How e-financial services could change the game of Chinese retail banks

Is there a cause for alarm?

As the age of digitisation gains ground in the Asian banking sector, more banks will move quickly in building their own e-systems over the next few years that could potentially threaten traditional financial services.

In China, the rapid development of electronic systems and technology has given birth to a new area – electronic financial services (EFS).

According to Barclays Research, EFS development is likely to impact retail business and payments in the near-term.

“In the payment area, third-party payment companies may directly compete with banks in the acceptance business in China, potentially eroding card fee income for banks. In the retail business, more investment products from online could compete away retail
deposits.

While online lending is relatively small now, we believe it has the potential to penetrate into individual-business lending (ie, traditional banking business). However, we expect the overall negative impact to be mild in the medium-term.

Traditional financial services – ie, deposit taking, lending, payments, brokerage, insurance and investment – can now be provided by various entities via different electronic channels, including mobile phones, computers and the internet,” Barclays said.

This so-called shift in retail banking has been supported by a separate study conducted by global analyst Ovum:

"Retail banking has been undergoing a structural shift since the financial crisis, the repercussions of which continue five years later,” says Daniel Mayo, practice leader, financial services technology, Ovum.

“However, the sector now appears to be moving into the next phase, driving a new set of priorities or strategies, with a focus on revenue growth, and making customer-centricity key.”

Ovum’s ICT Enterprise Insights also said retail banks will spend more on IT infrastructure.

"The digitisation of retail services will continue, creating ongoing security challenges and requiring investment to balance user experience with robust security.

However, the key technology shift will be the incorporation of analytics into business processes at an operational level, particularly in the areas of risk, marketing and operations.”

But despite the potential mild negative effects of EFS, Barclays pointed that this new service forces FIs to change the way they offer traditional financial services, and on the other it provides theopportunity for other companies to get involved in new types of financial services.

Barcays said: “In China, we are increasingly seeing a trend of internet companies (eg, Alibaba) and technology companies (eg, China Mobile) becoming involved in providing different financial services.”