Based on a note from the People's Bank of China, China's personal credit scores may very soon be coming from the tech giants rather than any financial institution or credit data provider. On January 5th, the People's Bank of China (PBOC) sent out a note to eight non-banking institutions that they should "prepare for personal credit information operations" within 6 months. Although the note is a bit vague, the effort could indicate the end of what has been a continual problem with personal finance in China.
With a wide range of channel choices for retail customers, banks need to be aware of the usage and preferences for each channel which can vary for multiple reasons including the purpose of the transaction, complexity and where the person is from.
On the digital channel, customers usually require a fast and convenient service such as simple transaction or checking an account balance, but for branch service, customers, especially affluent customers require tailored personal interactions such as loan servicing, investment advice, and other complex transactions.
In self-service channels, Asian customers not only need a convenient and easy channel, but also a personalized interactive service to increase their loyalty to the bank as competition is rising and switching costs are lowering, especially in the wealth management space.
These wealthier customers produce higher value for banks, and usually they have a wide range of choices on banking services. In Asia, affluent customers show greater loyalty to their banks, while in most European countries and the U.S., affluent customers have relatively lower loyalty to their banks. Thus, maintaining affluent customers is important for banks to generate higher revenues.
Citi, one of the major players in Asia's wealth management space offers tailored services in Singapore. Their Citigold service provides a dedicated center for nonresident Indians. The personalized interaction improved the loyalty from their affluent customers because Citigold satisfied nonresident Indians’ special requirement on banking services.
However, China is showing a significant gap between affluent and mass-market customers on loyalty because the affluent customers receive much better service from their bank than mass-market customers do.
Banks should not only rely on channel innovation but also focus on improving service on the existing channels. Maintaining the existing affluent customers with tailored service is crucial to the bank since the affluent customers will continually show a high loyalty to their banks in Asia, but enhancing a required service or product for mass-market customers through different bank channels will also increase the overall customer loyalty.
The Asian Retail banking business has developed rapidly in the past two decades as both economies and businesses have increased in sophistication and wealth. Japan is still the largest retail banking market in Asia, however, China will surpass Japan to be the largest in Asia in 2015.
The Asian retail banking customer is changing. Increasingly wealthy and connected, customers want even more from their banks and are becoming picky about who they bank with to get it.
China’s banking system was historically quite segregated: each of the original four state owned banks were created for a specific purpose. China Construction Bank was created to administer and distribute government funds for domestic infrastructure and construction projects, Agricultural Bank for farming / agriculture projects, etc..
The challenges these banks face as they expand both geographically and by business sector across China is not unlike supra-regional banks as they expand across Asia. One of the biggest challenges is Risk Management. Typically, existing risk management systems in many markets have been built and customized for their home markets, but may not be robust enough for foreign markets.
As an example, Chinese banks have, until recently, been operating in an environment with essentially fixed interest rates, so many of the risk management systems implemented in China never really had to adapt to a rate changing environment. These systems that had been customized for the mainland market might struggle in a more mature market such as Australia where a fully liberalized interest rate environment makes understanding loan profitability (in some cases even down to the individual loan level) very important.
In addition to the market risk that can be presented by newly liberalized interest rates, credit risk can be a challenge as banks may not be familiar with the operating status and financial standing of the enterprises in other countries. This makes it difficult to understand and manage credit risk effectively and increases the possibility of losses arising from credit risk.
Finally, as banks expand more rapidly, operational risk can increase if operational procedures and standards maybe involved if the rapid expansion leads to ineffective internal control. Differences in employee attitude and habits across culture can vary dramatically.
All of these risk management issues can be identified and controlled, but it takes focus and consideration. Too often organisations look at new markets they fail to take this into account, but in this case, it could mean the success of a new country’s business or the failure.
This blog is part of the Oracle / Kapronasia series on Future Finance. For more information, please visit the Future Finance blog at here.
Recently Taiwan's Financial Supervisory Commission, the main financial regulator, said it had approved applications submitted by Bank of China and Bank of Communications to establish branches in Taipei. The banks will only be allowed to engage in limited business in the country, e.g. can only accept deposits higher than NT$3 million (US$100,350), only provide corporate loans. Further, the banks will need to receive approval from Taiwan's central bank if they wish to engage in f/x.
Yesterday was the 7th Annual BFTF which was held at the Traders Hotel here in Singapore. The event featured around 20 international speakers, 8 sponsor/vendors and was attended by about 100 delegates. The event, although smaller than in previous years – and smaller than similar events, was excellent. I was expecting the conversations to be thought-provoking, but was genuinely impressed by some of the debates and discussions.