By any standard, the statistics of China's growth in recent years are staggering and impressive. For example, household core deposits and loan portfolios have grown by 16 percent from RMB23.9 trillion (US$3.9 trillion) in 2011 to RMB35.5 trillion (US$5.79 trillion) in 2014. There has been a 19 percent increase in new personal bank account openings during the same period. And there have been 1.8 billion new bank cards issued (including 161 million credit cards), amounting to an annual growth rate of 20 percent, according to the People's Bank of China and Accenture analysis.
However, banks cannot afford to rest on their laurels. Despite the significant growth in household portfolios, branch density remains low. This gives banks less opportunity for face-to-face conversations with customers-making it harder for banks to understand customers' changing needs.
But in a world of increasing online interaction, there are other solutions to this problem: offering truly value-enhancing digital service. We are seeing shareholder value shift to the banks that are further along their digital transformation journey. That is to say the banks that not only have stronger mobile and digital platforms themselves, but also those that are working seamlessly with business partners to offer more diverse mobile and digital services to customers. These organisations are best positioned to redefine markets with digital propositions, change the way customers interact with them, and confront competition from digital disrupters such as Tencent and Alibaba, which already have banking licences.
According to data from the China Internet Network Information Center, internet penetration in China reached 45.8 percent (or 618 million users) as of the end of 2013. More than 40 percent of these users now access online/mobile bank-related services. Recent data from People's Bank of China revealed that total e-banking payments in China have been growing at almost 30 percent during 2013, with mobile payments growing at more than 200 percent during the same period.
Are China's banks doing enough to compete for online/mobile customers? We believe not. Compared with leading banks worldwide, there's a widening gap between Chinese banks and their more digitalized global counterparts. One of the key metrics used in the Accenture Banking Digital Index is the website traffic ranking (measured on a daily basis by Alexa, an Amazon company). When comparing banks internationally against all websites accessed in their home market, Malaysia's Maybank was ranked highest (8th), with South Africa's First Rand a close second (10th). In 85th place, China Construction Bank is the highest ranked mainland Chinese bank (Baidu, QQ and Taobao are the top-three most visited sites in China). This suggests China's banks could invigorate their websites to attract more traffic-but in order to do that they need to be offering services that customers want on those sites.
China's banks should become Everyday Banks. By that we mean they should reach out to customers on a variety of topics-from financing for a new home to health insurance, to planning their leisure activities. Offerings can be optimised for a digital world and presented in an omni-channel context, including mobile offerings. Then banks need to provide just in-time, relevant discounts and offers, pre-sale advice, post-sale support and cross-sale opportunities.
How can banks do that? China's banks would need to leverage their deep customer knowledge via sophisticated purchasing algorithms. Before they can do this, China's banks must accelerate the move away from cash-based purchasing (which provides limited insight into consumption behaviors) to more electronic transactions. Electronic transactions enable banks to capture contextual information about each transaction (which merchant, how much, what time) and flow this information into a "data lake" to build analytical insight into customer needs that help not only banks but also partner companies that work with the banks.
Building a Data Lake
In order to create the purchasing algorithms, and enhance their offerings to customers, banks need to engage customers more on a digital front. For example, they need to leverage social media. To earn this right, they must add value to a customer's social network, not just gather information from it. This means proactively starting the right conversations, focused on developing a deeper understanding of needs and goals.
They also should engage customers through gamification-a high priority given the popularity of mobile gaming among Chinese consumers. This means taking the essence of what makes games so addictive and applying it to non-game contexts, such as teaching customers more about finance.
And they could extend traditional loyalty programmes to provide a single programme that aggregates interactions across multiple events. This simplifies the loyalty experience for the customer and provides "big picture" visibility, while also reducing costs for the businesses that provide these programmes.
Above all, China's banks need to embrace the threat of peer-to-peer financing by providing a platform where it can take place-and participating on it as both a provider and a user of financing.
This includes enabling collaboration between customers in everyday financial services to enhance or replace the bank's role. This plays to its strengths by administering P2P financing agreements.
There is no single path to how China's banks should start this process. Some banks of the future will have branch-less, cash-less, paperless legacies. Others will transform from a branch-based banking model. Leading banks and digital disrupters are already mapping out their path. In China, where both Tencent and Alibaba already are edging in on business, we expect this journey to proceed at a rapid pace.
Albert Chan is Accenture's Managing Director--Banking Lead, Greater China.