Technology Empowers Finance: Boundaries and Risks

Abstract

BigTech credit has enhanced financial inclusion, but it also poses concerns with its boundaries. This article uses theoretical frameworks and numerical simulations to examine the risks and inclusiveness of technology-empowered credit services for “long-tail” clients. This research discovered that the discrepancy between the commercial boundaries of BigTech credit and the technical limitations of risk management poses a risk in BigTech credit. The expanding boundaries of BigTech’s credit business may mitigate the representativeness of the data, resulting in a systematic deviation of unclear characteristics from the training sample data, which reduces the risk-control model’s ability to identify long-tail customers and raises the risk of credit defaults. Further computer simulations validate these results and demonstrate that competition among various companies would expedite the market’s transition over the boundary in case of a capital shortage. Finally, this article proposes setting up a joint-stock social unified credit technology company with data assets as an investment to facilitate the healthy and orderly development of financial technology institutions.

Keywords

• financial inclusion
• credit risk
• BigTech credit