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Don Weinland

What is the point of a digital bank if you have to show up in person to set up an account?
That is the question China's more than 20 "direct banking" operations have faced since the first one opened in 2013.
Direct bank customers should be able to establish accounts remotely and access banking services without ever showing their faces at a branch. At least that is the global definition for the service.
In China, banks have been allowed to set up direct operations but have not received the regulatory approval to sign people up remotely.
Direct banking customers can make deposits and transfer funds to other accounts in the same bank. But regulators have maintained a strict stance on how customers set up real accounts.
Those who want real bank cards that can be used to make online purchases still need to provide their identification in person at a physical branch.
This is about to change, though.
As the first "internet bank" launches on the mainland this week, regulators are set to allow customers to set up online accounts remotely, a move that should open many still-restricted direct banking services.
The People's Bank of China said in an internal notice this month that it would allow online accounts, according to mainland media.
That announcement comes hand in hand with the opening of Tencent Holdings' WeBank, China's first internet bank, which launched in Shenzhen yesterday.
If deregulated, the direct banking market in China could see rapid development, experts said.
Celent, a technology consultancy, said in a report this month China had 30 million potential direct banking customers, a figure that could double by 2020.
Driving that growth was not necessarily advances in technology, said Zhang Hua at Celent in Beijing. Rather, it was the social changes that had driven people online. For example, the increasingly high cost of setting up brick and mortar shops, as well as a stronger desire to shop from the comfort of home.
"In China, the major driver is not digital. In fact, Chinese banks already have good digital channels," Zhang said. "The drivers are the social transformation."
Despite not yet having clearance to run full direct banking businesses, more than 20 banks have launched operations that at least resemble them, starting with Bank of Beijing in 2013.
The list has grown since to include several major national commercial banks such as China Minsheng Bank, Industrial Bank and Ping An Bank, as well as many regional banks in Ningbo, Lanzhou and Chongqing.
The four biggest state-owned banks are notably not on the list but Industrial and Commercial Bank of China has said it plans to set up a direct bank this year.
Not surprising then that smaller banks have pushed into this segment of the market the fastest. Many regional banks, especially those in the far west, struggle to collect adequate deposits due to geographical isolation and the dominance of major state banks, some with tens of thousands of branches.
Direct banks should help small banks surpass these obstacles, experts said.
"Being able to open accounts through a mobile phone or online removes a significant barrier for small or medium banks in attracting customers and deposits," said Zennon Kapron, the managing director of Shanghai-based financial services consultancy Kapronasia. "They previously struggled to compete with the massive branch network of the larger banks."
Smaller banks would still face challenges in leveraging their limited capital bases and balance sheets to adopt the technology needed for a direct banking system, Kapron said.
Another problem for direct banks could simply be getting the masses to bank differently. A survey conducted last week by one Hebei provincial newspaper showed many Chinese still had reservations about remotely setting up a bank account.
"It's hard to change the habits of people here," said Erin Lee, a Shanghai-based analyst at Yuanta Securities. "That's why I don't think this will grow very fast at first."


Direct banking services still face challenges in China

WeBank, the mainland's first internet bank controlled by Tencent Holdings, was launched in Shenzhen yesterday. Photo: Imaginechina

Business

Banking & Finance

Launch of first internet bank expected to pave way for online accounts and other services but sector sees problems in attracting consumers


.css-sioo19{color:#c79a00;}New | Direct banking services still face challenges in China

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Launch of first internet bank expected to pave way for online accounts and other services but sector sees problems in attracting consumers

New | Direct banking services still face challenges in China

Launch of first internet bank expected to pave way for online accounts and other services but sector sees problems in attracting consumers