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1、ConfidentialChina PFS Market and Winning Strategies for New EntrantsJanuary, 2000PD documentThis report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Co
2、mpany. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.Jonathan WoetzelSHODavid Von EmlohSHOJerry XiaoSHOJun LiSHOINTRODUCTIONThis document is designed for CSTs to understand China PFS market and new entrant strategy. The issues
3、 that this document addresses include market potentials for different PFS products (i.e., savings/deposit, mortgages, credit card, auto loans, other personal loans, and insurance/investment); customer segmentation and channels; regulatory and competitive environment assessment; KFS for new entrants;
4、 winning strategies for new entrants. This document includes the following sections: China PFS market overviewProduct opportunity assessmentImplications for new entrants1PD/000131/SH-MISC(97)RETAIL BANKINGChina PFS market overviewChina PFS market is currently in its early stage; the penetration of n
5、on-deposit product is especially low. Current consumer needs are mainly for basic service but the need for more sophisticated products/services is emerging. Products/services provided by the banks are fairly basic now. Channel network is branch dominant with alternative channels(e.g., ATM, phone ban
6、king) underdevelopedIn more developed countries, retail banking is a significant portion of the banking business and its profitability is higher than wholesale banking, highlighting retail bankings potential and attractivenessChina PFS market has great potential for new entrants, especially for non-
7、deposit products. Among them, mortgages and credits card are particularly attractive. Also, urban young and high income consumers are emerging as a very attractive segment. Non-traditional channels like phone banking and Internet banking also provide an attractive opportunity given the positive atti
8、tude that Chinese consumers have towards these channelsProduct opportunity assessmentStrategies for new entrants2PD/000131/SH-MISC(97)TextRETAIL BANKING AN ATTRACTIVE OPPORTUNITYHigh market potentialsInternational experiences suggest that retail banking enjoys higher returns than wholesale banking b
9、ecause,Ability to raise capital cheaply on capital market puts a lot of pressure on corporate lending marginsDetail products such as credit card and mortgage have very attractive marginAttractive potential returnsNew entrants have an opportunity to shape the retail banking industry in ChinaRetail ba
10、nking is growing fast globally, and it shares a more significant part of the banking business for more developed countries More sophisticated consumer needs are emerging24-hour serviceFee-based serviceHigh interest in new products/new functionsWilling to accept or try non-traditional channelsIn orde
11、r to stimulate economic growth, the Chinese government encourages the development of consumer creditInterest rate has been reduced several times and the spread widened Tax exemption for house purchaseMortgage securitization is in its piloting stageIncreasingly wider application of new technologiesDe
12、velopment of new products (IC card for instance) and better fulfillment of customer needsATM, internet banking and telephone banking expand distribution channels3PD/000131/SH-MISC(97)Per capita GDP (US$)Per capita retail banking business volume US$CHINAS RETAIL BANKING BUSINESS DEVELOPS STABLY, YET
13、STILL AT A LOW LEVEL1994 1995199619971998CAGR=27%Consumer assets*RMB billionsRetail banking business development in AsiaIndonesiaSingaporeHong KongTaiwanKoreaMalaysiaThailandPhilippinesChinaVietnam* Including deposit, investment and hedging productsSource:China Statistical Yearbook; McKinsey analysi
14、s4PD/000131/SH-MISC(97)RETAIL BANKING BUSINESS GENERATES A LARGE PORTION OF BANKs TOTAL INCOME IN MORE DEVELOPED COUNTRIESPercentMODELING & EXPERT ESTIMATIONRetailCorporateTrading*IndiaTurkeyPolandKoreaThailandArgentinaBrazilSpainGermanyUS* Including FOREX trading, the interest income is based on ma
15、rket interest rateSource:National bank statistics; McKinsey interview; CST interview; Emerging market business group.China205PD/000131/SH-MISC(97)RETAIL BANKING RETURN HIGHER THAN CORPORATE BANKING RETURN IN ASIAROEPercentRetail banking focussed bankCorporate banking focussed bankSource:BOK statisti
16、csKOREAN EXAMPLE6PD/000131/SH-MISC(97)RETAIL BANKING RETURN HIGHER THAN CORPORATE BANKING USReturn on assetsPercentCheap financing means available to corporate on capital market, making corporate lending interest rate lowRetail products like mortgages and credit cards have tremendous margin compared
17、 to corporate lending, contributing to retail bankings higher return1995199619971998Source:Annual reportsRetailWholesale7PD/000131/SH-MISC(97)CHINA RETAIL BANKING MARKET UNDERDEVELOPEDProduct featuresCustomer usageBasic products just emerged such as personal check and real credit cardLimited product
18、 features, e.g., mortgage refinancing restrictedChannel infrastructureBranch still dominant channelATM density very low (8/million capita vs 470/million capita in US)Not much cross sellPhone banking and internet banking just emergedOpportunity to shape the industrySource:McKinsey analysisMost custom
19、ers use retail banking only for deposit serviceOnly 20% of top 12 city consumers have banking cards while in US average people hold 7 - 8 cards8PD/000131/SH-MISC(97)VERY LOW PENETRATION RATE FOR NON-DEPOSIT RETAIL BANKING PRODUCTSInvestment products as percent of total consumer assets 1997PercentCre
20、dit product as percent of deposits 1997Percent0.6%Fee based income as percent of retail banking revenue 1997120,000100%= 7.8 million/cityESTIMATEPercentage of customersYOUNG PEOPLE WITH HIGH/AVERAGE INCOME ARE THE MOST ATTRACTIVE PFS CUSTOMER4991606101803711249062941,670507Interest incomePre-tax pro
21、fit501160* Shanghai, Beijing, Guangzhou, Chongqing* Based on AMI definition, potential PFS customers are 20-59 years old with annual household income greater than RMB 25,000Source:AMI PFS survey 1999LowMediumHighMature-stableMature-successYoung-upstartWhite-collar12PD/000131/SH-MISC(97)CUSTOMER SEGM
22、ENT PROFILE-WHITE COLLARWhite collarWell educated with good positions in local and foreign companies CharacteristicLacking overall understanding of PFSIn need of loans Open to borrowing Willing to try new financial productsServices required Convenient and quick service Quick information accessProduc
23、ts required Credit/debit cards Mortgage Other personal consumer loans PensionChannels required No strong preference for face-to-face interfaceEmerging channels e.g., telephone banking and internet banking Key factors in serving the classProvide products that meet their needs, e.g., overseas study lo
24、an, large-amount medical loan, housing loan, decoration loan, etc.Encourage credit consumption with credit/quasi-credit cardsAggressively promote new PFS productsProvide multiple convenient productsSource: Interviews, McKinsey analysis13PD/000131/SH-MISC(97)CUSTOMER SEGMENT PROFILE YOUNG-UPSTART You
25、ng-UpstartBusiness owners or young executives in large companies CharacteristicSmartLacking overall understanding of PFS Eager for useful informationWilling to take risksServices required Most efficient services Tailored proposition and service Round-the-clock service Products required Credit card M
26、ortgageUn-specified personal loans*Auto loan Insurance/pension Channels required Efficient channels such as ATM, telephone banking and internet banking Safe and reliable traditional channels Key factors in serving the classDesign tailored products; e.g. un-specified loanUnderstand that this group of
27、 people are more service-sensitive than price- sensitive and provide superior serviceLeverage multiple channels to promote and provide products/services* A personal loan which does not specify usage of the loan, like the ones China Mingshan Bank provides to executives and celebritiesSource:Interview
28、s, McKinsey analysis14PD/000131/SH-MISC(97)CUSTOMER SEGMENT PROFILE MATURE-STABLEMature-StableMiddle-aged people with a stable income and a family to supportCharacteristicThough having stable income, they still need to manage family expenditure carefully Want to save moneyReluctant to credit consump
29、tionWilling to try financial products that meet necessary consumption needsKey factors in serving the classProvide personal financial products with reasonable price to meet necessary needs, such as education loans, medical loans, consumer product loans, housing decoration loans Promote financial pro
30、ducts in simple direct and clear waysProvide friendly person-to-person interface Services required Face-to-face banking interface Like to get effective information through face-to-face communicationProducts required Savings/depositCredit card/debit card Mortgage Pension/insuranceOther personal consu
31、mer product loanChannels required Counter serviceATMSource: Interviews, McKinsey analysis15PD/000131/SH-MISC(97)CUSTOMER SEGMENT PROFILE-MATURE-SUCCESSMature-SuccessMiddle-aged people with high income and a successful careerKey factors in serving the classOffer trust-based services and build up long
32、-term relationship Design products that meet actual needs e.g., more than one mortgageEncourage credit consumption CharacteristicAffluent and also family-oriented Have certain needs for loans Good personal credit Risk-averse Services required Effective and all-round service Customized services and c
33、ounselingProducts required Savings/depositCredit/debit cards Mortgages Other personal loans Insuarnce/pensionChannels required Reliable traditional channel Source: Interviews, McKinsey analysis16PD/000131/SH-MISC(97)BRANCH REMAINS THE DOMINATE CHANNELABCICBCCCBBOCCBC*CITICMerchantPDB59,00934,59224,6
34、5611,7461,500200166140Number of outletsNumber of ATMs* Estimation17PD/000131/SH-MISC(97)BOTH STATE AND COMMERCIAL BANKS ARE BUILDING NEW CHANNELS AGGRESSIVELYPhone banking All state banks have offered phone banking for inquiries like checking balances in some branches. However, no bank has a nationw
35、ide toll-free number yetChina Merchant Bank also has fund transferring and bill payment feature for phone bankingInternet Bank of China and China Merchant Bank are the first to offer Internet service for checking balance and internet paymentHowever, services are not provided for all branches, and th
36、ey have only signed up limited number of web sites/merchants (e.g., BOC-Shanghai only signed up 3 sites in 1999)19921995 1996 1997 1998ATM growthCAGR145%ICBC is the largest ATM investor who has built 6500 ATMs which cost 2 billion RMB by the end of 1997Currently not many ATMs are compatible to cards
37、 issued by other banks. But in the long run after the golden card project, investing in ATM might not be the best strategy.Source: Interviews, Lit search18PD/000131/SH-MISC(97)Percent of total sample size strongly/somewhat agreeN = 427MANY CUSTOMERS PREFER NON-TRADITIONAL BANKING SERVICE CHANNELSTra
38、ditional bankingConvenience51% prefer dealing with a person at a bank branch or on the phone50% would use a phone for most transactions, if such service existed, and would not use a teller49% intend to use Internet banking in the future73% want 24-hour access24% use ATMs and 13% use the phone for mo
39、st/all transactionsBUTCHINASource:Understanding the Asia-Pacific PFS Customer, proprietary survey, April-May 199819PD/000131/SH-MISC(97)Percent of total sample size strongly/somewhat agree (top 2 boxes out of five)N = 2,888PREFERENCE FOR PERSONAL INTERACTION AT BANK IS NOT PARTICULARLY STRONG FOR CH
40、INESE COMSUMERSQ: I prefer dealing with a person at branch or on the phone rather than a machineTotal AsiaTaiwanSinga-poreMalay-siaKoreaIndo-nesiaChinaThai-landHong KongPhilip-pinesIndiaUS(55%)Source:Understanding the Asia-Pacific PFS Customer, proprietary survey, April-May 1998; US data: “Prefer th
41、e branch over self-service banking”, PSI 1997 consumer survey20PD/000131/SH-MISC(97)Percent, N = 2,888USAGE OF PHONEBANKING IS SMALL NOW, BUT IT IS PROBABLY SUPPLY NOT DEMAND CONSTRAINEDTotal AsiaHong KongSingaporeKoreaTaiwan*IndonesiaChinaMalaysiaThailandIndiaPhillipinesUS (39%)* Households who hav
42、e used phone bankingWillingness to use for most transactions, if availableQ: How often do you use telephone banking?Q: I could handle most of my financial needs over the phone, and would not use a branch if such service existed* 20% of respondents in Taiwan said that they use phone banking every day
43、* US households who use phone banking at least once per month. PSI 1997 consumer surveySources:Understanding the Asia-Pacific PFS Computer proprietary survey April/May 199821PD/000131/SH-MISC(97)ATTITUDE TOWARDS INTERNET BANKING IS POSITIVELY STRONG* US non-users of PC banking, who would use, if ava
44、ilable Source:Understanding the Asia-Pacific PFS Customer, proprietary survey, April-May 1998; US data from PSI 1997 consumer surveys Percent of total sample size strongly/somewhat agree (top 2 boxes out of 5)N = 2,888Total Asia China Philip-pines Korea MalaysiaThai-landHong Kong Indo-nesiaIndiaSing
45、a-pore TaiwanUS (23%)*Q: I intend to use internet banking in the future22PD/000131/SH-MISC(97)YOUNGER PEOPLE ARE MORE OPEN TO NON-TRADITIONAL CHANNELSCHINA 50-5930-3920-2940-4950-5930-3920-2940-4950-5930-3920-2940-49Q: I prefer dealing with a live person at branch or on phone rather than a machine Q
46、: I could handle most of my financial needs over the phone. Q: I intend to use internet banking in the future Source:Understanding the Asia-Pacific PFS customer, proprietary survey, April-May 1998 23PD/000131/SH-MISC(97)RETAIL BANKINGChina PFS market overview Product opportunity assessmentImplicatio
47、ns for new entrants24PD/000131/SH-MISC(97)MAIN PRODUCTS OF INDIVIDUAL FINANCIAL SERVICESavings/depositsLarge savings/deposit market with good growth and relatively low profitYoung and high income segments are the most attractive customersFour big commercial banks have dominant position in savings/de
48、posit market, and the smaller ones are lagging in most dimensions of KSFTo compete, new entrants should not only continue to pursue service superiority, but also aggressively explore innovative products, alternative channel solutions and invest in brand buildingMortgage Credit cardAuto and other per
49、sonal loansInvestment/insurance25PD/000131/SH-MISC(97)SAVINGS GROWTH WILL SLOW DOWNKey driversTotal amount of savings/deposit in ChinaRMB billionsCAGR 15 - 20%GDP growth will slow downSavings rate is already very high, further penetration could be difficult (China 26%, Japan 18%, US 4%)Interest tax
50、discourages savings/depositMore investment products available to compete against savings/depositIncreasing demand for house, cars, and other large-ticket products shifts money from savings to consumption11,080CAGR 26%Source:China Information Bank199419982002 projected26PD/000131/SH-MISC(97)YOUNG-UPS
51、TART AND WHITE COLLAR ACCOUNT FOR MOST OF SAVINGS/DEPOSIT* The average of Beijing, Guangzhou, Shanghai, and ChongqingSource:Understanding the Asia-Pacific PFS customer, proprietary survey, April-May 1998 5427458131353681611Fixed savings/total balance of savings accountsAverageFixed savings/deposit i
52、nterest income100Percentage of urban population*100%= RMB 3.4 billion /cityYoung-upstartWhite collarMature-success335Young with low incomeMature stableMiddle-aged with low incomeYoung-upstartWhite collarMature-successYoung with low incomeMature-stableMiddle-aged with low income100ESTIMATE27PD/000131
53、/SH-MISC(97)SAVINGS/DEPOSIT CUSTOMER SEGMENTSTotal balance of term deposit accountRMB thousands250Total balance of term deposit accountRMB thousands20 - 2930 - 39250Age40 - 4950 - 59N/A12048 12025 4812048 -120 25 - 4825Average6255616n.a.1001 year) ratio should be greater than 120%Unfavorable element
54、s Source:China information Bank, McKinsey analysis44PD/000131/SH-MISC(97)HIGH GROSS MARGIN AND LOW LOAN LOSS MAKE MORTGAGE VERY PROFITABLEPercent of loan balanceInterest incomeCOFOpera-ting costDe-faultDefault reco-veryPre-tax incomeTaxAfter tax incomeAdjusted in accordance with latest rate0.5 1.00.
55、5*1.0 1.51.5 2.00.142.5Gross marginCCB estimates that default rate is less than 2%Average default rate in Beijing is around 0.8%98% recovery* 0.8% of the interest rateSource:McKinsey analysis45PD/000131/SH-MISC(97)CURRENT MARKET LEADERS ARE WEAK IN SERVICE QUALITY, PRODUCT OFFERUBG AND CUSTOMER SEGM
56、ENTATIONSource:Interview; McKinsey analysisKey factors for successKey players assessmentBOCICBCCCBRelationship with developersHave a lot of relationshipsParticularly strong with high-end developersNot doing wellDoing wellHave a lot of relationshipsHave a lot of relationshipsMany low-end developersCu
57、stomer segmentation and tailored value propositionMore focus on high-endNo segmentationNo effort to segment custom but in effect focus on low-endQuality serviceLagging (slow and bureaucratic)Best among big banks (quick, sometimes on-site, one-stop service)Lagging (slow and complex process, bureaucra
58、tic)Attractive product offeringNo-ceiling offer attracts high-end developers/buyersThe only bank allowed to provide foreigners RMB mortgage loanAsk for developer guaranteeFixed term of repayment for all customersLoan capNo distinctive offeringFixed term of repayment for all customersAsk for develope
59、r guaranteeLoan capBig in PFMSelective zero-down mortgageAsk for developer guaranteeFixed term of repayment for all customers46PD/000131/SH-MISC(97)MORTGAGE IMPLICATIONS FOR NEW ENTRANTSKey factors for successImplied strategies for new entrantsRelationship with developersProactively identify attract
60、ive developers and support them from early stageActively involved in the development processTailor product/service to developer needsCustomer segmentation and tailored value propositionSegment the market appropriately (e.g., by buyer income, property value, location)Design product/service offerings
61、based on customer needs of the target segment, e.g., Do not require developer guarantee for high-end customersOn-site, one-stop service for high-end developersNo total amount ceiling for high-income buyersQuality serviceStreamline processesDifferent service for different segments (e.g., on-site for
62、high-end and branch-based for low-end developers)Attractive product offeringTailored to different customer segments, e.g.,20% down (instead of 30%)Flexible payment termSource:McKinsey analysis47PD/000131/SH-MISC(97)MAJOR PFS PRODUCTSSavings/depositsMortgageCredit cardsCurrent market is still small,
63、but has great potentials and could be highly profitableFor fear of risk, government and banks do not encourage overdraft or revolving, which limits market growth Young people with high income are the attractive credit card customersCredit risk rating ability is the key success factor for credit card
64、 business, but it may take time and outside help for Chinese banks to build the skillIn the mean time, quasi-credit card presents an attractive window of opportunityTo succeed in credit card market, new entrants should segment the customers, develop multiple-function cards, leverage corporate client
65、s for distribution and manage overdraft for profitAuto loans and other personal loansInvestment/insurance48PD/000131/SH-MISC(97)Can overdraft but Need to save a deposit in advanceNo grace period (e.g., Peony card)Quasi-credit cardDEFINITION OF TERMSDebit cardNo overdraft. Also called savings card (e
66、.g. Magnolice Card)Credit cardCan overdraft and have grace period (e.g., Great Wall International Card, Peony International Card)Bank cards49PD/000131/SH-MISC(97)QUASI-CREDIT AND CREDIT CARDS CURRENTLY ARE SMALL MARKET WITH RELATIVELY LOW GROWTH IN RECENT YEARS, 1998Number of cards* Millions91 92 93
67、 94 95 96 9798With only tens of thousands of “real” credit card95-98 CAGR 16%Quasi-credit and credit cardsDebit cards100% = 90 million cardsPercent* Including credit cards and quasi-credit cards only those carrying VISA/MASTER signsSource:Latterly Credit Card Report; China Information Bank; McKinsey
68、 Analysis 50PD/000131/SH-MISC(97)EXTREMELY LOW OVERDRAFT FOR CHINESE CREDIT CARDS AND QUASI-CREDIT CARDS USERS0.51Chinese government does not encourage credit car overdraftBanks hesitate to loose overdraft limits due to difficulties in risk evaluation, debt claiming, etc.In fear of risk, banks have
69、taken some actions to discourage overdraft (e.g., letter to push for payment)Chinese consumers traditional concerns over “debt” and “overdraft”Overdraft interest rate is too high (18%)2530505060ChinaTaiwanHKUS* Percent of active users. (1996 estimated) Source:Lafferty Credit Card Report, McKinsey an
70、alysisPercent of users with overdraft 199851PD/000131/SH-MISC(97)MORE DEVELOPED AREAS IN CHINA MAY SEE CREDIT CARD TAKE OFF SOONCredit card penetration ratePercentGDP per capitaUS$Indonesia (1994)MalaysiaHK (1994)Taiwan (1998)China1,0003,00010,00030,000Taiwan (1992)Singapore (1994)Source: Literature
71、 search; McKinsey analysisShanghai (1998)Cities with per capita GDP close to US$ 3,000ShanghaiShenzhenBeijingGuangzhou52PD/000131/SH-MISC(97)Total income from quasi-credit and credit card businessBillionsQUASI-CREDIT AND CREDIT CARDS WILL GROW FASTER IN THE NEAR FUTURE, REACHING 60 - 70 MILLION CARD
72、S AND 2531 billion INCOME BY 2002Source:McKinsey analysis19981999E2000E2001E2002ENumber of quasi-credit and credit cards in ChinaMillionsKey assumptionsCard penetration is largely driven by GDP per capita (as shown in previous page), and Chinas GDP will be growing at 5 - 7% till 2002Thus, the penetr
73、ation will be about 5 - 6% by 2002, or 60 - 70 million cardsMonthly transaction grows with GDPPercent of card user revolving will reach 12 - 13% by 2000 based on Taiwans experience (revolving growth from at 1 - 2% to 25% in 10 years)2834 - 4041 - 4950 - 6060 - 72CAGR 20 - 27%810 - 1114 - 1518 - 2125
74、 - 3119981999E2000E2001E2002ECAGR 32 - 40%53PD/000131/SH-MISC(97)MAJOR CUSTOMERS FOR CREDIT CARDS ARE HIGH INCOMEYoung-upstartWhite collarYoung with low incomeMature-successMature-stableMiddle-aged with low income711041AveragePercent of Urban population*3681611Interest rate based on quasi-credit and
75、 credit card, 1999Monthly un-paid credit card balance, 1999RMB Thousands100% = 500 million RMB/cityYoung with low incomeWhite collarYoung-upstartMature-stableMiddle aged with low income* The average of Beijing, Shanghai Guangzhou and ChongqingSource:AMI PFS investigation 1999031354PD/000131/SH-MISC(
76、97)HIGH INCOME SEGMENT IS FAR MORE ATTRACTIVE THAN THE REST OF THE MARKET3115Ave-rageUnpaid monthly credit balanceRMB thousands00-11Average2117N/AN/A12048120254812048120254825Annual household incomeAnnual household incomeN/A* Beijing, Shanghai, Guangzhou and ChongqingSource:AMI PFS survey 1999Monthl
77、y transaction on quasi- credit card and credit cardsRMB thousands55PD/000131/SH-MISC(97)ICBC, ABC, AND CCB DOMINATE THE BANK CARD MARKETSource:China Information Bank; InterviewsDebit card share, 1998PercentCCB1ABCICBCCMBOthersBOC100% = 62 millionICBCABCCCBOthersBOCQuasi-credit and credit card market
78、 share, 1998Percent100% = 28 millionPeony Inter-national cardPeony Credit CardPeony-Zhonglian Credit CardGold Spike CardDragon creditCardGreat Wall Interna-tional cardPacific cardMerchant Bank credit cardCredit cardQuasi-credit cardOther cards56PD/000131/SH-MISC(97)FUNCTIONS AND PRODUCT INNOVATIONS
79、OF MAJOR BANK CARDS DEBIT CARDBank cardsIC cardNation-wide insur-anceForeign currency OverdraftTelephone serviceBill paymentGreat Wall Debit Card (BOC)Universal Card (China Merchant) Utility feesPeony Debit Card (ICBC)Utility feesOriental Card(PDB)Utility feesCommentsTelephone cardInternetGolden Spi
80、ke Card (ABC) Utility fees Dragon Credit Card (CCB) Utility feesShanghai Card (Shanghai Bank) Utility fees Internet shopping but no money transferInternet shopping, payment, inquiry, transfer, loss report password revision and financial analysisMost popular card according to the survey done by CCTV
81、and Peoples Daily57PD/000131/SH-MISC(97)FUNCTIONS AND PRODUCT INNOVATIONS OF MAJOR BANK CARDS CREDIT CARDBank cardsIC cardForeign currency OverdraftTelephone serviceBill paymentPeony Credit CardUtility feesPeony International CardCommentsTelephone cardInternetChina Merchant Credit Card Utility feesN
82、ation-wide insur-anceGreat Wall Credit Card (BOC) Utility fees Internet shoppingGreat Wall International Card (BOC) Utility fees Internet shopping 58PD/000131/SH-MISC(97)BESIDES TRYING TO ADD AS MANY FEATURES TO THE CARD AS POSSIBLE, CHINESE BANKS DO NOT MEASURE UP TO THE KEY FACTORS FOR SUCCESSSour
83、ce:McKinsey analysisKey factors for successKey players assessmentICBCCCBBOCCMBCustomer segmen-tation and tailored value propositionRegular and gold card to segment high and low income customerAffinity card targeting specific groups (e.g., student)Regular and gold card to segment high and low income
84、customerRegular and gold card to segment high and low income customerIn the process of experimenting segmentationTarget the mass market, no segmen-tationCredit risk management capabilityNone of the Chinese banks have credit assessment capabilityThey all fear overdraft and will send out letter of rec
85、ourse if the customer is 15 - 30 days overdueBank of China is experimenting to encourage overdraft by increasing limit, and postpone sending letter of recourseContinuous product innovationAdd more features to the card (e.g., utility and phone bill payment)Add more features to the card (e.g., utility
86、 and phone bill payment)Add the most features to its Universal Card (e.g., Internet payment)Add more features to the card (e.g., utility and phone bill payment, foreign currency trading)Creative marketingLeverage its large branch networkAlliance with universities and travel agenciesBonus pointsLever
87、age its large branch networkCooperate with Shanghai MuseumMass advertising/ promotion in major cities through TV, radio, newspaper, and InternetLucky draw for internet shoppingAlliance with Shangri-la Hotel and China Airlines Reward for e-debit card (e.g., lucky draw for internet use of its credit c
88、ard)Not doing wellDoing well59PD/000131/SH-MISC(97)UNIVERSAL CARD CASE STUDYThe Universal Card a debit card model in ChinaThe Universal Card was launched in 1995 by China Merchant Bank, a new entrant at that timeWithin four years, the circulation of the Universal Card has reached 4 million in China,
89、 ranking no. 5 in the market right after those of the four biggest banks650 thousand Universal Cards have been issued in Shanghai through only 10 branchesCompetitors regard the Universal Card as a successful example, and customers choose it as the most favorable bank card in ChinaProduct featuresOff
90、er the largest number of services includingAccount transfer between current and fixed savingsDeposit of foreign currencyTrading of foreign currencyPayment of all utility bills and phone billsTelephone card service, etc.Internet paymentOffer the best service of money transfer between the securities a
91、nd the bank, providing huge convenience to over 60 million stock traders in ChinaSales and marketingTarget mass market and issue cards with minimum procedures in its branches, subbranches and even on the streetName the card in a different way from those of competitors, emphasizing on the concept tha
92、t one Universal Card can do everything for retail banking customersBuild the brand image by advertising through TV, radio, newspaper, and InternetPromote online shopping by offering lucky drawChannelsProvide telephone banking services in 27 citiesOffer more Internet services than any of the competit
93、ors such as account check, money transfer, loss report, payment online shoppingLeverage branches and even send people out to the streets to solicit application60PD/000131/SH-MISC(97)LOTS OF REGULATORILY ALLOWED OPPORTUNITIES HAVE NOT BEEN FULLY EXPLOREDRegulations Allowed but not widely exploited Pr
94、ohibited/or restricted No grace period for quasi-credit card. Annual interest rate is 18% for revolvingUpto 60-day interest free periodMaximum overdraft per transaction is RMB 20,000Maximum overdraft per account is RMB 50,000Credit card may waive deposit requirement Penalty interest rate cannot be a
95、djustedMaximum overdraft for foreign currency card is 80% of deposit Limit of overdraft and interest rate Individuals with IDOversea-returned Chinese, and other people with foreign nationalitiesCustomer24 hr loss claim phone lineBilling Price discount for credit paymentReward programs such as point
96、accumulationRespond to inquiry on account within 30 days Overdraft limit to RMB 2000/day Complex procedure for co-branding card Restrictions on sales activities Marketing and customer service Detaining the deposit, taking collateralHolding the guaranteer responsible for overdraft Law suitBad debt co
97、llectionCharge POS: merchant fee 1 - 2% ATM: within issuing city RMB 2/each time; out of issuing city 8 RMB/ each timePotential opportunitiesSource:McKinsey analysis61PD/000131/SH-MISC(97)8.219.8CREDIT AND BUSINESS COULD BE HIGHLY PROFITABLE IF RISK IS WELL MANAGED Percent of outstanding balanceCost
98、 of fund/Gross marginOperating expensesNet loss of bad debt*Net pre-tax incomeBad debt rate varies from market to market and from time to time. The key success factor of credit card business is the capability of bad debt risk control4.22.25.211.62.0-5.04.0-7.06.015.0利息费率收入平均资金成本Korea*Korea*(1998)Chi
99、na China (Estimate)USUS(1992)Taiwan*Taiwan*(1998)Assume Chinese banks acquire risk assessment capability in the future* Net loss after bad debt clearing * Data from a certain bankSource:McKinsey analysis62PD/000131/SH-MISC(97)CREDIT CARD IMPLICATIONS FOR NEW ENTRANTSKey factors for successImplied st
100、rategies for new entrantsCredit risk management capabilityLeverage current quasi-credit and credit cards customer database to start building credit risk management capabilities (e.g., in-house credit database, scoring system)Develop credit management core process and implement the process rigorously
101、Do not send LORPush PBOC to establish the credit bureau quicklyCustomer segmentation and tailored value propositionMarket/consumer-oriented mindsetExtensive market research to understand consumer needsFocus on a few segments that are attractive and have high probability for new entrants to winMarket
102、-driven product development and sales/marketing approachContinuous product innovationBundle features/price differently for different customer groups ( as oppose to adding as many features as possible to one card)One step ahead of competition in new product innovationCreative marketingAffinity card t
103、argeting specific groups (e.g., department store card)Invest to build the brandReward programs (e.g., bonus points) to encourage usageLeverage corporate client to identify potential customers and distribute the productSource:McKinsey analysis63PD/000131/SH-MISC(97)PRODUCTS OF INDIVIDUAL FINANCIAL SE
104、RVICESavings/DepositsMortgageCredit cardsAuto loans and other personal loansAuto and other personal loan market is small with low profits CCB and ICBC are the leading banks in Chinas auto loan marketTo many banks, auto loan is not the core business, but it may be an opportunity for some small banks
105、(e.g., Minsheng Bank)To win in these markets, new entrants should have good risk assessment capability, tailored product design and aggressively seek alliance with key influencers (e.g., car dealers, department stores, corporate)Investment/insurance64PD/000131/SH-MISC(97) * Assumption: RMB 80,000 -
106、90,000 loan for each automobileSources: Literature search, McKinsey analysisAUTO LOAN MARKET IS LIMITEDAnnual auto loan demand forecast*RMB 100 millions7080200220340380199910%200025%200140%Percent of auto purchasing with auto loansGiven the current growth rate, auto loan market will be RMB 20 - 40 b
107、illion in 3 yearsAlthough the whole market wont be large in the short run, there may be potential for regional developmentPersonal auto purchasing volumeCAGR 9%199596979899(est.)Outstanding balance for car loansRMB 100 millions1430271998.1099.41998.1099.865PD/000131/SH-MISC(97)CURRENT REGULATION CON
108、TRIBUTES TO THE SLOW DEVELOPMENT OF AUTO LOAN MARKETRegulationsAllowed but not widely exploitedForbidden or restrictedLoan percentage, maturity and interest rateLTV percentage varies from 60 - 80%, depending on collateralsMaximum time to maturity is 5 yearsInterest rate: PBOC regulatory rateOffering
109、 flexible loan within the 80% limitOffering different interest rates on the customers at different credit risk levelsCustomerPRC citizens with permanent residence in ChinaChinese legal entitiesCollateral/guaranteeCollateral from dealerCollateral, other types of guarantee, 3rd party guaranteeAllowing
110、 insurance company to guaranteeUsing the auto itself as collateral (lacking a registration institution makes it impossible to implement)Bad debt settlementLoan resourceWithholding dealers guarantee depositSelling collateral* Based on Guidelines on Personal Consumer Loan DevelopmentSource:PBOC docume
111、nt, team analysisUnfavorable to market development66PD/000131/SH-MISC(97)AUTO LOAN CUSTOMERS HIGHLY CONCENTRATED CeleberitiesBusiness owners Executives and white collars Auto loans market in Shanghai is still in its preliminary stage due to restrictions on car plate issuance and high pricesSource:In
112、terviewsAuto loans customer segments, ShanghaiPercent, 1999100% = 2,00067PD/000131/SH-MISC(97)CCBICBCOthersCCB AND ICBC DOMINATE CHINAS AUTO LOAN MARKET, 1998Sources: China Information Bank, McKinsey analysis100% = RMB 450 millions68PD/000131/SH-MISC(97)ICBC MAY TAKE OVER CCB LEADERSHIP POSITION DUE
113、 TO ITS BETTER PERFORMANCE AGAINST KSF* First to the marketSource:Interviews; McKinsey analysisKey factors for successKey players assessmentCCB*ICBCSuperior serviceReduced processing time from one month to one weekReal time transaction system for big dealersOne-stop shopping service for selected dea
114、lersStrong relationship with key influencers (e.g., dealers, manufacturers)Agreement with 22 auto manufacturersRelationship with both manufacturers and dealersCredit risk managementNone of the Chinese banks really have this capabilityDistinctive offering (including pricing)Cover 33 brandsNo pricing
115、flexibilityCover 30 brandsProvide manufacturers with manufacturing-sales-purchase combo loan packageProvide dealers with wholesale loansNo pricing flexibilityNot doing wellDoing well69PD/000131/SH-MISC(97)LOW PROFITABILITY FOR AUTO LOAN BUSINESSNet interest incomeOperating expensesBad debt lossNetpr
116、e-tax incomeU.S.A.China(estimation)Estimation based on auto depreciation and difficulty in claiming bad debtComparatively low profitability for auto loanLow net interest incomeSmall business volume and high operating expensesDifficulty in bad debt control% of outstanding balance* The average of Beij
117、ing, Shanghai and ChongqingSource:AMI PFS investigation 199970PD/000131/SH-MISC(97)LOW PROFITABILITY OF OTHER CONSUMER LOANS* 1996Gross marginPercentNet marginPercentCredit cardOther consumer loansAuto loansAssumption: Operating expenses are 1.0%Bad loan loss is 27%US*ChinaNon-collateral personal lo
118、ans, compared with credit card and auto loans, are not profitable due to their small gross marginBut the risk of collateral and pledge loans are less risky, may bring profits to the bankThe market for collateral loans is small, and shouldnt be the focus for most of the banks71PD/000131/SH-MISC(97)AU
119、TO AND OTHER PERSONAL LOANS IMPLICATIONS FOR NEW ENTRANTSKey factors for successImplied strategies for new entrantsCredit risk managementDevelop risk management core processStrong relationship with key influencersIdentify key manufacturers and dealersDevelop key account manage approach to manage rel
120、ationship with themSuperior serviceFocus on improving convenience and quality aspect of the serviceDistinctive offeringTailored package Flexible repayment termSource:Interviews; McKinsey analysis72PD/000131/SH-MISC(97)MAIN PRODUCTS OF INDIVIDUAL FINANCIAL SERVICESavingss/depositsMortgageCredit cards
121、Auto loans and other personal loans Investment/insuranceInvestment and insurance markets are big and growingBut the banks are not allowed to offer investment or insurance products, therefore, they only serve as distributors and settlement service providersNew entrants should seek alliance opportunti
122、es with investment and insurance firms73PD/000131/SH-MISC(97)HUGE MARKET FOR INSURANCE AND INVESTMENT IN CHINAInsurance balanceRMB billions19941995199619971998CAGR 25.8%Personal investment balanceRMB billions* Including securities, pension and mutual fundsSources:China Information Bank, McKinsey ana
123、lysisCAGR 9.6%1998 1999 2000 20012003200274PD/000131/SH-MISC(97)BANKS ROLE IN INVESTMENT AND INSURANCE MARKET IS DISTRIBUTOR AND SETTLEMENT/CLEARNACE SERVICE PROVIDER.BanksInvestment/insurance-related services providedPartnerEverbright Bank of ChinaCollect insurance feeCo-issue card*China Life Insur
124、ance Co.ICBC Beijing BranchProvide old age/child care/education insurancePin AnMerchant BankBuild up online securities system: card/bankbook holders can sell/buy Shenzhen and Shanghai stocks online. Other services include transfer fund between security and savings accounts, information inquiry, clea
125、ringCCB/COB/ABC Beijing BranchOffer education/pension insuranceChina Pacific* Not yet launchedSource:China Information BankBanks role DistributorSettlement/clearing service75PD/000131/SH-MISC(97)BECAUSE BY REGULATION, BANKS CANT OFFER THEIR OWN INSURANCE/INVESTMENT PRODUCTRegulationsTrust Investment
126、Applicable BanksSeparate trust from banksSeparate investment from banksSeparate securities from banks, except T-bond and corporate bank proxyDisassociate trust & investment companies from banksTransfer governance of trust & investment companies to local government or relevant institutionsICBCABCBOCC
127、CBPermitted but not widely exploitedUse bank cards for FOREX tradingForbidden or restrictedInvest in stock/future market Exploit “alternative clearing channels” to provide cash advance, overdraft to securities institutions“Loosen” credit control over corporate, and lend money to corporate for them t
128、o play the marketSources: China Information Bank76PD/000131/SH-MISC(97)INVESTMENT/INSURANCE MARKET IMPLICATIONS TO NEW ENTRANTSKey factors for successImplied strategies for new entrantsLeverage insurance company and investment firms customer baseAlliance with insurance/investment companiesDistributi
129、on of their productsCo-marketing cardsLink each others products (e.g., automatic premium payment from savings account)Share customer informationCross-selling to each others customer base77PD/000131/SH-MISC(97)RETAIL BANKINGChina PFS market overviewProduct opportunity assessmentImplications for new e
130、ntrantsNew entrants need to overcome challenges in the following areasSmall customer baseLack of branch network, etc.Therefore, new entrants should adopt focused strategy An issue tree to asses strategic options could be helpful for new entrants to think through the problem78PD/000131/SH-MISC(97)CHA
131、LLENGES FACING NEW ENTRANTS IN RETAIL BANKINGTodayCorporate banking focused突破突破FutureFirst class bank with strong PFSChallengesSmall PFS customer baseSmall number of branches and ATMsLacking in standard processes and organizationLacking in core skills for retail business79PD/000131/SH-MISC(97)WHY A
132、FOCUSED STRATEGY STARTING FROM CUSTOMER SEGMENTATION MIGHT BE CRITICALMass marketWealthy, affluent upscaleMarket profit (Dm bn)Percentage of total populationIn this case, only a bank which focus on the wealthy, affluent and upscale market will be a winnerThose who focus on the mass market and those
133、who do not focus at all will be fighting a losing battleGERMAN RETAIL EXAMPLE80PD/000131/SH-MISC(97)CATER TO DIFFERENT CHOICES OF DIFFERENT CUSTOMER GROUPSServiceYoung-upstartWhite collarMature-stableMature-successConvenient and efficient servicePersonalized serviceQuality serviceProductMature succe
134、ssYoung-upstartWhite collarMature-stableSpecialized high-quality productsStandardized and high-quality productsChannelWhite collarYoung-upstartMature-successMature-stableMainly electronicMainly face-to-face interfaceInnovative productsMultiple channels* McKinsey Analysis81PD/000131/SH-MISC(97)EXAMPL
135、ES OF NEW ENTRANT STRATEGY Strategic options Develop quasi-credit card for the near term and credit card for the long term Start e-banking Develop mortgage business Become a private retail bank Description In the short run, grant overdraft without a grace period to card users, and encourage credit c
136、onsumptionAggressively issue real credit cards when the market craves for it Provide service-based telephone banking and internet banking Aggressively explore mortgage marketProvide all PFS products only to the most affluent customer segment Rationale Extremely profitable Low level competition Quick
137、 win A good opportunity to build brandA good start for building in-house credit management capability Complementary to a small number of branches A good opportunity for building a strong retail brandProfitable A must in the long run Large market Winning opportunities exist But not very helpful in bu
138、ilding the retail brand Highly competitive due to easy access to KFS Very attractive affluent segment Affluent segment under-served 82PD/000131/SH-MISC(97)ISSUE TREE TO ASSESS STRATEGIC OPTIONSWhat should be the most attractive and actionable strategic options for the new entrant?What are the retail
139、 products with best market potential for the new entrantWhats the most attractive customer segment for the new entrant?Whats the most effective sales/ service channel for customers of different productsWhat does success look like for different options?Whats the market potential for different PFS pro
140、ducts? (market size, growth and profit)How competitive is the market?Are there any regulation restrictions?What are the required skills for different products?Whats the new entrants market position?Whats the skill gap for new entrant?What are the customer segments for PFS products?Whats the size of
141、each segment (number of people, consumption, profit)?Whats the characteristics/demand of each segment?What are the key factors for success to serve each segment?Whats the gap between the new entrants current situation and KFS?How important is branch network to retail banking?How can other channels (
142、i.e. direct selling, remote banking) help the retail banking business, especially for a smaller bank?Whats the preference for different for customer segment?Whats the key success factors for developing a successful channel strategy?Whats new entrants status against these KSFs? (strengths vs. weaknes
143、ses)What are the 2 - 3 sensible strategic options? (combination of products, customers, channels)Whats the financial outlook for different options?Given the goal of the new entrant, which option provides the financial outlook that best matches the goal?83PD/000131/SH-MISC(97)HIGH LEVEL WORKPLAN Diag
144、nosis: Prioritize strategic optionsProject design: Develop detailed plan for priori-tized retail strategyProject implementa-tion: Roll-out plan for designed strategyProject progress in LOPEvaluate the attractiveness of retail banking Assess new entrants capabilities in capturing opportunitiesPriorit
145、ize strategic options Determine one or more attractive and practicable strategic optionsTimeKey activitiesEnd productsDesign product featuresMap out sales/marketing planPrioritize strategic optionsRedesign core processPlan for organization reformDevelop strategy implementation bluprintForm a strateg
146、ic plan including product, marketing organization and processImplement strategic blueprintDesign in details the overall implementation plan of strategyDesign pilot programStart to implement strategic planCome out with an overall plan of strategy implementationHave pilot program4-6 weeks 12 weeks 6-8 weeks 84PD/000131/SH-MISC(97)青苹果出品青苹果出品 必属精品必属精品http:/ / 企业管理人力资源全套企业管理人力资源全套 / 品牌策划资料品牌策划资料/行业分析报告分析报告/PPT模板模板等。85PD/000131/SH-MISC(97)
