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Forget the bank branch, go digital

China’s banking sector is set to experience a significant transformation with the launch, earlier this month, of the country’s first pure digital private bank known as WeBank, owned by a consortium of shareholders led by a Chinese internet giant Tencent.

Nesbert Ruwo

Tencent’s market capitalisation stands at about US$150 billion. A pure digital bank is a bank with no physical branches or call centres that is only accessible via computers, smartphones and/or tablets.

WeBank, whose business scope includes personal banking, corporate banking and international banking, will offer “small” loans of less than Chinese Yuan Renmimbi 1 million (approximately US$160 000) to SMEs, many of which are underserved by larger state-run Chinese banks.

Up until now, the Chinese banking sector has virtually been state-owned through China’s “big four” — the Agricultural Bank of China, the Industrial and Commercial Bank of China, the Bank of China and the China Construction Bank. The launch of WeBank is expected to “lower costs for and deliver practical benefits to small clients, while forcing traditional financial institutions to accelerate reforms”.

WeBank was initially capitalised with CNY3 billion (about US$480 million). Tencent, maker of the WeChat — the most popular app in China — is the largest shareholder in the online bank with a 30% stake. A South African media giant, Naspers Limited owns a 35% stake in Tencent.

WeBank has one of the five online banking licences issued by the China Banking Regulatory Commission. Other Chinese internet giants Alibaba and Baidu were among the licencees.

While the trend has been towards online banking, most banks have embraced some level of contact-less banking, mostly in the form of telephone banking and banking apps. The launch of M-Pesa in Kenya in 2007 underpinned the development of mobile money transfers.

Local and regional banks have followed with their own form of money transfer services. In Zimbabwe, CABS has Textacash, FBC goes with Mobile Moola while Barclays does it with Cashsend. In South Africa each of the big five banks has its banking app that serves as a “bank on the go”.

Even mobile telephone operators Econet and Telecel have their own money transfer services, EcoCash and Telecash respectively. EcoCash bank integration promises that “those who have existing bank accounts can move money in and out of banks without entering a banking hall, or without speaking to a teller”.

The 2012 BAI World’s Most Innovative Bank, South Africa’s FNB, has seemingly one of the most integrated online banking system in South Africa, which integrates key services that clients would normally require.

FNB’s online banking platform is integrated to the companies’ registrar (CIPC), South African Revenue Service (Sars), and provides integrated accounting and payroll systems.

I am sure that Zimbabwean entrepreneurs will find this quite handy if this integration is available in the local market. With an FNB banking app or online banking, you can search and pay your traffic fines, perform forex transactions or send money locally and across borders.

You can even play lotto. Everyone would love to see such innovation among Zimbabwean banks.

In as much as smartphones have integrated a phone, a messaging capability, an email box, a camera and applications (apps) that perform virtually any function we require, integrated digital banking could be the slow death knell for conventional banking branch model.

Globally, banking is increasingly migrating to mobile and online platforms. A 2014 McKinsey survey found that more than 70% of Chinese consumers would consider opening an account with a pure digital bank, with nearly 70% of Chinese consumers saying they would consider a pure digital bank as their primary bank.

Accenture’s 2014 UK Financial Services Customer Survey shows that 25% of UK customers would consider using a pure digital bank. The WeBank announcement is a reflection of the new norm. ICT companies that are cash rich, with loads of customers and influence are emerging as the providers of products and services that most people cannot do without.

Apple, for example, will be able to leverage its unencumbered cash reserves of over US$150 billion, technology and 800 million plus credit cards stored in its iTunes on its new payment offering, the ApplePay.

With much of modern daily life going digital, it’s not surprising to see Econet, like other technology companies such as Apple, Google and Tencent, expand its reach into new business areas. It is minting cash, it has the telecoms platform, it has the subscribers and it has a banking licence through Steward. It will leverage its communication platforms in offering other services from financial services (EcoCash, EcoSure, and EcoFarmer) to fleet management (Econet ConnectedCar).

On the other hand, conventional banking could be on its way out. In the USA, SNL Financial’s 2014 third quarter, numbers show that bank branch closures were heading for a record year as the industry trims down and services get increasingly electronic. A similar trend is being experienced in the UK, where the British Banking Association states that footfall in branches is falling roughly at 10% per annum, while transactions on mobile platforms doubled in 2013.

The new model for banking allow clients to conduct the transactions of their choice through the channel of their choice any time, any place and on any mobile device. After all, it’s cheaper to service a client on a mobile channel than servicing a client at a branch.

Nesbert Ruwo, CFA is an investment banker based in South Africa. He can be contacted on nesr@opportunvest.co.za

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