Macro-Finance Salon (No. 65) and Fintech Open Classes (No. 6): New Technology Leading the Reform of Payment and Settlement System
2017-05-26 IMI
Yang Tao first introduced the basic architecture of modern payment and settlement system. Given the growing needs of economic and financial innovation and development, China's supplies of financial infrastructure, represented by the payment and settlement system, still run low. Since 2012, the focus of financial market regulation has been gradually shifted from the systemic risks of large institutions to ones latent in financial infrastructure represented by payment and settlement system. Many countries have adjusted the objectives of their payment system reform, mostly swinging between "security" and "efficiency", while China is transiting from "loosening regulation in pursuit of efficiency" to "paying more attention to security". He then introduced three main components of China’s payment and settlement infrastructure, namely the payment and settlement system of People’s Bank of China, the third party payment system and the securities settlement and clearing system, and analyzed their challenges respectively. He pointed out that there is room for the central bank to improve its payment and settlement system regarding top design of the sector, coordination between payment system innovation and financial regulation, optimization of infrastructure layout and the sound and stable operation of the system. In recent years, third-party payment has flourished in a relaxed regulatory environment, but also posed acute problems such as the abuse of customer's personal information. In the securities settlement and clearing system, connectivity of the bond market needs overhauling and its risk management may lead to some pitfalls. OTC market registration and settlement is in fragmentation. The road to further opening up is still not smooth.
In terms of the new technology’s impact on payment and settlement infrastructure, he pointed out that financial technology has enjoyed a global upsurge and rapid growth in recent years, but its applications in developed economies were not as popular as expected. Instead, China has become the wave rider owing to its capital-driven development, e-commerce expansion, and regulatory tolerance, though many of which are short-term factors. The optimization of technology-backed payment and settlement infrastructure can further facilitate the development of cash-free payment, reduce social costs, propel the development of the Internet economy and e-commerce, stimulate consumption growth, reconstruct the financial transaction process, and integrate financial services. He stressed that the role of mobile payment should not be exaggerated. From a cross-cultural and cross-border perspective, "fast payment" is not a cure-all, because consumption scenarios and culture could swing the choice of payment. Compared with some novel, gimmicky but low-tech payment tools, practical and convenient ones are more promising.
In his remark on payment economics and related empirical studies, such institutions as Federal Reserve, Bank of Canada, European Central Bank, US Federal Reserve Bank of Boston have already conducted investigations and harvested first fruits, while China still lacks a research atmosphere, and the key lies in how to obtain a great number of real data. Studies have shown that the close relationship between the operation of payment and settlement system and the real economy contributes to the validation and prediction of important macroeconomic variables. The payment and settlement system is the main carrier of money circulation in modern society, and with reference to its data, the speed of China's currency circulation can be more accurately estimated, so as to provide the basis for monetary policies.
In the Q & A session, Yang Tao successively answered the audience’s questions including an outlook on the game between the central bank’s centralized and distributed ledger decentralized settlement, the possibility of a “cash-free society” and the coordination of financial risks in payment and settlement system and financial market infrastructure.
