Lenders can bank on innovation for future growth

Consumers have increasingly high expectations of financial services, and banks that can innovate fast enough to keep up with their demands are the most likely to succeed, according to Boston Consulting Group on Thursday.

Speaking at the release of a report on banking sector innovation, David He, principal of BCG and head of the China Financial Services Institute, said that through the emergence of cross-industry challengers, Chinese consumers have learned much about the ideal customer experience.

"The overall expectation of the consumer base has been raised," He said. "So, for traditional financial institutions, whoever can satisfy consumer expectations first will gain the biggest market share."

Digital finance is where traditional financial institutions will be most challenged but also where the biggest opportunities lie.

The report surveyed 1,800 banking and insurance customers across all income and age spectrums in 14 cities, and found that digital awareness in the financial sector is vast.

In terms of basic payment functions, 95 percent of respondents said they had used the Internet to pay for items bought online and that 86 percent have used mobile phone credit.

More impressive is the rate at which consumers have adapted to new innovations in services.

One example is the electronic red envelopes, an app rolled out by Tencent Holdings Ltd during Spring Festival that lets people give money as monetary gifts on mobile phones. About 19 percent of respondents said they used the function over the course of six days.

Another innovation is the use of online payments for offline merchants, such as taxis, that had a 32 percent penetration rate.

The growing sophistication of consumers means that digital finance, while posing challenges, also presents the opportunity for banks to "reshuffle their cards", said He.

BCG predicted that the consumer finance market would undergo explosive growth, driven by growing receptivity in an under-penetrated market, along with the increasing purchasing power of consumers and accompanying government support.

The report, however, uncovered a knowledge gap among consumers in terms of trying out new things.

Of those who had never experienced consumer credit, only 50 percent said they would likely apply for a loan or an installment plan. Among those with prior experience, 80 percent said they were willing to try it again.

But An Xiaoyu, founder of loan products service provider Zhengedai.com, said many qualified applicants do not know where to get a loan.

As a former loan officer at a major joint-stock commercial bank, An started Zhengedai.com to offer guidance to consumers desiring loans.

"Many people turned to intermediaries when they felt it too troublesome to get loans from banks because of their complicated formalities," An said.

Such shortcomings are the challenges that traditional institutions have to overcome.

"BCG believes the integration of online and offline services will be a trend for consumer finance going forward. Consumers can inquire about products online before making the transaction offline because people still prefer face-to-face interactions," He said.

Zheng Yangpeng contributed to this story.

muchen@chinadaily.com.cn