The next step for Chinese banks

Albert Chan, managing director and Accenture’s banking industry lead in China

China's banks face a powerful threat when it comes to basic banking services: Competitors ranging from Alibaba to Tencent are already major players on the payments frontier.  It is clear that paying for everyday transactions will never again be the sole domain of the banking world in China.

China's forward-looking banks are taking these challenges seriously - but they need to boldly transform their business model and fully harness the potential for digitalisation. In addition to offering similar products, China's banks should focus on creating a deeper and more valued role for themselves in the major lifetime economic decisions of customers - such as in buying homes, cars and planning for retirement.

Just three years ago, Alibaba began applying its own data analytics to assess creditworthiness of small businesses. Today, it is effectively a US$16 billion lender. More recently, Alibaba began providing customers an alternate to bank deposits for leftover funds, sweeping in more than US$41 billion — only seven months after acquiring an asset management firm - to create China's largest seller of money market funds.

Alibaba is commoditising certain financial services. Chinese banks, on the other hand, have deep reservoirs of financial services experience that they should focus on providing to clients digitally, which is increasingly how Chinese customers expect to be served.

According to the latest data from China Internet Network Information Center, as of the end of 2013, there were 618 million Chinese internet users.  More than 40 percent of these active Internet users are already banking online. According to Accenture's research, since the beginning of 2011, China's banks have added 111 million new Internet banking customers to its already existing 161 million Internet users. The research also found that China's Internet users aren't just interested in looking at their bank account online. Out of the 6,000 insurance consumers polled globally, Chinese consumers (93 percent) are more likely than many others (the global average was 71 percent) to purchase products such as insurance online.

The challenge for Chinese banks is to bring new ideas to clients, help them decide what to buy and how to finance their dream pursuits - and do this all digitally.

It can be done. Take the example of the biggest purchase in most people's lives: their home. Hana Bank in South Korea, with its Hana N Cyber is now offering customers an app to scan an apartment using Augmented Reality, receive details such as market price and potential loan amount, then apply and receive a mortgage without paper, without ever having to visit a branch, and doing it all purely through a mobile device.

In Australia, CBA offers customers home-buyers an app that allows them to simply point their smartphone camera at residential properties to bring up property details, recent sale prices and information on local neighbourhoods - as well as estimated monthly payment amounts on CBA mortgage loans and insurance. With an average of 20,000 property searches per week, CBA is clearly on to a service customers want.

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