Chinese banks must respond to winds of change

Illustration: Chen Xia/GT

Technology, urbanization take financial services industry in new direction

In a rapidly changing world, traditional banking institutions are struggling to keep pace with the evolving needs of their customers. In fact, the results of a recent survey from PricewaterhouseCoopers (PwC) show that a majority of senior retail banking executives regard non-traditional financial services providers as a threat to their operations. This is, perhaps, particularly true in China, where new technologies have injected a major dose of competition into the financial services industry. For instance, the explosive rise of Alibaba-backed Yu'ebao and other online financial products last year incited much debate about whether China's stodgy State-owned banks were capable of fending off their innovative new rivals.

Whatever the future holds for traditional retail lenders, this fresh crop of tech-oriented financial services enterprises has spurred remarkable progress in an industry that has not historically been known for its willingness to embrace new methods and practices. This is little surprise, since these new companies have sealed early leads for themselves by delivering where big banks left off. Many analysts now predict that current industry trends will continue into the future, with technological breakthroughs leading to increasingly personalized services and products.

Retail banks in China desperately need to wean themselves off their dependence on deposits and old-fashioned financial products. In fact, these institutions may have little choice on the matter thanks to loosened restrictions on the credit industry and the risks inherent in lending to financially insecure small- and medium-sized enterprises. At the same time, breakthroughs in big data and cloud computing are revolutionizing the customer experience, amplifying expectations of continued service quality gains.

Among the 560 banking executives from China and abroad surveyed by PwC, about 54 percent said they would make efforts to enhance customer data collection, while 50 percent saw a need to increase customer choice when it came to configuring product features and 48 percent said they would make use of social media to monitor consumer preferences. With the retail banking industry steering toward a more consumer-oriented future, this transition can be greatly accelerated by effective analysis of habits and demands.

But as if the technological hurdles weren't enough, Chinese retail lenders will have to face the consequences of the country's ambitious urban development program as they revamp their business models. With more than half of the country's citizens already living in cities, China's working urban population is expected to increase by another 100 million people by 2020, the PwC report noted. The continued wealth accumulation that planners hope will accompany China's transformation into an urban consumer economy is also expected to generate a huge demand for wealth management, consumer credit, micro-lending and other retail financial services.

We cannot deny though that nowadays many migrants from the countryside are still denied the rights and privileges of urban life due to the country's hukou regime. Nevertheless, as more people from the countryside enter cities, banks should respond to their particular needs with flexible pension-related products and simplified services to transfer money across regions. More generally though, banks will need to emphasize speed and convenience as consumer demands become more complex and the pace of urban life quickens. Allowing clients to manage their accounts through streamlined mobile interfaces, to name just one example, will be crucial in the years ahead.

In terms of physical branch locations, China's top banking regulator has given the thumbs-up on opening more branches in the country's fast-filling residential compounds. Experts believe this move will open an important strategic avenue for small- and medium-sized banks, which will have to modify their services to meet local demands. For starters, these branches can cater to the payment of utility and maintenance fees for compound residents.

Changing lifestyles and living patterns in China are having a profound influence on the way people interact with technology and manage their personal finances. The country's biggest banks will have to accept that the good old days where they could depend on tidy profits from government-intervened rate spreads and loans to State-owned enterprises are now at an end. In the market of tomorrow, all retail financial institutions will have to embrace models that prioritize the needs of consumers.