Author: Jiang Han Vision Observation
Since entering the 21st century, science and technology, as the driving force behind global development, has gradually strengthened and is profoundly changing the lives of each of us and even the entire market. A recent landing of financial technology once again shows the value of technology. How can technology help financial service innovation? How should we analyze this?
1. Financial support for scientific and technological innovation is becoming a trend
According to a report by Guangming Daily, at a recent routine regulatory briefing, the meeting stated that in recent years, with the support of various departments and financial institutions, the intensity and level of financial support for technological innovation in China have continued to increase, and a pattern of technology, industry, and finance shaping each other, tightly coupled, and positively reinforcing is taking shape.
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As of the end of June 2023, the balance of long-term loans in China’s high-tech manufacturing industry was 2.5 trillion yuan, a year-on-year increase of 41.5%, maintaining a high growth rate of over 30% for three consecutive years; the balance of loans for technology-based small and medium-sized enterprises was 2.36 trillion yuan, a year-on-year increase of 25.1%, maintaining a high growth rate of over 25% for three consecutive years; the balance of loans for “specialized, refined, unique, and new” enterprises nationwide was 2.72 trillion yuan, a year-on-year increase of 20.4%, maintaining a growth rate of over 20% for three consecutive years. At the same time, the functions of the capital market in serving technology-based enterprises have significantly strengthened. As of the end of June 2023, the balance of science and technology innovation bills and science and technology innovation corporate bonds was approximately 450 billion yuan, with over 1,000 “specialized, refined, unique, and new” small and medium-sized enterprises listed on the A-share market, and the scale of venture capital and private equity investment funds management was nearly 14 trillion yuan.
It can be said that the attitude of the regulatory authorities has been very clear, and the resolute promotion of the development of financial support for the science and technology innovation industry has become an important trend in China’s financial development.
2. Why is it difficult for financial support to be given to science and technology innovation?
Although the country is making every effort to promote the development of financial support for the science and technology innovation industry, the financial services for the science and technology innovation industry are still very difficult. What are the difficulties?
One is the difficulty for technology-based innovation enterprises to obtain financing. In the Chinese financial market, technology-based innovation enterprises are often the most difficult institutions to obtain financing. On the one hand, although China’s financial system has formed a clear capital market, apart from the capital market with extremely high entry barriers, most financial financing is still carried out by commercial banks. However, even commercial banks themselves have high financing thresholds, resulting in a single financing channel and widespread difficulty for enterprises to obtain financing. On the other hand, technology-based innovation enterprises are often in the early stages of innovation and entrepreneurship. Their characteristics are novel business models, small enterprise size, and particularly high pressure for technology-based innovation enterprises to face substantial losses. The result is high risk, insufficient influence of the enterprises, and difficulty in obtaining support from financial institutions. This directly leads to more severe financing difficulties for technology-based innovation enterprises than for general enterprises.
The second difficulty is for technology innovation companies to improve their credit. People familiar with the financial industry know that credit is the core of finance, and the reason why financial institutions are willing to provide financing to companies lies in the credit ratings of these companies. So, how to evaluate a company’s credit rating? The traditional method is the asset-based credit system, which uses the credit system and the assets of companies as collateral to obtain sufficient funds to support their development. However, it can be observed that this credit method is more traditional and only applicable to asset-heavy companies, such as industrial and mining enterprises and real estate enterprises. In contrast, technology innovation companies face great pressure because they have numerous technological assets and liquid assets, but fewer physical assets and insufficient fixed assets. In such cases, traditional credit methods are difficult to assess the credit of technology innovation companies, making it naturally difficult to provide corresponding financing to them.
The third difficulty is risk control for technology innovation companies. In addition to the high financing threshold and the difficulty of credit assessment, another major issue for technology innovation companies is the challenge of financial risk control. The core of financial institutions is risk control, and the foundation of finance lies in compensating for risk premiums. However, for technology innovation companies, although some data and evidence can partially support their risks, their strong innovation capabilities, relatively novel business models, and rapid changes in the market environment often make financial institutions unable to fully understand and trust them. The problem of “unclear, incomprehensible, and distrustful” is common among financial institutions. In addition, the traditional data model leads to low data quality, making it difficult for financial institutions to evaluate and implement effective risk control.
It is precisely because of the three characteristics of high financing threshold, difficulty in credit assessment, and challenging risk control for technology innovation companies that they find it more difficult to obtain effective financing compared to ordinary companies. This makes business operations more challenging. In addition, the traditional financing methods centered around banks do not match the characteristics of technology innovation companies, such as being asset-light, small in scale, and having lower credit. This further discourages banks and other financial institutions from tightening their risk control. In practice, a large number of technology innovation companies in China, especially small and micro technology innovation companies, still face tremendous pressure from the financing side, which has become a core pain point for financial institutions to support the development of technology innovation companies.
3. How to activate technology assets with technology?
Faced with the pain points and difficulties of technology innovation companies, along with continuous technological innovation, financial technology has gradually made it possible to assist the development of technology innovation companies. Recently, a company called DooDoo Charging has become a model for financial technology to activate technology innovation companies. How does the DooDoo Charging model work?
As we all know, there are more than 350 million electric scooters in China, making it the most common means of transportation in the market. In recent years, with the increasingly strict regulations and policies such as prohibiting battery charging in buildings and homes, charging has gradually become a challenge in the market. The battery swapping mode of “swapping instead of charging” has become popular. And DooDoo Battery Swapping is an innovative company that emerged in such circumstances.
Similar to most traditional battery swapping companies, DooDoo Battery Swapping originally adopted a self-owned model, with each battery costing over 1,000 yuan. With over 10,000 users, the company’s assets would exceed 10 million yuan, and with 100,000 users, it would exceed 100 million yuan. For a technology-based start-up like DooDoo Battery Swapping, this can be a tremendous pressure. In such a situation, DooDoo Battery Swapping certainly considered using financing to promote its own development.
However, the difficulty for DooDoo Battery Swapping is that, as a high-tech enterprise, its core assets are movable property, such as batteries. This resulted in a shortage of collateral assets for DooDoo Battery Swapping. When seeking assistance from financial institutions in the past, these institutions were very cautious. They even sent personnel to the company’s site for over half a month during the loan process. Both parties had to jointly develop interfaces and establish data standards to prevent false information transmission. Even after obtaining some financing support, financial institutions still needed personnel to monitor the battery swapping cabinets, calculate the number of people swapping batteries each day, and assess the market situation. This made it particularly difficult for the company to obtain financing and increased the operational pressure.
Recently, the emergence of the blockchain and Internet of Things (IoT) model has provided a turning point for DooDoo Battery Swapping. Through cooperation with AntChain, DooDoo Battery Swapping has “put on the chain” the first batch of 16,000 sets of batteries and 1,000 battery swapping cabinets using blockchain and IoT technology. Through this process, DooDoo Battery Swapping’s difficulties have been comprehensively resolved.
On one hand, by installing blockchain modules on batteries, the operational data of the batteries can be uploaded to the blockchain in real time. Data such as the number of charge and discharge cycles and battery health are trustworthy and cannot be tampered with. The financing party no longer needs to send personnel to count the number of battery swappings. They can accurately and quickly assess the value of batteries through the interactive data on the blockchain backend. This allows them to confidently hand over the batteries to DooDoo Battery Swapping for operation.
On the other hand, through the authentication and traceability provided by blockchain technology, the data of battery usage records can be verified at any time. It is also possible to understand the status of each battery and potential quality issues in real time based on the battery usage records on the blockchain. All this information is summarized within the trusted system of the blockchain, creating an effective bridge of information trust between the enterprise and financial institutions. With the reliable data on the blockchain as the foundation, the trust issues in supply chain finance have been effectively resolved, and risk control issues have been properly handled.
With the advantages of blockchain, DooDoo Battery has successfully obtained an operational leasing loan financing. By utilizing the assets held by financial institutions, DooDoo’s operation, and the underlying trusted data support provided by Ant Chain, the financing credit amounted to nearly 20 million yuan, with a comprehensive financing interest rate reduced from the previous 10% to 6%. The financing cost has been greatly reduced, effectively solving the financing difficulties for DooDoo Battery.
In fact, for technology-based innovative enterprises, technological assets are the core assets of the company. These assets are not like heavy and cumbersome assets such as steel and cement, but are often more flexible and innovative in value. However, without technological support, most technology-based innovative enterprises have a large number of technological assets that cannot be measured, cannot be authenticated, and cannot be utilized, resulting in a state of “holding a golden rice bowl and begging for food”. The case of DooDoo Battery illustrates that with the application of financial technologies such as blockchain and the Internet of Things, trust issues between enterprises, financial institutions, and platform parties can be effectively resolved. This allows financial institutions to shift their risk control focus from difficult-to-quantify and difficult-to-evaluate corporate credit to measurable, judgable, and authenticatable technological assets, making technological assets a true source of credit for enterprises. It enables technology-based innovative enterprises to achieve a comprehensive closed-loop of trustworthy data and activate their technological assets, providing solid support for their development.
With the application of advanced financial technologies such as blockchain, financial institutions have gradually found the “golden key” to support technology-based innovative enterprises, breaking the ice between technology-based innovative enterprises and financial institutions, and enabling financial institutions to confidently serve technology-based innovative enterprises. With the support of blockchain, technology-based innovative enterprises can also go into battle lightly, making their technological assets truly quantifiable and mortgageable financial assets, effectively solving the financing difficulties and high financing costs for technology-based innovative enterprises.
For the market, science and technology are the primary productive forces. Only with the support and empowerment of technology can finance truly help the development of technology-based innovative enterprises, and even promote the takeoff of the real economy.