencent and Sina have emerged.

At present, the country’s platform companies have developed quite well and are comparable to major foreign Internet heavyweights, mainly due to improvements in digital technology, market-oriented reforms, large population and relatively independent market conditions.

However, the development of the country’s digital economy also needs regulations, especially in terms of personal data protection. Some platforms collect and analyze data illegally, which violates privacy and harms consumer interests.

This is also why, over the past year, regulators have taken a series of measures to oversee the platforms. These efforts are aimed at bringing the platform industry to develop in a more standardized way. From this point of view, the country’s platform economy has broad development prospects.

To go further, finance is an indispensable element of economic development. The biggest problem in current financial development is information asymmetry, which can easily lead to serious systemic risks. An important function of the financial system is to reduce the degree of information asymmetry and improve the reliability of transactions, or what we call “inclusive finance”.

Inclusive finance is playing an increasingly critical role in China’s economic development. On the one hand, the country’s economic growth has been very successful in recent years with an average annual GDP growth of more than 9%. But there are many regional gaps, issues of income distribution and operating environments for small and medium enterprises.

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