In the ever-evolving landscape of finance, the concept of industrial digital finance may seem both familiar and obscure to many. The terms "industrial digitalization" and "financial digitalization" have been circulating in China for the past five to six years. However, the integration of these two domains to promote the development of industrial digital finance is a relatively recent concept that has gained traction only in the last three to five years. The implementation of this idea started in earnest around 2021 or 2022, following preliminary discussions that began around 2020.
To understand the urgent need for banks to explore industrial digital finance, it's essential to look at several key motivations. Firstly, industrial digital finance is anticipated to shape the direction of commercial banks' corporate business development, making it a crucial opportunity for business transformation. The banks that establish a foothold in this realm early are likely to dominate the corporate banking landscape in the years to come.
Moreover, as industrial digital finance is still in its infancy, all banks are at the beginning of this journey, emphasizing the need for urgency, determination, and a willingness to innovate and break boundaries. The expectation that the implementation of new services will be instantaneous is unrealistic; typically, such transitions are gradual. Banks aim to lay a solid foundation for practical implementation in industrial digital finance within a two- to three-year mark.
How then do banks develop the service capabilities necessary for industrial digital finance? The first step lies in integrating financial services into the industry, particularly within digital contexts. Financial services must be embedded in scenarios where industrial digitalization has already taken root. Furthermore, banks should incorporate industrial digital finance into each transaction phase within the industrial setting. Since the push for industrial digitalization is gaining momentum in China, it's crucial to recognize that various industries are at different stages of digital maturity. This variability means that designing banking products without considering existing digital capabilities could hinder client adoption due to high costs.
The second aspect involves banks restructuring their processes to facilitate industrial digital finance. This restructuring might involve reimagining digital workflows. Achieving a complete overhaul might not be feasible right away, but gradual implementation is essential. Consequently, future clients of industrial digital finance services are likely to shift towards online interactions, creating a complete industrial cycle. Banks must also acknowledge that transitioning to a fully digital operation requires time and isn't an instant process.
Achieving full digital operations is inherently complex, as banks must foster ecological integration that includes providing external data platform companies with data connectivity and conducting system data comparisons with ecological partners. For example, banks may require external oversight information regarding logistics and warehousing. Moreover, industrial digital finance incorporates capabilities like aggregated payments and smart contracts, necessitating systemic connectivity within the bank's own architecture. This transformative process will likely require one to two years for refinement and integration with both internal systems and external ecosystems.
Additionally, traditional banks' risk management practices and capabilities need rethinking. In promoting industrial digital finance, banks must reconceptualize their understanding of risk. The methods, levels, and technologies of digital risk control contrast sharply with traditional risk management. Notably, industrial digital finance allows for creating a comprehensive data chain and eliminating information asymmetry, which significantly improves risk management. By comprehensively understanding the authenticity and controllability of client transactions, banks can enhance their risk management strategies.
In the realm of industrial digital finance, digital credit is expected to play a substantial role. For instance, prepayment financing can be seen as a form of digital credit where banks provide financing based on real trade scenarios between recognized clients who possess commercial creditworthiness. This reflects a shift in risk control capabilities.
Moreover, banks face significant opportunities during this transformation. Embracing industrial digital finance represents a critical juncture in corporate banking transformation—an opportunity that, if executed effectively, can lay the groundwork for sustainable development over the next decade or two. Conversely, failure in this endeavor could result in banks finding themselves on the defensive in a mechanized economy. This represents a strategic shift aligned with the national push towards industrial digitalization, which continues to reap substantial achievements in domains like technological innovation.
Several industries in China have greatly benefitted from effective industrial digitalization, particularly logistics. The proliferation of smart warehouses utilizing robotic systems for storage, handling, and sorting goods reflects the significant advancements made in this sector—leaps that far exceed those seen in countries with slower digital progress. Another area seeing rapid development is autonomous driving, with pilot programs being tested extensively in multiple regions. Similarly, the manufacturing industry has increasingly adopted robotic technology, with Chinese-produced robots accounting for a significant 50-60% of the global market share. As industries progress swiftly in digitalization, banks must align their services accordingly, ensuring they meet the needs of industrial clients in an expanding digital marketplace.
A considerable challenge arises from the complexity of system interconnections. It is often the case that once systems are integrated, changing them is rarely an option due to the high costs involved for both parties. Experiences in supply chain financing reveal that establishing these connections can be cumbersome initially; however, once successfully connected, partnerships tend to be sustained unless significant problems arise. In this sense, industrial digital finance could have an even wider scope than partnerships with key manufacturers, resulting in unavoidable interdependencies that enhance competitive advantages for early movers.
The emergence of industrial digital finance is particularly significant for corporate banking, which encompasses facets like supply chain finance, digital financial inclusion, and technologically-driven financing solutions. Given that banks' clientele spans these sectors, industrial digital finance naturally aligns with these financial services.
As many banks now identify industrial digital finance as a fundamental component of their corporate and overall banking strategies, a comprehensive system must be constructed around it. This includes ongoing efforts in team development, requiring a capable workforce where personnel across front, middle, and back offices engage with and comprehend the intricacies of industrial digital finance. Additionally, banks must enhance their operational capabilities and knowledge continuously, ultimately forging a team equipped to thrive in a competitive landscape.
Within this system-building exercise, the design of products plays a pivotal role. Industrial digital finance encompasses a range of digitized solutions, and unlike the traditional approach of offering one or two discrete products, future protocols should focus on bundled offerings that deliver integrated solutions based on clients' full operational requirements. For example, prepayment and inventory financing in the current supply chain finance model often operate independently. In a future where industrial digital finance is practiced, banks should consider these services as a cohesive product solution, given the potential for financing practices to overlap in actual operations.
In practice, banks must strive for an interconnected product line that not only supports independent functioning but also allows for flexible integration across various product offerings. This adaptive nature of products is paramount, as future industrial digital financial services must cater to the diverse scenarios and needs of different clients.
Within multiple industries, clients often assume varied roles—sometimes acting as both buyers and sellers. For instance, a gasoline dealer purchases from upstream sources before wholesaling to gas stations. Such clients exhibit needs for both prepayment and regular inventory financing, thus necessitating a holistic digital solution. Banks are tasked with structuring such comprehensive solutions, clarifying transaction patterns and service modalities within the ecosystem of the petrochemical industry and subsequently designing digital products guided by clients' operational logic.
Technology support is another major area for banks as they transition to industrial digital finance. Meeting the requirements for system integration, especially, demands collaboration between IT personnel and business staff within banks to accurately convey demands to the IT development department, facilitating successful service implementation.
Furthermore, establishing a supportive organizational framework within banks is crucial, particularly with an emphasis on incentive structures to promote engagement across the workforce in industrial digital finance initiatives. Any innovation in business models requires robust mechanisms of support, including the operational mechanisms for industrial digital finance and effective incentive frameworks.
Creating a culture conducive to industrial digital finance is essential, rooted in widespread understanding and acceptance of digital concepts, particularly in the context of advancing the nation's digital infrastructure.
Identifying banks' potential client base under this new model is vital as well. China has made significant investments in digital infrastructure, establishing a data governance management system and a landscape rich in platforms offering entrepreneurial support to small and medium enterprises.
Data management is closely tied to the evolving landscape of cloud platforms, facilitating efficient data handling processes, although considerable investment is necessary for effective cloud solutions. Moreover, the advancement of AI has made substantial contributions to various banking services—automated voice and image processing have emerged as significant tools for customer interaction, while AI's capabilities in text recognition can aid in generating risk reports from fundamental data.
Additionally, advancements in communication technology, such as high-speed networks and quantum communication, have laid robust foundations for the integration of industrial digital finance, enhancing connectivity across diverse platforms. Given China's impressive progress in establishing digital infrastructure, banks should create conducive conditions aligned with national strategies and recognize the implications of industrial digital integrations.
Thus, banks are encouraged to keep abreast of national policies, gaining insights into rapidly evolving industries and their respective advancements to inform strategic banking operations. Understanding the infrastructure within specific cities will enable banks to effectively plan and execute their industrial digital finance projects. Furthermore, exploring synergies between industry and finance is paramount, allowing for a mutually beneficial relationship that fosters a strong ecological footing.
Ultimately, recognizing and clarifying the identity of banks' clientele, which now spans the myriad stakeholders involved in industrial ecosystems, including primary manufacturers, wholesalers, and end consumers, is an urgent task. By profoundly understanding customer needs and preferences, banks can develop tailored solutions, enhancing the sustainability of their operations.
Collaboration with various platforms is also noteworthy; many industry platforms support small enterprises, gathering and meeting their diverse financing needs. Engaging with such platforms can expose banks to a rich client base—a trend that transcends geographic boundaries.
Lastly, banks should also focus on firms within industrial parks—clusters of companies operating in specialized sectors—that can offer data and insights that might assist banks in providing their digital services. These parks provide ample opportunities for banks to understand the varied financing needs of businesses spread across the landscape.
Recognizing the technological service companies pivotal to the digitization trend is equally important. Their financial service requirements must be catered to, allowing banks to create solutions tailored to support these essential firms.
With keen focus, banks can tap into the expanding clientele residing within platforms, industrial parks, and technology support companies, ensuring their strategies are ahead of the curve and poised for future growth. This emerging clientele consists of innovative, high-potential firms driving industry directions—opportunities for banks to capitalize on as part of their digital finance initiatives.
In conclusion, a cooperative effort between industry and banking is bound to foster a promising future, unlocking expansive avenues for collaboration, ultimately propelling the ongoing evolution of industrial digital finance in China.