2021-2022 Digitalization in Finance: A New Three Dimensional View

Financials Author: Yiru Qian Editor: Tao Ni Apr 21, 2022 07:13 PM (GMT+8)

This is the Chinese version of the report released by EqualOcean Intelligence

Investment, finance and financial management

The term “digital economy” has been in the spotlight for a long time, and the Covid-19 has further brought it to attention.

The financial industry, as one of the industries with the most complete information infrastructure and the richest data resources in China, is naturally the backbone of this digital wave.

According to Gartner, finance digitalization refers to the use of digital technologies and strategies to change a business model, or to provide new revenue and value-producing opportunities. Around 67% of senior leaders suppose that their organization should be, or even must be significantly digitalized; in other words, they believe in the motto “go digital, or go dark.”

In December last year, the People’s Bank of China released Fintech Development Plan for 2022-2025, which laid out China’s ambitions for advanced fintech applications and deepened digital transformation of finance. 


In January 2022, China’s State Council made a further step to publish a blueprint for the development of the digital economy. The blueprint aims to enhance the contribution of the core digital economy to 10% of China’s GDP by 2025. The document also highlights the digital transformation of finance as an important part of the digital economy and thus should be promoted

As finance digitalization continues to accelerate, the importance and application have further led to a variety of "new" changes. Technology, business and service are three main aspects to look at. With an intention to enrich the financial application scenarios and expand the financial landscape to a greater extent, a bunch of innovative companies have started on this journey.


EqualOcean has seen these “new changes” emerging over the course of digitalization in China’s financial industry. We analyze these changes through three perspectives, namely, technology-wise (Privacy Preserving Computation and Cloud Native), business-wise (Digital Marketing and Digital Risk Management) and service-wise (BNPL business platform and Digital Wallet). 

Part I: New technology changes

Privacy Preserving Computation (PPC), represented by multi-party secure computing, federated learning and trusted execution environment, offers solutions and imagination for an "available while invisible" data circulation. Characterized by compliance with strict data usage regulations in the financial sector, PPC will be an essential approach to data mining under the premise of privacy protection.  Technologies such as multi-party secure computing will power business in precision marketing, risk management and cross-border transactions.

Cloud Native applications include pan-cloud native modular microservices architectures, technologies (i.e., container, APIs, DevOps and CI/CD) and products. It provides the financial industry with architectural assurance and innovative upgrades when re-architecting the existing applications. The cloud-native technology system runs through the construction of financial software infrastructure, application middleware and disaster recovery mechanisms. It is perceived to be a "silver bullet" that satisfies the financial industry's needs for rapid delivery, efficient iteration and elastic expansion.

Part II: New business changes

In the post-epidemic era, digital marketing in the financial industry presents two main pathways: fintech companies focus on large-scale customer acquisition in their early stage, while banks and insurers strive to revitalize individuals. Among them, the former tends to broaden the customer traffic pool, while the latter focuses on stimulating existing customers’ demand and creating value-added services. The core part lies in a deep understanding of customer data, using PPC to access multi-data traffic interfaces and develop multi-dimensional algorithms to depict panoramic customer portraits. EqualOcean projects that these two pathways will evolve together and reinforce each other in the coming years.

With the popularization of inclusive financing in China, digital risk management has emerged as an upgraded complement to the traditional credit risk evaluation method, which refers to manual credit reviews of data derived from the central bank's credit investigation system. However, an innovative risk management ecosystem is taking shape against the backdrop of increasing digitalization. In this ecosystem, data is the core asset, while technology acts as the essential engine and user scenarios serve as the key business touchpoints. With such a comprehensive risk indicator system embedded, financial institutions could present and monitor real-time changes of major risks, detect abnormal signals, and pre-define risk control plans.

Part III: New service changes

The development of digital wallets has received a lot of attention and favourable policy support in recent years. As the main carrier for China’s digital fiat currency e-CNY, the digital wallet has been hailed as the "new infrastructure" of the digital economy. As of December 31, 2021, the e-CNY had been applied to over 8.08 million scenarios, six times the number from half a year ago. More than 261 million personal wallets have been opened, with CNY 87.565 billion worth of transactions completed. It is committed to further playing its role in bridging the digital divide and promoting financial inclusion in the future.

Buy Now Pay Later (BNPL) is a new, trending business model that enables consumers to place an order first, and then pay in instalments when the product is obtained or the service is completed, with no interest surcharge. From the perspective of a revenue model, the BNPL platform's main revenue comes from the service fees provided by business merchants. The platform will pay the merchants the full amount at the time the order is placed; in other words, merchants are free of the repayment risks. For those B-side merchants, BNPL plays a role of customer acquisition channel and customer retention mechanism, making it an extremely flexible payment method. Currently, most BNPL platforms have partnered with financial institutions such as banks, trusts and micro-lending companies, and provide cash flow support for this service.

Swedish fintech company Klarna and Australian Afterpay are two of the leading players in the BNPL industry.


EqualOcean has further summarized the following major trends of China’s financial digitalization based on the new changes.

Trend 1: Technology is the key to enhancing business value

China’s financial industry has raised the awareness of mainstream digital technologies represented by AI, Blockchain, Cloud and Big Data in recent years. The applicability of technology is increasing a precursor to business value creation. We expect emerging technologies represented by Privacy Preserving Computation (PPC) to be the pivot of financial digitalization in the next two to three years. A higher priority will be given to cross-institutional data security integration and to the rapid business iterative innovation within the industry.

Trend 2: Digitalization places greater demands on risk and compliance

In a financial world where "stability" is an essential prerequisite, it is crucial to establish a sustainable business approval process and to review the compliance with innovative technologies, operations, and products.

As finance digitalization advances, the new ecosystem continues to diversify and innovate, and the complexity of technology also increases to a great extent. Therefore, a higher and more stringent requirement for all types of risk management is the order of the day.

EqualOcean believes that five types of risks and their management deserve a higher priority in future practices. They are operational risk, digital risk, supply chain risk, information security risk and business continuity risk.

Trend 3: Digitalization accelerates the fragmentation within the financial industry

While the pandemic drives digital transformation, it also accelerates the fragmentation within the industry. As the market dividend gradually recedes, the “Matthew Effect” of the industry will be further accentuated. To put it differently, the gap between small and medium-sized financial institutions and their large peers will further widen.

Given the indispensability of fintech, financial institutions are jostling for a piece of the pie on the back of technology, operations and user scenarios. More specifically, large institutions would further maximize their advantages in terms of capital, products, innovation and execution, while small- and medium-sized fintechs could also gain their edge via a refined market positioning.

This article contains only excerpts from the report. For more details, please click to download the full report here.