Differentiation Strategy Is Key to the Survival of Community Banks
Recently, nearly 1,000 community bank licenses were issued by the China Banking Regulatory Commission (CBRC) to institutions including China Minsheng Bank, Ping An Bank and Industrial Bank. The green light for community banks signals the regulatory body's approval of a new approach, which features a greater orientation toward communities and small and micro businesses.
In order to win greater market share, community banks ought to adopt a strategy of differentiation, which can set a community bank's products and services apart from the likes of Internet finance, traditional bank branches and other community banks.
Community banks should exert their advantages as brick-and-mortar outlets and use Internet finance as a supplement. Representing a specialized type of bank, community banks also face a loss in clients and profitability in the wake of the Internet finance explosion. In spite of this, brick-and-mortar bank branches still boast vital significance in meeting clients' personalized and differentiated needs. They still play an irreplaceable role in interactions between banks and clients such as opening up accounts, purchasing financial products and consultation on those products.
Take Wells Fargo, an American banking and financial services company, for instance. Not only does it have the best community bank network, but also the most advanced e-banking system. For Wells Fargo, e-banking and mobile banking are a supplement to its community banks, rather than a replacement. China's community banks have much to learn from this when it comes to taking Internet finance technology to their advantage.
Compared with now-ubiquitous conventional branches, community banks should be more flexible. Freed from the need to target large-sized companies, they should focus on the financial service needs of local micro businesses, small and medium-sized enterprises, local households and farmers. Instead of diverting deposits raised in one region to another, they should use local deposits to support local economic growth.
Capitalizing on their relative agility, community banks should offer customers a better deal by getting rid of complicated procedures and providing simplified, quick and efficient services. Moreover, community banks should have a greater awareness of local market fluctuations and the individual needs of their customers than traditional large banks, so as to offer more targeted and customized financial services to clients. This will make them stand out from the competition.
Differentiated products and services are the key to profitability of community banks. Such products and services will attract various groups of clients, create new market segments and uncover more business opportunities. Wells Fargo has over 80 client-centered business units, covering all major financial service needs over the different stages of a customer's lifetime. This is a major differentiation advantage compared to its rivals.
Here in China, differentiated products and services by community banks are still in the initial phase. China Minsheng Bank is formulating an overall plan for community finance by interviewing clients, analyzing data and studying the property information of residents in the targeted communities. Information gathered will be used to determine opening hours, functions of its equipment, and financial products offered. Bank of Beijing will set up direct-selling community banks where investors can reach customer managers via telephone 24/7 when opening accounts and signing investment contracts.
Shang Fulin, Chairman of the CBRC, pointed out that banks need to adopt accurate strategic positioning based on their comparative advantages and resources. The products and services provided by community banks should be more targeted and differentiated. In short, the quality of those products and services has to outweigh their quantity.
This is an edited excerpt of an article published in the Economic Information Daily
Growth in industrial profits in China during the first five months
48 bln yuan
Amount of money that the Ministry of Finance has allocated from the central budget to subsidize ecological functional zones
Number of passengers that have travelled on the Qinghai-Tibet railway, the world's highest plateau rail track, since the route opened in July 2006
Number of users of Internet financing product Yu'ebao, which is jointly provided by e-commerce giant Alibaba and Tianhong Asset Management
Number of smartphones that electronics maker Xiaomi Corp. sold in the first half of 2014, a year-on-year jump of 271 percent
Increase in Chinese tourists to Sri Lanka in the first half of 2014
"Overcapacity is a prominent problem in China, but it hasn't appeared in the high-speed railway sector. As long as there are sufficient demands, there won't be overcapacity. In China, more people travel and they will choose high-speed due to their rising income. The ongoing process of urbanization will also create more demand for high-speed railway."
Cao Yuanzheng, Chief Economist of the Bank of China, speaking at a press conference on July 3
Email us at: firstname.lastname@example.org