Mainland Chinese banks lag global rivals in digital investment, says McKinsey

PUBLISHED : Monday, 21 November, 2016, 7:56pm
UPDATED : Monday, 21 November, 2016, 9:47pm

Mainland Chinese banks are lagging far behind their global rivals in investing in the digital technology needed to compete in a challenging industry landscape with evolving client demand and fierce competition from fintech companies, an industry report said on Monday.

Many mainland banks devote less than 1 to 3 per cent of their income to technology and digitalisation, while leading global banks on average invested 17 to 20 per cent of pre-tax income to embrace the digital era, McKinsey & Company said in a banking report.

“Chinese banks should set aside designated capital on hi-tech and digitalisation to make sure that such investment won’t be affected by short-term performance,” said McKinsey.

Han Feng, an associate partner at McKinsey, said the digital era for China’s banking industry has arrived.

“Transformation and innovation will have an overarching impact on the future business model of the banking industry,” she said. “We believe that the future winners will be those that take action quickly by making use of the first-mover advantage, and are persistent in pushing ahead with transformation of traditional business and committed to arranging for digitalisation.”

Data showed that mainland banks face challenges brought about by game-changing fintech companies in the areas of savings, lending and payment, the report said.

In 2015, about 2 trillion yuan (HK$2.3 trillion) of bank savings were siphoned off into internet wealth management, more than double the 900 billion yuan in 2014.

Peer-to-peer lending, though under tighter regulatory scrutiny to curb illegal fundraising, also grew rapidly and took market share away from banks’ lending business.

On the payment front, third-party online payments accounted for 38 per cent of bank card transactions used for consumption in 2015.

McKinsey advised mainland banks to enhance their incentives to employees to encourage innovation, keep alert to technology developments, and learn from the internet giants by acting more swiftly when it comes to policy decisions.

Mainland banks also lag behind in early-warning systems in information technology and professional hiring, training and retention of people to track and discover bad loans, the consulting firm said.

Profit growth for the mainland’s 17 listed banks tumbled on average to 1.9 per cent in 2015 from 12.8 per cent in 2013, according to McKinsey.

Mainland banks are expected to follow their global rivals in cost controls, including further trimming of employee headcount at physical bank outlets to adapt to the shift from offline to online banking, as well as the growing need for mobile banking, the report said.

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