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Chinese securities have long given people the stereotype that "if you control it, it will die, if you let it go, it will be chaotic." Therefore, the repeated process of control and relaxation has long been a very obvious feature of the Chinese securities industry. Internet- based innovation has, to a certain extent, given us the possibility of solving this chronic disease. Based on different innovation logics, we divide the current Internet securities innovation into three ways and six categories. The first is platform and ecosystem, which belongs to the highest-end category. Its feature is to create a financial ecosystem (platform), the most typical of which is Taobao. Taobao attempts to construct a trading ecosystem, allowing customers to operate and trade on it, while it is only responsible for the maintenance of the platform. There are two specific types: one is a financial management platform, and the other is a social investment platform. The second is disintermediation, where the Internet plays the role of the original intermediary (such as P2P). The three main types are: crowdfunding, virtual data center and blockchain. Blockchain technology is a very popular underlying technology at present, that is, relying on decentralized trading nodes distributed on the Internet to complete the disintermediation of information and credit. The third is intelligent technology. It is mainly robot investment advisors. This means using big data, cloud computing and artificial intelligence to carry out investment advisory business instead of people through a set of algorithms and logic, which has the characteristics of low marginal cost and rational investment.
Below we will explain the background, principles, logic, trends and cases of these six categories one by one.
1. O2O Wealth Management Platform
Take Schwab as an example. Compared with E-Trade, Schwab is obviously a more successful company. Looking back at the development history of Schwab, Schwab started as a small traditional broker. After decades of development, it has become a leader in the US wealth management market, with trillions of assets, and is the fourth largest investment and financial management company in the United States. The reason why Schwab can achieve today's success is closely related to its successful strategy at every step. At the beginning, it took advantage of the opportunity of liberalizing commissions in the US financial market and positioned itself as an online discount broker with the goal of low prices and portability. In the 1970s, it replaced manual outlets with telephone operations and attracted a large number of price-sensitive customers through price wars.
In the second step, Schwab expanded its brokerage business to become an "asset aggregator" and began to sell different financial products. Schwab established the earliest "financial supermarket" in the US market, which brought together all the financial products on the market and evaluated and compared financial products for customers, thereby attracting more customers and benefiting from the sale of financial products. At this time, the "financial supermarket" already had the prototype of the current platform, connecting fund products and customers.
The third step was that Schwab began to move towards the Internet in the mid-to-late 1990s, upgrading from a simple electronic transaction structure to an "E-Trust" terminal to facilitate customers to purchase financial products and manage their own financial needs. The most recent step was that after entering the 21st century, Schwab began to upgrade and innovate O2O wealth management, creating an investment management platform by integrating internal and external investment advisors and online and offline channels.
The development history of Charles Schwab is a model of a company that has evolved from a simple brokerage business to a comprehensive wealth management company that meets the diversified investment needs of customers. The difference between E-Trade and Charles Schwab is that E-Trade has always taken the route of low prices and discounts. Unlike Charles Schwab, E-Trade did not seize the development opportunities to accumulate customers through low prices and discounts, and then realized value mining from product sales and wealth management, thus gaining both customers and money, and jumping out of the high competition and price war consumption in low-end businesses, and forming its own platform and ecosystem.
Why is Schwab's platform an "ecosystem"? Because Schwab uses the platform ecosystem to organically integrate potential stakeholders. The first is customers, who are mainly demanders of financial products;
The second is external product suppliers, such as asset management companies and fund companies, who have a need to sell financial products;
The third is the service provider, that is, an independent investment advisor (Independent Financial Advisor) or registered independent investment advisor (RIA) who is not affiliated with an investment company and provides investment advice to clients from a permitted perspective.
Schwab provides independent investment advisors with very good products (external suppliers), tools (providing products to advisors for free as a value-added service) and policies, which makes independent investment advisors prefer to use the Schwab platform to find and serve clients.
Customers, product suppliers, and service providers are the three elements of the Constellation platform. How does the Constellation platform serve the three?
-- Schwab has built a powerful IT platform that allows independent investment advisors to basically avoid operational errors and facilitate the management of products, customers and processes;
--The platform's mission is to "balance interests" so that there will not be a situation where Schwab's internal investment advisors and external independent investment advisors compete for clients.
--For customers, Charles Schwab has implemented stratification and value judgment functions. After conducting value analysis on customers, customers are clearly classified and needs analyzed, and suitable products and investment advisory information are provided to customers.
-- Charles Schwab evaluated the product side, that is, what products of the fund company are suitable for customers.
Therefore, Consentium has created an ecosystem through the construction of multiple platforms, and this ecosystem is similar to the Internet ecosystem that we usually see:
As a "stage builder", Charles Schwab allows "actors" to share the benefits and satisfy all parties. This is the key to the success of the Charles Schwab platform and an important application of the ecosystem system in the financial world, namely the construction of a wealth management platform.
2. Social Investment Platform
Xueqiu is a typical social investment platform. Xueqiu originated from the information exchange platform "I US Stocks ", and later developed into the Xueqiu community for investors to communicate. Before 2013, Xueqiu mainly served as a social networking site, increasing the number of users, supporting big Vs to post articles, and increasing traffic through online and offline activities. In 2014, when the stock market was booming, Xueqiu's number of customers grew rapidly, with a one-year user growth of nearly 10 times.
Snowball's successful profitability began with the transformation of "community + e-commerce", that is, attracting customers to join the community, spontaneously produce content, and share investment experience; at the same time, linking content with transactions, providing transaction channels and product services, and providing income for users. At the beginning, Snowball cooperated with securities, funds and private equity to open a transaction interface, so that users could collect and share transaction (investment portfolio) information and buy and sell stocks on Snowball; in 2015, it was possible to use other people's investment portfolios for "flying single" transactions. However, the essence of Snowball's innovation is still the "community + e-commerce" structure, completing the transformation from "communication" to "transaction", and in the future, channel commissions and value-added service fees may become new profit models.
3. Virtual Data Center
Virtual data center is a traditional service, mainly for mergers and acquisitions. Because mergers and acquisitions involve a lot of information search costs: first, information asymmetry between buyers and sellers; second, information exchange problems in the early stages of mergers and acquisitions. Virtual data centers solve the above two problems:
Provide a platform for buyers and sellers to discover each other; create a neutral virtual information room to allow companies to share information with each other while ensuring control of their own information, which reduces the cost of finding information.
4. Blockchain
Blockchain is the underlying technology of Bitcoin. Looking back at the history of Bitcoin development, the reason why Bitcoin as a virtual currency has attracted attention is due to two cases of Bitcoin in actual use: one is the anonymous donation mechanism of WikiLeaks, and the other is the anonymous drug and arms transactions on the Internet with the help of Bitcoin encryption technology. Although the Chinese government does not recognize Bitcoin due to the need for foreign exchange control, these negative news have not affected the popularity of Bitcoin. The New York Stock Exchange has also set up a special Bitcoin trading center.
The concept behind the blockchain system that Bitcoin relies on is a distributed accounting system. Unlike the traditional central accounting system management method that relies on a central node (financial institution), the distributed accounting system uses different nodes of the system to jointly record complete account information. The update of information relies on the entire network, and no single node can modify the information. Another feature of the blockchain is anonymity, and it is impossible to track users. In short, full network encryption and full network distributed records are the core features of blockchain technology. The importance of blockchain technology lies in removing the intermediary role of the central node.
An important concept in blockchain is the concept of "miners". That is, the encryption and update of blockchain have costs, and the role of computing support is required to be provided by computers embedded in nodes, namely "miners". "Miners" can get Bitcoin rewards, and such a mechanism design also shows that blockchain technology is not without marginal costs.
Blockchain technology has attracted the attention of many investors, and the investment in blockchain-related companies has been rising every quarter, reaching $200 million in the first quarter of 2015. The main application areas of blockchain are: first, any point-to-point payment transaction needs. Distributed storage networks will make intermediaries disappear, which will have a lot of application space in foreign exchange and currency transactions. The second is smart contracts. Contract disputes will cause great costs all over the world. Blockchain technology hopes to achieve "smart coloring" of collateral in contracts, automatically triggering transactions after meeting transaction conditions without going through credit intermediaries.
The third is the Internet of Things, which refers to all objects in the blockchain system.
The potential applications of blockchain in finance are, first, peer-to-peer payment. Second, multi-party transactions, which use technical means to eliminate trust issues, including foreign exchange transfers. Third, the market, including any form of clearing transactions for peer-to-peer transfers, and the development of financial derivatives "smart contracts" to achieve automatic position adjustment. Currently, many financial institutions have invested in blockchain research, and blockchain-based technical support has also appeared in the market, mainly including the "value network" and data services.
As for the risks and disadvantages of blockchain:-
The first is that blockchain is closely related to the black market economy because the anonymity behind it brings untraceability and provides opportunities for illegal and criminal activities.
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The second is technical risk. Currently, exchanges have strong processing capabilities, and whether blockchain can replace exchange capabilities is questioned; because of the existence of marginal costs, exchanges can still control information updates by controlling most of the distributed accounting system; distributed records do not have economies of scale, and have low efficiency and real-time performance when processing large-scale calculations.
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The third is user risk, such as the risk of losing the key; full network computing is also a waste of resources.
Therefore, there is still controversy about the application of blockchain. Some people believe that blockchain is a technological revolution, while others question the application of blockchain from the perspectives of efficiency, cost and security.
5. Crowdfunding
If P2P has replaced the lending function of banks to some extent, crowdfunding has replaced IPO to some extent and made all creative ideas available for financing. The main features of crowdfunding are: low threshold, unlike the high requirements of IPO; diversified projects, no need for fixed assets or funds to enter the production stage, even just an idea can be raised; focus on creativity, so crowdfunding is widely used in cultural and creative industries; wide range of issuance objects, no amount threshold.
In practice, the world's first Internet crowdfunding project started in the United States in 2009 (Kickstarter), while China's first Internet crowdfunding project started in 2011 with "Dianpingshijian". The greatest significance of crowdfunding is that it does not take profit margin as the only indicator of a project, but rather raises funds based on opportunities, interests, and charitable needs, becoming a feasible way for small and medium-sized enterprises and charitable organizations to raise funds.
The concept of crowdfunding has a long history in China. During the Southern and Northern Dynasties, temples flourished, and the funds for building temples were raised through "crowdfunding" using donations from ordinary people . So crowdfunding is not a new concept strictly speaking, but rather an Internet concept. How did crowdfunding evolve from an ancient form to a hot topic of discussion and develop rapidly?
The first is the development of Internet technology, which has rapidly reduced the cost of crowdfunding. The offline door-to-door project marketing method is costly and has certain barriers in issuance. The Internet connects project fund contributors and those looking for project funds. The use of Internet technology can be unlimited and the cost is extremely low.
The second is that the cost of technology continues to decrease, and projects can be matched at a high speed.
The third is information transparency. In the past, fundraising was concentrated in a small industry or community to save costs; but in the Internet era, rapid information dissemination has made it possible for even small crowdfunding to find funding targets.
In terms of funding needs, first of all, the development of crowdfunding is closely related to the 2008 financial crisis. After the 2008 financial crisis, the traditional financial industry faced the problem of tightening money supply, and crowdfunding, as a new financing method, gained development opportunities. Secondly, the financing needs of certain specific industries have been neglected. For example, the art industry such as film, television, music, or industries related to creativity basically have difficulty in raising funds. Even in the United States, where VC is very developed, the difficulty in raising funds in the art and creative industry still exists. Crowdfunding fills this gap. Finally, there is the problem of high barriers to entry in the capital market. Crowdfunding can greatly expand projects and audiences because "1 yuan can be raised". Therefore, the reasons for the development of crowdfunding are, on the one hand, there are many financing needs on the demand side that have not been met, and on the other hand, the rapid development of the Internet on the supply side has rapidly reduced the cost of crowdfunding, which can serve many small and micro enterprises and creators.
There are four main types of crowdfunding on the market.
The first is donations in return of intangible benefits. That is, the funds are given to a project or enterprise without any return, but more to reflect a kind of social recognition. The return form is mostly intangible benefits of psychological satisfaction. Representative organizations are Rocket Hub and Fund-it.
The second is commodity crowdfunding with commodities as rewards. Products and pre-sale items are obtained through crowdfunding, which is similar to the function of prepaid cards to some extent. Typical representative organizations are Kickstarter and indiegogo.
The third type is equity crowdfunding with equity as the return, which is mainly related to investment. By launching a company or project, everyone supports the development of the company by investing in shares.
Fourth, crowdfunding with bonds (P2P). P2P only belongs to crowdfunding in a broad sense.
In terms of crowdfunding development trends, the global crowdfunding fund flow reached 34 billion US dollars in 2015, and it is growing at a rate of doubling every year. North America is still the largest crowdfunding market (about 9.5 billion US dollars), followed by Asia (3.4 billion US dollars), and the main market in Asia is China. According to the World Bank's forecast, crowdfunding in developing countries can reach 96 billion US dollars in 2025, of which China accounts for about 50 billion US dollars. We think the estimate for China is conservative. In 2014, the total investment amount of the New Third Board was about 2 billion US dollars. We estimate that the investment amount of crowdfunding in the future will be about 24-25 times the current amount, and the development potential is huge.
In terms of current proportions, the largest amount of crowdfunding is still P2P, accounting for 62% of the total crowdfunding, donations account for 20%, equity accounts for 7%, and mixed crowdfunding accounts for 3%. The fastest growing hybrid crowdfunding is based on "commodity plus equity", through equity investment and repurchase of corporate products. From the perspective of the global distribution of crowdfunding companies, equity crowdfunding of commercial enterprises is still the largest sector, accounting for 41% of the total, social welfare accounts for 19%, entertainment industries such as film, music and performing arts account for 17%, and real estate accounts for 6%.
So what are the elements of success for a crowdfunding website? We think there are four.
The first is that the platform must have a clear positioning and loyal followers (fans). When starting out, it will target specific groups of people (such as artists, gamers, geeks, etc.), and there must be a clear platform positioning.
The second is the speed of financing, including the speed and cost of financing. The reason why people choose crowdfunding instead of traditional financing institutions and methods is because crowdfunding is "fast". The financing cycle through the Internet is about 1-3 months.
The third is risk management. Crowdfunding requires a detailed and clear net asset value investigation of the fundraiser, and a complete credit system for assessing the fundraiser's default is very important. In addition, the net asset value investigation of the project puts forward certain requirements for the offline investigation capabilities of the crowdfunding platform company.
The fourth is the platform’s service capabilities. Taking smart hardware in commodity crowdfunding as an example, whether the crowdfunding platform website can meet the needs of users to participate in the design and testing of smart hardware, and whether it can effectively interact with potential investors is also a key factor.
From the perspective of factors that affect the success of crowdfunding projects,
The first point is regulatory policy. The Anglo-American legal system has clear legal support for crowdfunding , while in other countries, the legal distinction between crowdfunding and illegal fundraising is still unclear.
The second point is intellectual property and confidentiality. Especially for creative industries, when faced with the possibility of being plagiarized after publishing on crowdfunding websites, it is very important to protect intellectual property.
The third point is the credit system and risk management, which means conducting offline net worth investigations on fundraisers and projects.
The fourth point is information asymmetry. There is information asymmetry between the initiator and the investor in understanding the project. The smaller the number of followers on the website, the more obvious the information asymmetry will be.
The fifth point is the source of funds. In the era of national crowdfunding, whether institutional investors can participate in crowdfunding projects, such as pension funds in the United States, have also begun to show interest in crowdfunding. Therefore, how far crowdfunding can go depends largely on how big the source of funds is.
The healthy development of the crowdfunding industry in the future depends on regulatory policies, such as the legal support for the crowdfunding industry in the UK and the US. For example, the good news for crowdfunding is the US Jobs Act (2012), which makes crowdfunding a legal "fund-raising portal". The second is government support, mainly efforts in projects and bills. The third is financing channels, which need to broaden financing sources. For example, whether the pension funds and public investments mentioned above are willing to enter the crowdfunding market, and finally, to win the support of commercial enterprises. Many commercial organizations support small and medium-sized enterprises to go to crowdfunding websites for financing, but the form of crowdfunding is not particularly clear to small and medium-sized enterprises, so lobbying and publicity among small and medium-sized enterprises is still very important.
Therefore, the management of stakeholders, including regulators, governments, investors, and industrial and commercial enterprises, needs to be integrated.
6. Robo-advisory In the past two years, smart financial management and robo-advisory have been attracting much attention and are also the biggest investment points of financial investment companies recently. The concept of robo-advisory is closely related to artificial intelligence and big data. Traditional investment advisors are person-to-person, face-to-face services, and their service targets are mainly high-net-worth and ultra-high-net-worth clients. Later, discount brokers appeared, mainly giving small and targeted investment advice, mainly for the wealthy masses . Later, online investment platforms appeared, with only a small number of transactions and advice, mainly for low- and middle-income people.
The idea of robo-advisory is to provide high-quality and personalized advice on investment management to the general public. The generation of big data makes the portrait and description of an investor more complete, and relying on intelligent algorithms, more targeted customer advice can be given.
From a global (mainly American) perspective, it is estimated that by 2020, $2.2 trillion of personal financial management will be achieved through intelligent robot investment advisors, with an annual compound growth rate of 68%. There are currently many technology companies engaged in intelligent robot investment advisor research in California, USA.
There are three main types of robo-advisors:
--Personally oriented robo-advisory, which means providing automated advice based on information provided by the client, such as the famous wealthfront.
--Algorithm-driven robo-advisory, which means using the most appropriate algorithm to optimize the client's investment portfolio requirements.
--Robo-advisor that combines human and machine. This means that the interaction speed is improved, but it cannot replace human consultation. It means that the company has Personal Capital.
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