Shanghai FinTech Development: A Balancing Act of Challenges and Opportunities, with AI at the Forefront

Shanghai FinTech Development: A Balancing Act of Challenges and Opportunities, with AI at the ForefrontThe recently released "Global FinTech Center Development Index (2024)" reveals a cooling-down of global FinTech investment in 2023, yet artificial intelligence (AI) remains a focal point for investment. The report highlights Shanghai's continued leading position in FinTech application, particularly in AI and big data

Shanghai FinTech Development: A Balancing Act of Challenges and Opportunities, with AI at the Forefront

The recently released "Global FinTech Center Development Index (2024)" reveals a cooling-down of global FinTech investment in 2023, yet artificial intelligence (AI) remains a focal point for investment. The report highlights Shanghai's continued leading position in FinTech application, particularly in AI and big data. However, compared to Beijing, Shenzhen, and Hangzhou, Shanghai shows a relative deficiency in the number and quality of high-valuation unicorn FinTech companies. This underscores both the opportunities and challenges facing Shanghai's FinTech development.

Shanghai aims to build a higher-level international financial center and a more globally influential technological innovation center, with FinTech viewed as a crucial engine driving the synergy between the two. To achieve this, Shanghai needs to focus on several key areas. Firstly, supporting original innovation is paramount. This involves fostering the development of underlying FinTech technologies such as chips, operating systems, and databases, as well as key technologies for financial applications like AI and blockchain. Only by mastering core technologies can Shanghai maintain a proactive stance in international competition and avoid dependence on others.

Secondly, Shanghai needs to design open FinTech innovation demonstration scenarios to accelerate the deep integration of finance and technology. This requires collaboration between government departments, financial institutions, and technology companies to explore innovative models and applications. Creating open platforms to attract more innovative forces will foster the development of more market-competitive FinTech products and services. Simultaneously, the government should actively promote relevant policies, encouraging enterprises to participate in the construction and application of demonstration scenarios, reducing their concerns, and accelerating innovation.

Ge Ping, Deputy Director of the Shanghai Municipal Committee of the Financial Services Office, noted that Shanghai will further increase its policy support for FinTech, focusing on fundamental research and original innovation, and promoting the application of cutting-edge technologies such as large language models and blockchain in the financial sector. Furthermore, Shanghai will orderly promote breakthroughs in major pilot projects and explore the construction of a more flexible FinTech "regulatory sandbox" mechanism. This flexible regulatory mechanism will provide innovative companies with space for experimentation and iteration, reducing innovation risks and encouraging greater participation in FinTech innovation.

However, FinTech development is not without its hurdles. Professor Li Feng, Associate Dean of Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, and Executive Dean of the China Institute of Finance, points out that while AI promises disruptive changes and cost-efficiency improvements, its promotion and application in financial institutions face numerous challenges.

Firstly, the development cost of large AI models is extremely high. For example, China Merchants Bank's "intelligent computing platform" project launched earlier this year, related to large language models, involved a massive investment in the hundreds of millions of yuan. This is a substantial investment even for large financial institutions, posing an insurmountable burden for smaller ones. Therefore, balancing cost and benefit is a crucial consideration for financial institutions when applying large AI models.

Secondly, the application scenarios of large AI models still require further exploration and refinement. Currently, AI applications in financial institutions primarily focus on customer service and front-office operations. This is largely because the financial industry is heavily regulated, and AI applications must comply with regulatory requirements, leading to cautious adoption by financial institutions. Future efforts must explore the potential of AI in risk management, investment decision-making, and other areas to deliver greater value to financial institutions.

Furthermore, smaller financial institutions face unique challenges in applying AI technologies. Professor Li Feng suggests that smaller institutions can employ outsourcing or collaborative strategies to address high costs and technological barriers. Collaboration with large technology companies or the establishment of shared platforms with other smaller institutions can effectively reduce costs and improve efficiency, avoiding the risks of blindly following trends. Leveraging industry-specific platforms will also allow smaller institutions to better access FinTech infrastructure and enhance their competitiveness.

In conclusion, while Shanghai's FinTech prospects are bright, challenges remain. Shanghai needs to continue increasing policy support, encouraging original innovation, promoting technological integration, and actively exploring innovative models tailored to the needs of smaller institutions. Overcoming these challenges will unlock FinTech's immense potential, helping Shanghai become a higher-level international financial center and a more globally influential technological innovation center. This requires the joint efforts of government, enterprises, and academic institutions to promote the healthy and sustainable development of Shanghai's FinTech industry. It is crucial to prioritize risk control and ensure financial security and stability while developing FinTech. Regulatory bodies should strengthen supervision, guiding the healthy development of FinTech and preventing potential risks. Only under conditions of safety and stability can FinTech better serve the real economy and promote high-quality economic development. Balancing innovation and regulation, and supporting smaller enterprises' participation in FinTech development, will be key issues for Shanghai in the future, requiring collaboration among government, businesses, and regulatory bodies. Shanghai's FinTech journey is long but full of hope.

Shanghai's leading position in FinTech relies on continuous innovation and investment, as well as proactive government guidance and support. In the future, Shanghai needs to further optimize its business environment, attracting more outstanding domestic and international talent and enterprises to participate in FinTech innovation, thus maintaining its leading position in global FinTech competition. Strengthening international cooperation and learning from international best practices are also important pathways for Shanghai's FinTech development. Through continued efforts, Shanghai can become a global FinTech hub, contributing to global economic development. This requires a long-term stable policy support environment, and the joint efforts of government, businesses, and the public. Only in this way can Shanghai ensure the continued positive development of FinTech and benefit society. Future FinTech development in Shanghai will focus more on the deep integration of technology and finance, data security and privacy protection, and inclusive financial development. These are areas that require continued attention and effort.