Source: Sanlian Life Week Magazine Reporter: Chen Si
The electronic development trend in banking is irreversible. Banks in China are trying various ways to beat the competition for the electronic channels. “Mobile Finance” is considered as the strategic high ground of the future. A few days ago, Industrial Bank established its mobile banking center in Shanghai, and out of the market expectations, signed a comprehensive strategic cooperation agreement with China Unicom. This is an important sign that IB is paving the way in “Mobile Finance”. On December 29, 2010, Yang Zhong, the General Manager of IB's Electronic Banking Department told this magazine in an interview, “The cooperation with China Unicom and the broad space for mobile finance is a turning point”.
“Mobile Finance” Fever
Generally speaking, the electronic banking services include telephone banking, online banking and mobile banking, etc. In terms of communication methods, such services can be clearly divided into three sectors: “hotline, online, and wireless” services.
With the arrival of the 3G age in mobile communications, the wireless sector's service contents of have been upgraded continuously. As a result, new “mobile finance” services, such as “mobile payment” and the “mobile banking terminal”, are also covered into relevant categories. 2010 was a feverous year for “mobile payment”, UnionPay , China Mobile , China Unicom, and China Telecom have in succession occupied ground for piloting their “mobile payment” businesses. China Mobile also became a shareholder of Shanghai Pudong Development Bank, and the stock market became heated as a result, blowing out 100-fold price-earning ratio share price bubbles for the “mobile payment” concept shares.
By the end of the year, the heat wave still continued. After completing the share rights investment, China Mobile and Shanghai Pudong Development Bank signed a comprehensive strategic cooperation agreement, drawing up a list of “mobile finance” tasks. In Ningbo, Bank of China in alliance with China Telecom released the first UnionPay standard “TianYi Greatwall” mobile payment card including 3G communication. Industrial and Commercial Bank of China (ICBC) also partnered with China Unicom, releasing the “Peony WO” mobile payment card during the Asian Games.
During this period, Industrial Bank based on the cooperation with China Unicom, also entered into a further strategic cooperation agreement with China Unicom at Fuzhou. The senior executives of both parties indicated, “we will grasp the great market opportunities in the mobile internet age to further strengthen the cooperation of both parties in: basic communications, financial services, mobile internet applications, joint innovation, and marketing, etc. In addition to jointly driving innovation in mobile finance products, and moving into the strategic areas of mobile payment, mobile banking, mobile business, and value-added service, etc., so as to improve the level of mobile finance services”.
In fact, all banks that are itching to compete in “mobile finance” have long held that the financial services carried by mobile phones and mobile internet, would become an unavoidable trend.
Firstly, the increasingly improved experiences of smart phone and mobile internet users provide the material preparation for mobile finance. Yang Zhong told magazine's reporter, “The mobile finance concept occurred long before, and we released mobile banking services many years ago. However, the slow internet speeds in the 2G mobile age hindered the growth in customers. In the new 3G internet age, even mobile banking using WAP can be accessed at a faster speed than before, let alone smart phones boasting more convenient internet access”.
According to the statistics of the consulting agency Analysis International, the Chinese smart phone market's total sales volume reached 17,741,000 phones in the third quarter of 2010 (excluding smuggled and illegal mobile phones ), that's a like for like growth of 31.6%. Yang Zhong said, “Now, everyone loves the iPhone for being the phone boasting the best user experience. It is one of the reasons why we choose to cooperate with China Unicom”.
Secondly, the successful “mobile payment” operation in the Japanese Market may serve as a reference for China. The partnership between financial institutions and telecommunication operators is a mature practice in Japan. The mobile communication supplier, NTT DoCoMo, invested JPY 100 billion in Sumitomo Mitsui Credit Card Company in the early operational period of mobile payment, holding a 34% stake in Sumitomo Mitsui Credit Card Company. Later, they jointly released mobile payment services using the sub-brand “ID”, accelerating the development of its mobile payment business.
For the banking industry cooperating with the telecommunication operators is not only seizing the early opportunity in mobile payment, but is also consolidating the customer base, killing two birds with one stone. As predicted by Analysis International: mobile payment will witness fast growth. In 2010 the amount of users may reach 137 million and about 497 million users by 2013. The research report of Morgan Stanley also indicates that information technology has entered the period of mobile internet. Compared with the desktop internet age, the customer scale and market scale for mobile internet terminals will witness a near ten fold explosive growth rate.
Yang Zhong said, “This is a big opportunity for the industrial chain of banks, operators and mobile internet. Just as with internet banking several years ago - we only had 250,000 personal banking users. Now, four years later, we have over 4 million users. The transaction amount has grown to a present RMB 2.25 trillion from RMB 30 billion four years ago. In terms of transaction quantities, currently the proportion of internet banking accounts for 52%, over the counter transactions 44%, and mobile banking and telephone bank 2% respectively. However, wireless internet transactions will substitute some desktop internet transactions, so the quantity of mobile banking transactions will definitely witness development in leaps and bounds from 2%. Today in China, mobile phone users exceed 800 million. As the domestic consumption demand increases day by day, so to it is anticipated that mobile payment is a handsomely profitable prospect”.
Chen Zhihua, a banking analyst from Changjiang Securities, told this magazine's reporter, “The agreement between Industrial Bank and China Unicom was unexpected by the market. By favorably depending on this business channel and a great deal of basic China Unicom users, IB may precipitate its capital, alleviate the pressure in attracting deposits, and expand its retail business. Meanwhile, the cooperation with China Unicom in the fields of mobile payment, mobile banking, mobile business, and value-added service, etc., will help to improve the intermediate business income.” However, he also indicated, “The present cooperation is only a framework. Actual implementation requires a long period, and it's difficult to get contributions to profit in the short term”.
Three steps in strategic cooperation
IB has been in business partnership with China Unicom for a long period. All the senior executives of the bank use WCDMA network and iPhones from China Unicom to perform mobile office tasks. Following mobile internet's development, the intention of both parties to cooperate has intensified. One month after the execution of the comprehensive strategic cooperation agreement, the project teams of both parties have planned to jointly release a mobile banking customer terminal based on the smart phone platform, it will be a mobile banking interface, which is convenient to use, and which will bring a better experience to the users.
Yang Zhong said, “The client terminal is only the first step in our cooperation with China Unicom in electronic banking. The second step is to integrate electronic books, searches, maps and other functions into the mobile financial service by making use of the network resource advantages, application platforms, marketing channels, and customer services, etc ., and to jointly develop more diversified value-added service applications and various supporting services for mobile payments targeted at individual and corporate users. The third step is to carry out in-depth cooperation in the fields of mobile payment and wireless business, as well as to construct the application environment for mobile e-commerce by combining the resources of both parties, so as to provide all-round mobile business solutions for customers”.
Yang Zhong believed the “generation of 1990s” were borne customers of mobile banking and mobile payment, and that, “deposit books and bank cards may disappear, and mobile phones will integrate all, including bank cards and mobile payment.” However, “mobile payment” may be realized with many models. The “Mobile wallet” experimented by China Mobile in some provinces and cities, were limited to low payment amounts, this is technically and functionally different from the mobile payment cards released by BOC and ICBC in partnership with UnionPay, China Telecom, and China Unicom. The latter combines the functions of credit card and mobile payment, and the mobile payment accounts are interconnected with credit card accounts.
Yang Zhong believes, “Future mobile payment products may be in the form of telecommunication operators releasing telephone cards with payment functions, and the customers may link such cards to the accounts of all banks upon purchase, rather than each bank and operator releasing cards respectively. We are more inclined to develop the former so that we may facilitate customers to the largest extent”.
Despite intense competition, the cooperation between IB and China Unicom is not completely exclusive. IB is also seeking opportunities to cooperate with China Mobile and China Telecom. Not long before, the bank joined the “Mobile Payment Alliance” led by China UnionPay, which consists of 18 banks, China UnionPay and three mobile telecommunication operators. Yang Zhong believes, “Only cooperation may bring win-win results in the age of mobile internet. Such a large market scale is sufficient to hold participators in all sectors of the industrial chain. On the other hand, mobile payment is in the preliminary stage, big investment is required in the early period of cultivating customers and the market. This requires the joint participation of all sectors in the industrial chain. For the development of mobile payment, exclusivity clauses in the business cooperation are not strictly necessary”.
Reversed operation of electronic banking
There are over 800 million mobile phone users across China. Of them, China Mobile boasts 580 million users, including 18.85 million 3G users; China Unicom has 150 million users, including 12.77 million 3G users, and China Telecom has 88.02 million CDMA users. In comparison, the scale of retail users of small and medium-sized joint-stock commercial banks is very small. As addressed by Chen Zhihua, if the customer resources can be mutually integrated, it will be favorable in driving banking business. But, the key is how to integrate resources.
Currently, IB in Fujian Province has launched an activity - “zero interest and commission charges for iPhones purchased with mobile bank credit card by way of installments” - to carry out cooperation in marketing. Yang Zhong said, “Our cooperation with China Unicom covers many layers of business, and electronic banking and mobile payment only constitutes one layer. More consideration is given to providing complete financial services to the customers of both parties”.
From the electronic banking perspective, to achieve a transformation in customer resources “requires reversing electronic banking”, said Yang Zhong. In general, to use the electronic banking services, a customer needs to have his or her identity verified over the counter, meaning a user of electronic banking is originally an IB customer. Now, however, to integrate the customer resources of China Unicom, IB needs to “develop new services for customers to guide their demands, and attract users to become customers of IB with special products or services”.
Yang Zhong further explained, “Electronic banking is positioned firstly at releasing financial products in intangible channels, then, satisfying the demand of current customers. With the rising volume of electronic channels its transaction volume even outruns that of conventional over-the-counter transactions. Electronic banking should develop towards a new orientation and it should become a channel for developing new customers. It is the purpose of reversed operation, and it determines the future competitive strength of electronic banking”.
Following the orientation, IB has taken the lead by releasing an “industrial e-commerce solution”, providing an e-commerce system for the transactions of coal and agricultural products. Yang Zhong said, “Only fund custody and settlement services are provided within the institutional banking, we cover services from circulation, custody and settlement of funds to construction and maintenance of e-commerce system. The exchange of coal and agricultural products can get its transaction system and platform in one night. This practice has an obvious effect. With our in-depth involvement, members using the transaction platform also become customers”.
Whether duplicating existing successful experiences in mobile finance can be done is a big test. In Yang Zhong's planning, “The overlapping area of wireless businesses and financial services” may be a breakthrough area. Yang Zhong said, “Smart phones have become an information portal, and future customers will put businesses with high real-time requirements on the internet or mobile platforms. Electronic banking is the combined product of finance, the internet and IT. A good combination will no doubt create new financial services, which may become the future profit growth points for banks. We will also strengthen cooperation with all possible strategic partners to further innovations in the services and functions of mobile finance. They may not necessarily be internet enterprises, but they can make new contributions to e-commerce”.