Facing the fast-spreading internet finance and mobile finance, are the conventional physical banking outlets confronted with the “existence crisis” or should they change their forms? Or as predicted in the book Digital Bank: Strategies to Launch or Become a Digital Bank, written by Chris Skinner, will 80% of conventional banking outlets disappear in the future? Which paths are there for the reformation of banking channels in the age of internet? With the above questions, the reporter of China Economic Net, for a few days, visited a number of community banking outlets of IB, which has built over 1,000 community sub-branches within as short as two years.
Racing to capture the “green sea” of retail banking
Banks have quietly slowed down their pace to establish conventional banking outlets, and turned to building community banking outlets. They open banking outlets in residential quarters and below residential buildings, and offer “off-hour and prolonged” service. It is obvious that such practice, on one hand, is to actively respond to the inclusive finance advocated by the state. Yet, on the other hand, business is business. What is the real intention behind the building of community banking outlets in large scale from the perspective of the strategic development of banks.
Against the sweeping test of market-oriented interest rates to the existing profit model, business operation and management level, and innovation capability, Vice President Chen Jinguang of IB told the reporter, banks were confronted with more furious competition, and the backgrounds of competitors become more diversified. The austere challenges compelled banks to accelerate innovation. However, innovation was not simply to seek changes, and the aim was to find a differentiated and sustainable development path. Over these years, both state-owned banks and joint-stock commercial banks made their business ideas with one accord, taking the “green sea” of retail banking as a main business direction in the future. To give attention to the retail financial market with a massive customer group and make a good performance in retail banking was not only the foundation for a bank to grow bigger and stronger, but also the specific manifestation of running a bank in a down-to-earth manner.
Chen further indicated that it was a beneficial practice of IB in exploring the transformation of retail banking to build “small but elaborate” community banking outlets and extend the banking service to the “last 1 kilometer”. The over 1,000 community banking outlets across China carried the four retail banking product families of IB – “Enjoyable Life”, “Universal Life”, “Vigorous Life” and “Wealthy Life” (namely pension finance, go-broad finance, credit card and retail banking wealth service). As banking outlets reachable by the general public, community outlets passed the four types of service to the common people quickly and conveniently.
As noted by the reporter, the customers of IB community sub-branches in Chengdu, Wuhan and Shanghai visited this time are mostly elderly customers, which has to do with the fact that the retail banking of IB is focusing on the “pension finance”. In the current stage, the target customers of its community banking outlets are mainly the elderly group. “Don’t look down upon the business opportunities contained in the group. As China’s population structure enters the aging stage, the market of pension finance has a great potential consequentially”, Chen answered the reporter, “We hope to provide better service to these customers and further extend our service to their family members.”
As revealed by relevant statistics, over as short as two years after the launch of “Enjoyable Life” of IB, the number of its VIP customers has exceeded 1 million, and the amount of entrusted assets hit over RMB 510 billion. Such achievements cannot be done without the sales channel of community sub-branches.
Warm banking service
“My computer gets halted again.” At IB Baibuting Community Sub-branch in Wuhan, Zhang Jinjiang, a senior over 80 years old, brought a computer to an employee of the sub-branch for help. During the talk with the reporter, he said: “I come here not merely for handling banking service. I will also ask them for help whenever I encounter problems in my life. Employees here are very considerate.” It turned out that community banking outlets shortened not only the physical distance but also the psychological distance between the Bank and residents.
It is learnt that each IB community sub-branch generally covers an area around 100 square meters, with 3-4 employees. Positioned as “convenient small-sized financial service outlets offering services, except counter cash service, to both rural and urban residents, small- and mini-sized enterprises, and other economic organizations, based on communities”, such sub-branches uphold the three service tenets -- relation finance, experience-based finance and differentiated finance. The so-called “relation finance” means to become a “good neighbor and good helper” of community residents depending on frequent interaction with them, and establish sound interpersonal relations in this way, so as to learn the practical needs of residents in their financial lives, provide solutions and win their trust. The “experience-based finance” means to introduce smart equipment, promote the application of internet banking, mobile banking, direct bank, and WeChat banking, and constantly improve the smart service level of banking outlets, which are taken as an effective supplementation of internet finance, so as to improve customer experience. The “differentiated finance” means to create special products to offer differentiated custom service for customers, such as the “community loan” offering consumption and business loans for community residents and individual business owners, and the “special wealth management products for community” with a reference yield higher than that of common products of the same period, to change the “product-centered” service model of conventional banking outlets to the “customer-centered” model.
The “off-hour and prolonged” business time of IB community sub-branches also showcases the “customer-centered” idea.
“We used to be in a hurry to handle services with banks ago as they also went off work when we went off work. Thus, we had to go to banks at the noon time for rest. Sometimes, it was bothering to wait in a long queue. Now, it is very convenient to handle services with community banking outlets.” In interview, the reporter discovered most community sub-branches of IB provided service till 8 pm and employees there would wait in patience if the service to some customers didn’t finish when it was time to get off work.
The change in service brought fast growth of number of customers and improved loyalty. According to the introduction of Wang Chunzhi, the leading officer of IB Shangnan Road Community Sub-branch in Shanghai, with a service scope covering a number of residential quarters in the neighborhood, the sub-branch has developed as many as more than 3,000 customers within only a year since it was opened, 50% of which were core customers.
At IB Baibuting Community Sub-branch in Wuhan, the reporter saw such a scene: 5-6 elderly customers sit around an employee of the sub-branch and listened to him carefully at a legal lecture on “Enjoyable Life” held there, and the employee answered questions raised by them from time to time… The following scenes could often be seen at IB community sub-branches: active organization of special lectures such as legal consulting, wealth management, and financial literacy education of children, volunteer promotion of protection of consumers' rights, organization of free health consulting and clinic service, and visit to the elderly widows and widowers.
Zhu Jianping, Vice General Manager of the Bank Card and Channel Department of IB, said: “We want to transmit more care to the common people via community banking outlets, build the Bank into the most considerate one in China, and provide warmer financial service.”
Physical banking outlets, the foundation for existence and development
Since the “Circular on Matters for Small- and Medium-sized Commercial Banks to Establish Community Sub-branches and Small- and Mini-sized Sub-branches” was issued by the China Banking Regulatory Commission (CBRC) in December 2013, the development of community banking has moved to the fast lane. Banks started arranging the community banking outlets in succession, and only IB itself has built nearly 1,000 community banking outlets.
Nevertheless, lots of people worry whether with such a great number of physical banking outlets established, the Bank will face the dilemma of “being unable to make ends meet” under the impact of internet finance.
In terms of cost, the average cost for IB to establish a community sub-branch is about RMB 1 million, only about 1/7 of that to establish a conventional banking outlet. In terms of statistics, according to the statistical estimation of the whole accounting year completed freshly, 1/3 of the nearly 1,000 community sub-branches of the Bank have gained profits, and the remaining 2/3 are expected to see profits in the second accounting year. At the commercial layer, community banking can, with customer needs, move to the profitable track within a short time. It proves that this development model is sustainable.
Zhu Jianping shared with the reporter his experience on the recent investigation in Wells Fargo of US, the “largest bank in the world” which centers on community banking. The experience of Wells Fargo showcases that against the fast development of internet today, commercial banks still need to ensure an adequate number of physical banking outlets and certain coverage, so as to maintain customer relationship with face-to-face communication. As the extension of physical banking outlets, internet banking is an important means to help them to improve customer coverage, but it cannot replace them.
There are, Zhu indicated, various approaches for customers to get information, but most of them are accustomed to getting information via both online and offline channels. Physical banking outlets remain a good channel to attract customers, and they can improve the customer adhesiveness with face-to-face communication. Of course, in the age of internet, the Bank will continue improving the smart service level of banking outlets to match “intangible” online channels for the “tangible community banking channel, thus further meeting the diversified needs of customers.
Now IB is actively pushing forward the “smart, small-sized, community-based and standardized” project for community sub-branches, and its future development direction is to “develop the online platform and build smart communities integrating both online and offline channels”. Depending on the regional information advantages of the “greater community”, the bank will explore the organic integration of commerce and finance based on internet thinking, and assemble resources including large cooperative merchants around China, commercial circles and property management companies around communities, social public service information, etc. to build a comprehensive smart community-based social service platform covering diversified markets and business forms, which integrates sharing and exchange of community public information, community financial service and non-financial value-added service, thus scaffolding a “smart” community-based financial ecosphere in depth.