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. How do Chinese banking consumers behave? And how do they view the prospect of foreign banks’ entry into the market?
Illuminas conducted online research among a 400-strong sample of young, upmarket respondents in China’s three Tier 1 cities (Beijing, Shanghai, Guangzhou) to measure awareness of, and attitudes towards, foreign banks in the context of current banking behaviour.
In contrast to the UK, where banking customers often remain with the same main bank 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. For example, it has usually been employers who have decided which banks employees’ salaries will be paid into – thus, a change of job has often meant a change of bank.
Standing tallest among China’s banking giants is ICBC (Industrial & Commercial Bank of China) with just 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) with two 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); and HSBC, with a burgeoning presence in China, this world-famous brand already comes in at number six among this urban elite.
Chinese consumers are generally positive towards the idea of foreign banks. The research revealed that the vast majority (98%) of respondents are aware of the opening up of the market and 87% of respondents express an interest in using the products and services of a foreign bank.
But the research also revealed some reservations that foreign banks will need to address. First, price: 68% agree Western banks are more expensive than Chinese ones (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 about local knowledge, with 45% of respondents agreeing that Chinese banks better understand their needs.
Furthermore, achieving cut-through will be tough for banks entering the market. A tradition of multi-banking has driven high awareness among many consumers of the banks included in the study. Eleven banks scored 80% or more for brand awareness and seven banks enjoyed more than 80% logo awareness.
The research was conducted among a sample with similar characteristics in terms of age, sex and household income, but segmentation analysis based on responses to attitudinal questions about banks and personal finance management reveals four distinct types of respondent: young and carefree; cautious traditionalists; confident commoditisers; and comfortably settled.
The “young and carefree” have a simple approach to financial management. 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 for foreign banks.
The profile of these first two segments is familiar to financial service marketers working in mature 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 tails off slightly if this is delivered via a local partner. They show the highest penetration for card products and are the most likely to believe that all banks are the same. These wealthier customers are fickle, among the easiest to recruit and the most difficult to retain. They have the lowest satisfaction with their current bank and profile data suggest they are more likely to be found in Beijing than Shanghai or Guangzhou.
“Comfortably settled” are older and wealthier than average. They show the highest satisfaction with their current main bank. They are well insured and hold the most financial products but show the lowest penetration for cards. They are almost as interested in foreign banks as the previous segment. However, nicely accessible current accounts make up the greatest share of their portfolios, they are more interested in forex accounts than local currency and demonstrate a strong preference for dealing face-to-face. Foreign banks may find it difficult to tempt these customers away from what appears to be a very cosy relationship.
Matt Carr, research director, APAC Illuminus, contributed to this week’s Trends Insight