Time: August 3, 2015 Source: Financial News
In the future, the relationship between a bank and customers will be the top priority for business operation. With nearly two years of operation, our community banking outlets have received no complaint. With practice in the recent two years, we give answers to the following questions with our actions: Are physical banking outlets required in the age of internet? How should we run community banking outlets? Is the commercial model of community banking sustainable? At the same time, the existence of community sub-branches also pushes the iterating and updating of our products and reforging of our business procedure.
Wells Fargo Bank, which centers on community banking, won the title of “the largest bank around the world” a few days ago. In recent years, community banking contributed about 60% profits for the bank. This gives a hint for the Chinese banking industry which is seeking transformation actively: for the transformation of retail banking, community finance may be an important point of breakthrough. Since 2013, many commercial banks in China have started a tide for opening community banking outlets. As a result, a great number of community banking outlets of different business models mushroomed in a short term.
However, after rounds of contest, the community banking operation model of IB has been recognized as the best one up to now, and the community banking outlets have also seen preliminary profits. Then, what stunt does IB community banking, which could not been seen easily in newspaper, have on earth? Our reporter interviewed Vice President Chen Jinguang of IB in charge of the retail banking.
Reporter: In recent years, IB has kept speeding up business transformation and upgrading. What are the considerations of the bank to take frequent actions boldly in the area of retail banking?
Chen Jinguang: In recent years, we have attached unparalleled importance to the retail banking. Against the backdrop of market-oriented interest rate, financial disintermediation and fast interest development, banks are confronted with more furious competition, and market players include not only conventional banks and other financial institutions, but also a great number of non-financial institutions which engage in cross-sector businesses and .compete with the conventional financial institutions. Meanwhile, as the market changes at an increasing speed, many instances happen in a very short time, and this brings great challenges to banks. Against all of these, banks are compelled to make constant innovation to exist and develop.
Yet, innovation does not mean to seek changes simply, and the aim of innovation is to find the differentiated and sustainable development model and profit model. Therefore, over these years, both state-owned banks and joint-stock commercial banks made their business ideas with one accord as if by prior agreement, taking the “green sea” of retail banking as a main business direction in the future.
Where is the point of breakthrough for the transformation of retail banking of IB? With the support of the regulatory authorities at all levels including China Banking Regulatory Commission (CBRC), we first choose the transformation in the model of channel expansion and build “small but elaborate” community banking outlets to extend banking service to the last 1 kilometer. Then, via the community banking channel across China, namely the four retail banking product families of IB – “Enjoyable Life”, “Universal Life”, “Vigorous Life” and “Wealthy Life”, we develop the businesses of pension finance, go-broad finance, credit card and retail banking wealth. The relationship between channels and products complement with each other like pizza base and rich stuffing on it.
Of course, in the age of internet, the smart service level of banking outlets is crucial. Meanwhile, we also match “intangible” online channels for the “tangible” community banking channel.
Reporter: Which people are the current core customer groups of IB community banking? How do you look at the core customer groups of community banking?
Chen Jinguang: Currently, the target customers of our community banking are mainly the elderly people. We hope to provide satisfactory service to these customers and further extend our service to their family members.
We have established over 1,000 community banking outlets around China and I have been half of them. Such banking service at the doorway is very popular among the elderly. What touches me is that many elderly customers have establish deep sentiment with employees of our community banking outlets in the process of daily consulting and transaction, and some of them even treat our employees like their relatives. If we provide good banking products and service, these elderly customers will do publicity for us everywhere voluntarily. In the vogue words now, it is “word of mouth marketing” by “fans”. This is a sign of the practical banking service.
Don’t look down upon the business opportunities contained in the elderly group. As China’s population structure enters the aging stage, the market of pension finance definitely has a great potential. Within only two years, the VIP customers of our "Enjoyable Life" program totaled over 1 million, and the amount of entrusted assets hit over RMB 510 billion.
Reporter: In recent years, banks have established community banking outlets at a fast rate. How can a bank run such outlets properly while racing to snatch the beachhead and making arrangements?
Chen Jinguang: Generally speaking, it lies in the standardization of business and management.
For instance, all staff members in our community sub-branches are working full-time, and we have no so-called part-time employees. The principals of community sub-branches are also called "president" like those of their superior sub-branches, and all of them are under the same incentive and restrictive mechanisms. Similarly, community sub-branches are also covered under our retail banking service standardization system.
To make community banking service satisfactory to the common people, we should make them feel secure, which depends on the daily management and control. As a credit agency, a bank must cherish its credit, responsible to the general public in the links of product, marketing, and service, etc. In particular, in the area of retail banking, which is characterized by a wide range of customers, diversified products, and multi-layered service, the daily management should be more standardized and refined, and we should start from the grass-root outlets and offer service covering all links. As community sub-branches are the “nerve ending” of banking service, there is no exception.
Reporter: What is the objective of IB to develop community banking? Which areas should, in your opinion, be improved in the course of developing community banking?
Chen Jinguang: In the long run, our objective is to become China's “Wells Fargo Bank”.
The community sub-branches of IB are mainly distributed in cities other than Beijing, Shanghai, and Guangzhou, now, and we have established more than 1000 such sub-branches around the whole country. Compared with other banks, this speed is not fast. As we believe that to have a better performance and go farther on the way of community banking, the most important thing now is set up rules, pinpoint our position, and establish a sustainable development model and the matching regime and system. The more than two years of exploration and practice prove that our development model and management system of community banking are more practical and compliant with the regulatory requirements, which can serve as reference for the formulation of the regulatory policies and administrative standards.
In the coming three years, we plan to establish 3,000 community sub-branches and keep improving the capacity of our outlets. Firstly, we will build a community sub-branch platform and extend its reach. Secondly, on the platform, we will keep enriching the products and services under the above four “life” brands, and enlarge the core customer group steadily through the combination of on-line and off-line channels.
Now, the elderly customers have accounted more than half of the customers of our community sub-branches in total. In the future, we will also further extend our service to the family members of our elderly customer by offering service to them. As the elderly are generally less willing to accept the internet, but the young people are highly willing to accept mobile terminals like mobile phone, we consider how to combine the on-line and off-line channels in an organic way and take into account the financial needs of both groups. Thus, we can create a good experience for people of different ages and characteristics such that all people at different ages in the community can become our customers.
On the one hand, we actively push forward the project of “smart, small-sized, community-based and standardized” community banking, keep improving the smart level of outlets to enhance the customer experience by introducing smart equipment and promoting the application of electronic banking. On the other hand, we intensify the product design and innovation. We plan to launch the “general points” program for retail banking, which is applicable to all retail banking products. For instance, young people can convert and use their points rewarded for wealth management or credit card service in the value-added service for pension financial products chosen by their parents. By meeting the financial needs of and sharing resources among their family members, we try to make both the elderly and young people become our regular customers. This is our “blueprint for retail banking”, meeting all financial needs of a family both longitudinally and transversely.
To achieve this objective, we need to reinforce the backstage technological platform, and we call this "heaven and earth connection".
Reporter: Till now, there are still many doubts about community banking in the industry, such as the cost controllability and sustainability of commercial model. With practice in the recent two years, do you think the community banking model of IB can eliminate these doubts in the industry?
Chen Jinguang: Let’s first talk about cost. According to our statistics, the annual average cost of a community sub-branch is about RMB 1 million, roughly 1/7 of that of a conventional outlet. At the beginning of pushing ahead the establishment of community banking, our most conservative estimate is to reach the break even point in 5 years. Yet, based on the statistical calculation of a whole accounting year, which was just completed, 1/3 of our over 1000 community sub-branches have witnessed profits, and the remaining 2/3 are expected to see profits in the second accounting year. Once the cost is under control and there are profits, this commercial model is naturally sustainable.
In the future, the relationship between a bank and customers will be the top priority for business operation. With nearly two years of operation, our community banking outlets have received no complaint. With practice in the recent two years, we give answers to the following questions with our actions: Are physical banking outlets required in the age of internet? How should we run community banking outlets? Is the commercial model of community banking sustainable? At the same time, the existence of community sub-branches also pushes the iterating and updating of our products and reforging of our business procedure. For example, in order to meet the needs of community sub-branches, we reformed our card issuing procedure which had been used for over 10 years, and launched the self-service card-issuing machines, so the time required for a customer to open a bank card was contracted to 2 minutes. We are also exploring the standardization of wealth management products, striding toward self-service purchase and smart operation. On the one hand, we can improve the product safety, and on the other hand, employees of such sub-branches can have more energy and time to offer service to customers and carry out marketing in a desired manner.
We are confident that, taking “customer-centered” service as a starting point, we can gradually build up a structure of IB features for the establishment, management and service of business outlets and bring great vigor to the transformation of retail banking while constantly exploring and improving the performance of operation model of community banking.