The Bank Branch In China Is Dead (And Why It’ll Probably Happen Here)

The Bank Branch In China Is Dead (And Why It’ll Probably Happen Here)

By 2020 China will most likely be Asia’s biggest retail market, and already a clear majority of consumers says they would happily bank ‘digital only’ according to McKinsey & Company. The implications for incumbents and insurgents alike are enormous and they probably don’t stop at the border.

According to the study called Four Trends Shaping China’s Retail Banking Landscape which the management consultants released earlier this year ( and which followed on from earlier reports in 1998, 2007 and 2011) “For retail banks, a key to success in the future is moving toward more of a total relationship model. Internet players, for their part, must better understand how to integrate financial services with the Chinese consumer’s digital lifestyle.”

The authors, Kenny Lam, Jared Shu, and Elaine Huang reveal that China’s retail banking revenues have grown 30 percent a year since 2009 and could exceed RMB 2.6 trillion (over US$430 billion) by 2020. They argue that intense competition for the Chinese retail banking consumer’s wallet has accompanied this fast growth.

“Meanwhile, the retail banking landscape has faced several challenges, including interest rate liberalization, major regulatory changes, and the rise of digital finance.”

Among the key findings;

Highlights of our current research include:

  • Chinese consumers are still among the least loyal in Asia. For example, less than half of Chinese consumers will remain loyal to their primary bank when offered more attractive pricing terms from competitors, compared with nearly 70 per cent in emerging Asia.
  • Consumer needs and behaviors are becoming increasingly similar across China. For example, penetration of several banking products now varies by less than 5 per cent across tier cities.
  • The country’s “Big Four” banks are less dominant. For example, their market share is eroding across tier cities and income segments.
  • Digital banking is going mainstream. Today, more than 70 per cent of Chinese consumers say they would open an account with a pure digital bank.

Market participants have identified the so called banking heavy users as the most prized digital consumer for both banks and Internet companies. “These consumers have an average of 4.5 to 6.0 banking products compared with 2.5 to 3.0 products for a non-user. For basic users, the average number of products is 3.5 to 4.0,” say the authors.

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And the management consults have some specific advice for internet providers in the country.

“Our findings also suggested a way forward for Internet companies seeking to increase their share of the retail market” they say, suggesting the insurgents should “…target the traditionally ‘un-bankable’ segment  that financial services companies do not traditionally focus on and develop an ‘affluent-like’ value proposition that can only be delivered economically by Internet companies.”

They also recommend capturing the digital wallet share of both heavy and basic users with a value proposition that fully integrates with the digital lifestyles of these segments . And the management consultants suggest putting security at the forefront of marketing initiatives to generate user traffic and comfort around the risk associated with online purchases of financial products.

Finally they suggest that it may not pay to be to pure and that online players might consider setting up an offline presence to build trust with consumers.


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