Alliance between China Unicom and Industrial Bank: A Marriage Brought by an Apple

3 December, 2010

Source:  China Times

Following the strong reverberations from the “deep involvement” of China Mobile and its subsidiary Guangdong Mobile in the SPD Bank - signing of the strategic cooperation agreement on November 25 between China Mobile and SPD Bank, on November 30 in Fuzhou, China Unicom and Industrial Bank signed a strategic cooperation agreement also attracting extensive attention. The constant search for close cooperation between banks and mobile telecommunication operators in the mobile internet era is already established as a new trend, indicating the coming of a new era of mobile banking and mobile payment.

Moving to Grasp the Future

On November 30, a high-powered delegation from China Unicom arrived in Fuzhou, the base of Industrial Bank Co., Ltd. Lu Yimin, President of China Unicom and Jiang Zhengxin, senior vice president of China Unicom led major departmental heads to attend the signing ceremony of the strategic cooperation agreement, at which Li Renjie, Governor of Industrial Bank, Mr. Chen Dekang and Mr. Lin Zhangyi, deputy governors of Industrial Bank were present.

According to the agreement, both companies will further exploit their advantageous positions in their own professional fields, grasp significant market opportunities brought by the mobile internet era, further enhance both companies' comprehensive cooperation in basic communication, financial services, mobile internet applications, joint innovation and marketing, in addition to jointly promoting innovation in mobile finance products, jointly branch into the strategic fields of mobile payment, mobile banking, mobile business, value-added business, etc so as to steadily improve the level of mobile financial services.

In March, China Mobile signed a share subscription agreement with SPD Bank through Guangdong Mobile, a wholly-owned subsidiary of China Mobile. The total amount involved in the deal is about RMB 39.5 billion. The deal was completed in October, making China Mobile the second largest shareholder in SPD Bank with a 20% shareholding. Following the signing of the strategic cooperation agreement by both parties, they started to undertake cooperation on mobile payment, including local payment and remote payment.

Obviously, regardless of whether its banks or mobile telecommunication operators, both have become aware of the inevitable trend and the huge market where mobile phones are used as a terminal for mobile payments.

In his interview with our reporter, Yang Zhong, General Manager of E-Banking Department of Industrial Bank, said that according to a report from Morgan Stanley, information technology has entered the next development cycle of important computing products, namely the development cycle of mobile internet. Compared to the desktop internet era, mobile internet terminals, the amount of customers and the scale of the market in this mobile internet era are growing explosively, nearly ten times as fast, creating a significant business opportunity for links between banks, telecommunication operators and the mobile internet industry.

According to Yang Zhong, there are more than 800 million mobile phone subscribers in China, who form a tremendous potential customer base for mobile banking and mobile payment. The new generation born in the 1990s and in the 21st century, are natural customers for mobile banking and mobile payment. “Passbooks and bank cards may disappear, replaced by mobile phones possessing all the necessary applications, including bank card and mobile payment applications. A mobile phone is no longer a mere mobile phone as originally intended, but a gateway to access all the world's information, including its financial information.”

“This is a significant business opportunity, as well as a significant development opportunity for Industrial Bank” said Yang Zhong. Application of the latest technological achievements in mobile internet is an important driving force for the banking business and for product innovation. Efforts shall be made to deepen business cooperation with all links in the mobile internet industry, including terminal and equipment manufacturers, mobile telecommunication operators, providers of mobile internet technologies and platforms, providers of mobile internet value-added services, wireless business providers, providers of payment settlement services, in addition to innovating financial services and business models and expand the breadth and depth of financial services provided.

“The strategic cooperation with China Unicom is a very important practice in this regard”

Starting With Resource Sharing

Unlike China Mobile's ‘deep involvement' in SPD bank, which aims for the mobile payment market in the 3G era, the Industrial Bank as a medium-sized bank; their strategic cooperation with China Unicom is smaller in scale than that of China Mobile, as are the realistic demands. The two companies will start by sharing the customer resources that are most pragmatic and gradually proceed to a deeper and more extensive cooperation.

“When a mobile banking customer of Industrial Bank prepays for a designated amount of phone credit in any of the designated business halls of China Unicom, the customer is entitled to a free iPhone, a free privilege SIM card, in addition to RMB 188 of mobile phone credit, as well as the opportunity to win a RMB 1000 cash voucher for online shopping”; if a customer purchases an iPhone with prepaid phone credit using an Industrial Bank credit card, and pays for it in installments, the customer won't have to pay any service charges and any interest for the purchase. This offer is marketed jointly within Fujian Province by the two companies. This way consumers will be offered more deals than when purchasing using other methods. As a result of these marketing deals it's said that the iPhone often sells out. Next year joint marketing activities like this will be promoted across the country.

Clearly, the most direct gain from the cooperation between China Unicom and Industrial Bank is the expansion of the iPhone subscriber base, which is what China Unicom needs most.

As far as Industrial Bank is concerned, sharing customer resources with China Unicom is an important business channel for developing their retail customers.

Yang Zhong said that as a medium-sized bank, it is very difficult to achieve leaping progress by developing the retailing business using traditional methods. To that end, conventional thinking must be broken through. The strategic cooperation with China Unicom is established in the hope of using a third parties strength to achieve that purpose. China Unicom has a large amount of retail customers, particularly iPhone subscribers, most of which are quality middle-end and high-end customers. “If those customers become Industrial Bank's customers, in the future they will definitely make use of the iPhone for mobile banking and mobile payment.”

Yang Zhong told reporters that there were three major factors that contributed to establishing the strategic partnership. Firstly, there is a long history of business cooperation between Industrial Bank and China Unicom. Secondly, both companies have a strong desire for cooperation. Thirdly, China Unicom is in an advantageous position in regards to the WCDMA network and iPhone devices. Mr. Yang Zhong also said that in the mobile internet era, combined win would not be possible without cooperation, and Industrial Bank has been actively exploring the prospect of cooperation with China Mobile and China Telecom.

According to Yang Zhong, it's hardly possible for banks to increase their physical branches on a large scale as the costs are too high. At present, Industrial Bank has over 500 branches. To expand their customer service network, Industrial Bank will undertake this task in two ways; one is to cooperate on “Counter Exchange” with numerous small and medium-sized commercial banks through its unique “Bank-to-Bank Platform”. So far, the number of outlets in the network has exceeded 12000, close to that of a few large state-owned commercial banks, the other is to expand the intangible network, namely e-banking, which is of particular importance for Industrial Bank. That's why as early as 2004 Industrial Bank has set about the development of mobile banking. However, there has been a limitation in the internet speed for mobile banking, affecting customers' experience. In spite of efforts by many banks in the past, no remarkable improvement had been made. “But now it's totally different with the arrival of the 3G network. The 3G network is like an expressway it wields a significant influence on the development of mobile banking.

At the signing ceremony, Lu Yimin, President of China Unicom, said that entering the era of mobile broadband internet, China Unicom would speed up the promotion of its 3G business and various information based applications by relying on the world's largest WCDMA 3G network, the most mature 3G technological and industrial chain, the most extensive applications of 3G and the widest range of WCDMA 3G terminals. Lu Yimin also said that among the top three telecommunication operators in China, China Unicom is ahead of the others in terms of subscriber scale and quality.

Talking about the iPhone, Yang Zhong said “This mobile phone is very user-friendly and customers have an extremely good experience using it. I think that no other mobile phone will surpass it in the short run. A handset must be perfect, as a customer's decision is often based on their preference for a particular handset. This is why we choose to cooperate with China Unicom, The prospects are bright.”

“We had been waiting a long time for China Mobile, as China Mobile had disclosed its intent for cooperation with iPhone, but unexpectedly, it was China Unicom who secured the deal”, said Yang Zhong. After China Unicom reached a deal with iPhone, the mobile working system of the head office of Industrial Bank swiftly switched direction to China Unicom and the iPhone. The head office of Industrial Bank has also encouraged managing and marketing personnel at various levels in different branches to use iPhones in their work.

After learning that China Unicom had secured the exclusive rights to sell the iPhone in China, Industrial Bank contacted China Unicom for cooperation negotiations and China Unicom followed with positive responses, forming an important foundation for both companies' cooperation. “I feel that with China Unicom, we are more likely to make a breakthrough, as both companies have a very positive attitude towards the cooperation.” At present, Industrial Bank and China Unicom have invested a lot of resources in the cooperation and both companies have set up dedicated teams to this end.

Deeper and Wider Cooperation

Our reporter has learned that Industrial Bank and China Unicom are or will be cooperating in the following fields, marketing, where both companies' business channels will be used to promote both companies' products and services, for example an iPhone purchased using credit card installments, joint innovation, where Industrial Bank will introduce iPhone mobile banking, mobile working where the WCDMA network is used to further promote mobile working on mobile phones, and mobile internet value-added service, where VIP customers are encouraged to read on mobile phones,etc.

At the signing ceremony, Li Renjie, Governor of Industrial Bank, said that the strategic cooperation agreement was in fact only a preliminary framework, and both companies had very deep and broad prospects for cooperation in many fields.

According to Lu Yimin, a very large network will be formed out of the cooperation, as Industrial Bank has over 500 branches of its own and over 12000 cooperating branches, while China Unicom has over 18000 branches. “I think that in addition to advantages in technological cooperation, we will have a broader space for cooperating on the promotion of various businesses.”

According to Mr. Yang Zhong, mobile payment is one of the key cooperation projects between Industrial Bank and China Unicom. Mobile payment has wide-ranging prospects and tremendous market potential. China's lacking of a relatively mature business model provides an opportunity for innovation; both companies will carry out joint innovation and set up working teams to conduct specific research in order to come up with mobile payment products that are compatible with the market. Moreover, the two companies will also engage in research cooperation involving the financial security of mobile payments.

“To further promote mobile payment, China UnionPay's involvement is called for, which will come to pass after the distribution of mobile POS is completed. As far as Industrial Bank and China Unicom are concerned, the most essential link is how to develop their own user groups. Both companies shall integrate and provide all product advantages to customers by sharing customer resources, as “The whole is greater than the some of its parts”, said Yang Zhong.