The Impact of Digitalization on Banks in China
2021-11-08 14:29

Hu Beibai, President of the Mumbai Branch of Bank of China

Good afternoon ladies and gentlemen, namaste! It’s my great honor to present here with the impact of digitalization on China’s banking industry, both the overall landscape and my observation, on behalf of Bank of China.When we spoke about digitalization, we can’t possibly neglect the rapid development of fintech in the past decade in China, among 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:800 million, the users of mobile payment in China is approximately near 800 million; 250 trillion, the transaction of mobile payment exceeded 250 trillion RMB in 2019, which is equivalent to Rs. 2800 trillion; 719 billion,this is the number of mobile payment transactions in 2019.

64%,the percentage of mobile payment among the overall personal expenditure, in younger age groups like 1990s, it goes up to 83%. 

And given the special situation of 2020, the above figure will likely increase further.

Another feature of Chinese society nowadays, which can’t be described by numbers, is the prevalence of QR code in every street corner. Bank of China also provided QR code associated with the bank account to even some small shops to facilitate their collection of payments.

While the numbers being impressive, the emergence of FinTech has greatly challenged banks in multiple fronts. The challenges can be summarized into the following four arenas:ⅰ. Branches

Nowadays, customers especially those of 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 with just a few steps to on their smartphones, and even with higher interests.Take Yu’e Bao for example, this is a money market fund easily accessible on Alipay. Initially Alibaba figured that large sum of cash balance remained in customers’ accounts and was kept idle. Yu’e Bao fund was therefore launched in 2013, Yu’e in Chinses mean balance, Bao means treasure. Marketed with features like “High Return” , “Zero Commission” , “Can Be Withdrawn at Any Time”, etc., Yu’e bao has been popular from the start.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 failed to retain the position since then.Products like Yu’e Bao introduced the concept of money market fund 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 have to offer higher interest.

ⅲ. Asset

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, they turned 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 cutomers, 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 behavior of customers through big data analysis. Even for those consumers without fixed income like college students, who have been excluded from credit card application, they 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 Wechatpay 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 the convenience at 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.

Ⅲ. Confronted with these challenges, commercial banks in China have not been sitting still, a few changes took place to respond to the late but aggressive competitor:ⅰ. Optimize bank counters’ function, reduce manual processes and migrate as many functions as possible into the “intelligent bank counter.” For example, so far intelligent bank counter of BOC has covered more than 170 functions including opening bank account, 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 (certificate of deposit). Besides, with their subsidiary’s advantages, large commercial bank groups also appealed to a wider customer base. For instance, customers can buy money market fund or other mutual funds at 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 analyze customer’s transactional record, commercial banks have developed their own models to meet the credit needs of SMEs.

Targeting at SMEs, Bank of China established 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 customized products. 

ⅳ Drawn 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 include funds business, precious metals business, insurance business and credit card business, etc. Furthermore, customers of mobile bank apps and online bank can receive preferential benefit. 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 the spending on technology, streamline the internal structure to prioritize IT department’s resources requirement and enhance the coordination between business departments and their IT colleagues both on regular basis and on specific projects. Additionally, learning from the expansion of Chinese internet companies, Bank of China has created the concept of “scenario-based bank”, which means concentrating on the demand of customers, and integrate the financial needs under various scenarios, and provide a one-stop solution. The functions are developed to allow convenient access from mobile App. As one of the key strategic initiatives of the bank, four scenarios are identified, namely cross-border, education, sports and pension. Take 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 have the need of traveling 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 an unique service called Virtual Attestation Service for Account Opening, paving 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 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 have produced quite some 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 have 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 digitalization in a more extensive manner, I expect to onboard a journey that is constantly evolving.

Welcome aboard as well, thanks very much for listening.


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