When we speak of digitalisation, we can’t possibly neglect the rapid development of FinTech in the past decade in China, of which mobile payment is the best example. China’s mobile payment started roughly in 2010, and after 2015, the surge came. First of all, I would like to share some statistics to show how dynamic mobile payment currently is in China:
There are approximately 800 million users of mobile payment in China; mobile payment transactions exceeded 250 trillion RMB equivalent to Rs 2,800 trillion in 2019; 719 billion was the number of mobile payment transactions in 2019; the percentage of mobile payment among the overall personal expenditure, 64 per cent was the percentage of mobile payment among the overall personal expenditure, while in younger age groups, this was up to 83 per cent.
And given the special situation of 2020, the above figures will likely increase further.
Another feature of Chinese society nowadays, which can’t be described by numbers, is the prevalence of QR codes at every street corner. Bank of China also provided QR codes associated with the bank accounts even to some small shops to facilitate their collection of payments.
While the numbers are impressive, the emergence of FinTech has greatly challenged banks in multiple fronts. The challenges can be summarised into the following four arenas:
ⅰ. Branches: Nowadays, customers, especially those of the younger generation aren’t willing to go to brick-and-mortar bank branches, unless necessary. Most banks are reducing the number of newly established branches and shutting down some existing branches. Counters in branches are also shrinking.
ⅱ. Liabilities: Users of FinTech companies like Alipay can easily deposit money on their smartphones with just a few steps, and even at higher interest.
Take Yu’e Bao for example, this is a money market fund easily accessible on Alipay. Initially, Alibaba figured that large sums of cash balance remained in customers’ accounts and was kept idle. Therefore, the Yu’e Bao fund was launched in 2013. Yu’e in Chinese means balance, Bao means treasure. Marketed with features like ‘high returns’, ‘zero commission’, ‘can be withdrawn at any time’, etc., Yu’e Bao has been popular from the start. In 2017, with $165.6 billion under management, Yu’e Bao surpassed JP Morgan’s US government money market fund to become the world’s largest fund, although it has failed to retain the position since then.
Products like Yu’e Bao introduced the concept of money market funds to the general public, and are of both savings and personal wealth management functions. It obviously made it harder for banks to attract deposits, or makes them have to offer higher interest.
ⅲ. Assets: On the asset side, take small and medium enterprises (SMEs) for instance -- difficulty in financing is still a critical bottleneck for many of them. Traditionally, large commercial banks cannot fully satisfy the capital requirement of SMEs, so the latter turn to other parties, like microlending companies.
In view of this, FinTech platforms like Ant Financial have explored a new way to develop their own business, aimed at inclusive finance. Considering the feature of SMEs’ funding requirement like ‘small amount’, ‘timeliness’ and ‘discontinuous’, with the help of Big Data and AI, FinTech companies have developed their own platform, where steps like loan application, credit evaluation can be all finished online, which makes it easier for SMEs to apply.
As for individual customers, Huabei has been officially launched since April 2015, which was designed for shopping in Taobao and other e-commercial platforms under Ant Group. It offers customers different credit limits based on the credit record, payment preference and shopping behaviour of customers through big data analysis. Even those consumers without fixed income, like college students, who have been excluded from credit card applications are also permitted to apply for Huabei. And all the processes are completed online. Huabei has been extremely popular with many consumers, especially the post-80s, 90s and even 00s generation, which in a way seized the market share of credit cards.
ⅳ. Fee-based Intermediary Business: For decades, large commercial banks have been the preferred channel where remittance, wealth management services, credit card business and insurance services are provided. The presence of Alipay and WeChat Pay has changed the situation. Their mobile apps are also designed to integrate all the functions above, and with less or even complete waiver of fees.
With convenience at their fingertip, customers prefer to use mobile apps to remit funds or purchase insurance, which to some extent influenced commercial banks’ intermediary business and fee-based income.
Chinese banks adapt
Confronted with these challenges, commercial banks in China have not been sitting still, a few changes have taken place, to respond to the late but aggressive competitor:
ⅰ. Optimise bank counters’ function, reduce manual processes and migrate as many functions as possible into the ‘intelligent bank counter’. For example, so far, the intelligent bank counter of BOC has covered more than 170 functions, including opening bank accounts, searching and printing transaction history, purchasing wealth management products, cross-border remittances, individual purchase and settlement of foreign exchange, etc.
ⅱ. Innovate deposit products. Commercial banks are adopting a much more proactive approach to design deposit products like structured deposits and CDs (certificates of deposit).
Besides, with their subsidiary advantages, large commercial bank groups also appeal to a wider customer base. For instance, customers can buy money market funds or other mutual funds with ease from Bank of China Investment Management at the bank’s APP as well.
ⅲ. On the asset side, banks are now taking a more active attitude towards technology. By improving the capabilities of big data and AI to analyse the customer’s transactional record, commercial banks have developed their own models to meet the credit needs of SMEs.
Targeting SMEs, Bank of China established the BOC Credit Factory in 2014. By adopting the online factory-like operation mode, BOC Credit Factory successfully reshaped the internal business process and management system, and offered customised products.
ⅳ. Drawing on the experience of Alipay and WeChat Pay, large commercial banks in China have also developed or upgraded their own mobile apps, which not only include basic functions like account management, transaction and remittance, but also funds business, precious metals business, insurance business and credit card business, etc.
Furthermore, customers of mobile bank apps and online banks can receive preferential benefits. For example, now CNY account transfer between accounts in China through BOCNET/BOC mobile app is free of charge.
As for Bank of China, we persistently enable advancement through technology, and drive development through innovation. We increase spending on technology, streamline the internal structure to prioritise the IT department’s resources requirement and enhance the coordination between business departments and their IT colleagues both on a regular basis and on specific projects.
Additionally, learning from the expansion of Chinese internet companies, Bank of China has created the concept of the ‘scenario-based bank’, which means concentrating on the demand of customers, and integrating the financial needs under various scenarios, and providing a one-stop solution. The functions are developed to allow convenient access from the mobile app. As one of the key strategic initiatives of the bank, four scenarios are identified, namely cross-border, education, sports and pension.
Take the cross-border scenario for example. With plenty of international settlement and financing products, Bank of China provides our corporate customers with fund settlement services during the whole process of cross-border business. At the same time, for individuals who are travelling or studying abroad, we have also launched many activities to introduce related business and products, such as currency exchange, foreign currency deposit and international remittance. We also offer a unique service called ‘virtual attestation service for account opening’, paving the way for those students to open accounts with us without the need to visit branches in person. They can simply complete the account opening formalities, including the KYC process, at the designated attesting network of Bank of China. The service has received a lot of positive response from our customers.
Above all, although the past decade has produced some quite transformative changes, the most thrilling and unpredictable road is always the road ahead of us. Actually, we might already be on a new path, the comparatively lax regulation that the FinTech industry enjoyed having come to an end, especially for many of the financial services they provided. Regulation on the finance industry will be applicable to them as well.
The only change we can foresee is we will never stay unchanged, the banking industry will continue to embrace digitalisation in a more extensive manner. I expect to be on board a journey that is constantly evolving.
Welcome aboard as well.
The writer is CEO, Bank of China, Mumbai. The views expressed in this article are personal and should not be construed as those of the bank.