Banking on China; can western banks offset losses in USA by tapping into the growing Chinese urban elite?

Following China’s accession to the World Trade Organisation earlier this year, foreign banks were finally allowed to offer some local currency products and services in China. A number of UK and US institutions have already entered the retail market, but how does the Chinese banking consumer behave at present? And how does he or she view the prospect of foreign banks’ entry into the market?

Illuminas conducted online research among a young, upmarket audience in China’s three Tier 1 cities (Beijing, Shanghai, Guangzhou) to measure awareness of, and attitudes towards, foreign banks. The sample size was 400.

In contrast to the UK, where banking customers often remain with the same main bank for their entire lives, Chinese consumers are used to dealing with a number of different financial providers. Respondents in our study hold accounts with an average of 4.1 banks. Historically, it is employers who have decided which banks employees’ salaries will be paid into – thus, a change of job has often meant a change of bank. Utilities companies have also imposed the choice of bank on their customers for bill settlement.

While 22% of respondents claim to have an account with a foreign bank; only 7% regard it as their main bank account. In the long term we expect multi-banking will decrease as competition intensifies and the growing urban elite become increasingly time-poor. Thus foreign banks have a window of opportunity to capture market share before consumers rationalize their account suppliers and the state run sleeping giants wake up to western marketing techniques.

Standing tallest among China’s banking giants is ICBC (Industrial & Commercial Bank of China) with a little over three-quarters (76%) of the urban sample holding an account with them. The top six banks cited by our respondents as their main bank include the four state-run leviathans (though three have now floated) and two interesting “newcomers”. China Merchants Bank, founded 20 years ago with corporate money, has the highest satisfaction rating among all banks included in the study (96% satisfied). The other “newcomer” is HSBC. Present on the mainland since 1865 but now developing aggressively in China, the global giant already comes in at number six among this urban elite. Citibank and Bank of America are yet to make the top 10 in terms of main bank account penetration.

The research also revealed some reservations that foreign banks will need to address. First price: 68% agree Western banks are more expensive than Chinese (only 10% disagreed, 22% neither). There is also an issue with trust: 44% agree they would have more trust in a Chinese bank to keep their money secure. Finally, there are concerns that foreign banks would struggle to match Chinese banks in terms of local knowledge, with 45% of respondents agreeing that Chinese banks better understand their needs.

The research was conducted among a sample with broadly similar characteristics in terms of age, sex and household income…but just how homogeneous a group are they? Segmentation analysis reveals four distinct types of respondent

The “young and carefree” have a simple approach to financial management, a subject that bores them. Younger and less wealthy they are more likely to use China Merchants Bank, in particular for their credit card offering and online delivery. This group is the least interested in what foreign banks have to offer – an indication of their general attitude to financial management.

The “cautious traditionalists” hold a limited number of products, with the smallest number of banks and scored the lowest for logo recognition, brand recognition and advertising awareness. This is probably the least promising group of consumers for foreign banks operating in China.

The profile of these first two segments is familiar to financial service marketers working in western markets. However, the next two are perhaps not so familiar.

“Confident commoditisers” are those with most banking relationships. It is among this group that foreign banks have already made the most progress and where interest in foreign banks is the highest. However, interest in foreign bank products tails off slightly if this is delivered via a local partner.

“Comfortably settled” are older and wealthier than average. They are well insured and hold the most financial products. Nicely accessible current accounts make up the greatest share of their portfolios; but they are more interested in forex accounts than local currency and demonstrate a strong preference for dealing face-to-face.

In conclusion, achieving cut-through will be tough for banks entering the market. A tradition of multi-banking has driven high awareness among many consumers. Eleven banks scored 80% or more for brand awareness and seven banks enjoyed more than 80% logo awareness.