Bank digital transformation, endless frontier

Digital transformation is a new arms race between banks. It has a deeper connotation than financial technology, is more closely integrated with business, and has a higher strategic level. ICBC’s ECOS, CCB’s TOP+, China Merchants Bank’s Great Wealth Management, and China Everbright Bank’s Digital strategies such as Digital Everbright have lofty ideals, leading them to the endless frontier. At the end of 2020, the transaction size of China's food delivery market was 835.2 billion yuan. In 2010, this value was 58.5 billion yuan; China's online food delivery revenue accounted for approximately 16.6% of the national catering industry revenue. In 2015, this proportion was only 1.4%.

Those who do not seek the overall situation are not enough to seek a corner; those who do not seek the entire world are not enough to seek a moment.

Digital transformation is a new arms race among banks. It has a deeper connotation than financial technology, is more closely integrated with business, and has a higher strategic level. ICBC’s ECOS, CCB’s TOP+, China Merchants Bank’s Great Wealth Management, and China Everbright Bank’s Digital strategies such as Digital Everbright have lofty ideals, leading them to the endless frontier.

Where does the bank's digital transformation come from? What exactly is it? Where to go?

There are a thousand answers to this question for a thousand people. This article starts with the development of China's digital economy, combined with the operating situation of the banking industry, and deeply reflects on the misunderstandings that banks should avoid in digital transformation, hoping to inspire research on this issue.

The digital economy is born from problem solving

The digital economy is not mysterious and tall, because there are some pioneers who are willing to use digital means to solve the fundamental problems that restrict consumption, achieve the perfect match of demand and resources in the two dimensions of time and space, and transform low-frequency business into high-frequency Business, realize the process reengineering of the traditional economy, and create the twins of the traditional economic process in the digital space.

In 2020, China's online retail sales accounted for 24.9% of the total retail sales of consumer goods, and in 2010 this proportion did not exceed 5%. The proportion has risen sharply because e-commerce has solved the consumer's peace of mind in online shopping, completely overturned the retail shopping experience, and achieved low-cost product matching problems for millions of merchants and hundreds of millions of consumers. For example, the first in the industry to provide readily accessible online digital customer service-"Shop Xiaoer", from the creation of third-party payment to ensure transaction security, to the introduction of return insurance to reduce the return cost of users and merchants, to the creation of digital logistics to optimize orders Fulfillment experience, these all improve customer satisfaction in an all-round way.

In 2020, China's online car-hailing passenger traffic accounted for approximately 36.2% of the total taxi passenger traffic, and in 2015 this proportion was only 9.5%. For example, if you use Didi Travel, you can reach the designated location within 5 minutes by car-hailing. Didi Chuxing solved the problem of mismatch between demand and supply in the two dimensions of time and space through digitalization. In 2012, there were many IT engineers living in Beijing’s Huilongguan, Shahe, and Changping, but the efficiency of rental information service platforms such as 96106 was very low. Engineers often couldn’t get a taxi. Beijing has a population of 20 million, 69,000 taxis, and very private travel resources. Scarce. Didi Chuxing broke the taxi-hailing action into 18 sub-steps such as entering a location, calling a taxi, determining the best meeting location, and online payment, and digitized the entire process. At present, Didi has covered taxis, express cars, special cars, and other scenarios, with 15 million active drivers and 377 million active users.

At the end of 2020, the transaction size of China's food delivery market was 835.2 billion yuan. In 2010, this value was 58.5 billion yuan; China's online food delivery revenue accounted for approximately 16.6% of the national catering industry revenue. In 2015, this proportion was only 1.4%. Take Meituan as an example. Meituan has built a display platform for hundreds of millions of merchants for 6 million catering merchants, and provides supporting services such as payment, acquiring, small and micro loans, and purchase loans. It has also created a location-centric offline fulfillment system for users. Through the O2O real-time logistics and distribution intelligent dispatch system, the perfect digital connection of merchants’ meal preparation, traffic conditions, weather conditions, and rider’s historical delivery performance is realized. The cost of each order is in 2019. It has been controlled at 4.71 yuan a year. As one of the representatives of offline catering, Haidilao hot pot is also advancing with the times. Now it has realized that a full set of hot pot tools can be delivered home by express delivery, and the tools will be collected after users have finished eating hot pot.

Online shopping, online car-hailing, takeaway... all these are actually the digital economy. The enlightenment of the development of the digital economy is:

(1) The problem you want to solve must be the most urgent and real existence of consumers, not a demand out of imagination;

(2) To be able to provide consumers with a reliable, measurable and controllable service experience;

(3) Realize the most efficient and lowest cost matching of requirements and resources.

According to data from the China Academy of Information and Communications Technology, China's digital economy will reach 39.2 trillion yuan in 2020, accounting for 38.6% of GDP. The rise of the digital economy has not only profoundly reengineered the industrial chain process and created a brand-new value distribution platform, but also profoundly affected the structure of the financial market. Third-party payment has completely defeated online banking with complex processes. Mobile payment apps have replaced bank cards as the main offline payment tool. Online consumer loans have become a more frequent credit payment tool than credit cards. Baby-based financial management has opened the first year of Internet financial management. . So, what are the profound changes in banking?

The digital economy drives bank transformation

In the era of digital economy, banking business strategies have undergone profound changes.

Offline contraction. The development of the digital economy has promoted the electronicization of banking business, and has also promoted a significant increase in the rate of bank off-counter transactions.

In 2020, the total amount of off-the-counter transactions in the banking industry reached 2308.36 trillion yuan, a year-on-year increase of 12.18%; the rate of off-the-counter transactions in the banking industry was close to 90%, which was only 54.37% in 2012.

Over the past ten years, the off-counter transaction rate has increased by 36%. This has led to a reduction of 40,000 ATMs across the country in 2021, and the closure of 6,275 bank outlets in 2020. Based on this, it is estimated that after 10 years, bank outlets will be closed. decrease very much.

The disappearance of outlets does not mean the disappearance of offline services. For example, Internet banks such as WeBank, Internet Commercial Bank, and Jiangsu Suning Bank are all starting to go offline. Among them, WeBank provides offline small and micro due diligence and risk investigation services through the offline team of cooperative banks; Internet commercial banks have begun in-depth cooperation with county governments to open up rural financial markets; Jiangsu Suning Bank has fully adopted offline and online methods Small and micro-finance customers who have difficulty in online applications are interviewed, and PAD is used to realize paperless input data, electronic credit contracts, and image credit data. Based on manual offline visits, these difficult customer groups are subject to online manual approval.

"Weaning" online. Beginning in 2019, the online banking business of banks has entered an era of strong supervision. Local corporate bank deposits and loans are not allowed to cross regions, deposit products are not allowed to be marketed through non-self-operated online platforms, and Internet platforms cannot sell wealth management without permission. This will promote banks to build self-operated financial products, build self-operated network channels, and independently carry out digital acquisition of customers. It will also promote product innovation. Of course, it may not be a brand-new product, but may be a brand-new reconstruction of an old product. For example, Nanjing Bank N Card is positioned to be a credit card that has temperature, understands life, can socialize, can keep accounts, and is more interesting. You can apply for it through the WeChat applet.

Loans migrate from C-side to B-side. In 2020, bad credit card and consumer loan business of banks are on the rise. Take China Merchants Bank as an example. In 2020, the non-performing loan rate of China Merchants Bank's consumer loan business was 1.47%, an increase of 0.29% year-on-year; the non-performing loan rate of credit card business loans was 1.66%, an increase of 0.29% year-on-year. Because the scale of consumer loans and credit cards is particularly large, a slight increase in the non-performing rate will bring a large amount of non-performing loans. Now, banks are transforming towards small and micro finance for small B and industrial chain finance for big B.

Intermediate's business bears the banner. Intermediate income business contributes non-interest margin income, that is, intermediate business income, which can enhance the ability of banks to resist cycles. However, the intermediary income business requires much higher personnel professionalism than the traditional deposit, loan and foreign exchange business.

Many banks are already expanding their mid-receipt business. For example, the Industrial and Commercial Bank of China is committed to ICBC e-government; China Merchants Bank's "big wealth management system" expands fund, wealth management, trust and other agency services, while developing public fund, insurance and wealth management custody services; CCB creates "Yu Nong Tong" Expand rural comprehensive financial services; Chengdu Bank develops debt financing instrument underwriting business.

Return to the local economy. After the cessation of cross-regional business, regional banks will firmly return to the local area and seek their own differentiated characteristics from the local economy. For example, Guilin Bank's tourism finance, Jining Bank's Huiji Life, Changshu Bank's Nongnongxiang products, etc.

Financial technology tends to be pragmatic. Now banks no longer have to call it ABCD, and no longer do "financial technology in annual reports." Fintech must be able to open the scene ecology and have business awareness and recognition.

In order to adapt to changes in the general environment, many banks have begun to explore digital transformation, but it is easy to fall into the following misunderstandings.

Misunderstandings of Bank Digital Transformation

Misunderstanding 1: Focus on tactics and ignore strategy

Digital transformation is a systematic project, and it is a project that requires several managements of the bank to complete. If you lack an in-depth understanding of digital transformation, and lack in-depth thinking in combination with local businesses, you can easily fall into tactical diligence and blind attempts, and use tactical diligence to cover up strategic laziness. Banking is a service industry. The first thing the leaders need to think about is what continuous value our strategy can bring to customers, what direction our team is going to continue to build customer-oriented value, and unite the strength of the whole bank at all levels. Struggle for it.

Misunderstanding 2: Pay more attention to advancement than applicability

Nowadays, some small regional rural commercial banks have less than 20,000 business transactions in half a year, but they have to deploy the most advanced distributed database in the B-side business. They think that joint-stock banks have developed distributed databases, and they want to follow suit. They think that this is digital transformation, but it is a waste of resources and does not contribute much to business development. Traditional databases are sufficient to cope with the scale of transactions of rural commercial banks. Nowadays, there is a very popular term called "economically applicable men", and technology is the same, not so advanced, "economically applicable technology", just enough.

Misunderstanding 3: Major data technology is lighter than small data analysis

Nowadays, banking institutions attach great importance to big data technology. Technology platforms such as Hadoop, Spark, Flink, and Storm will be deployed in the system, which can support calculations on the scale of tens of billions of data. In fact, let's think about it calmly. We are not e-commerce or Internet platforms. Will there be such a large-scale data? Often, we ignore the most important "small data" and ignore the analysis of small data. For example, the monthly transaction scale data of a product or a user for 10 years may be completed by traditional Excel or SQL. If it can be passed It is even better if BI tools realize the visualization and automation of analysis. Analyzing small data is the greatest help to the business.

Misunderstanding 4: Focus on investment and light on product

Now compare the financial technology strength of banks, like calculating the proportion of technology investment in bank revenue, comparing the number of IT personnel, and comparing the proportion of IT personnel in the bank's bank staff. This has some meaning, but it doesn't make much sense. Low-value high-input is not as good as high-value low-input. The most important thing is that scientific and technological investment must be able to form a solid product, not a product term that stays in the PPT and annual reports, but a product that can be used continuously by internal users or external users. China Merchants Bank is a good example in this regard. China Merchants Bank has consistently built online platforms, including "Wealth Companion", "MGM Platform", "Retail Credit Cloud Extension Factory", "Suidaitong", "Video Realization", "Lending" and other tools, through pragmatic products Empower the account managers of China Merchants Bank for business development.

Misunderstanding 5: Focus on function and light on interaction

There is only a bank APP, not digital, and it needs deep-level and high-frequency interaction with users. One bank invested 30 to 40 million yuan in outsourcing to develop a bank app. The result is no different from other bank apps, with only a few thousand downloads. A big bank actually developed 17 apps and put them in the app store for users to download. The user ecology is very fragmented. The interaction between APP and user is more important than pure function. A function that allows users to remember deeply and continue to use it is more important than ten functions.

Misunderstanding 6: Focus on KPIs and light on user value

Driven by KPI alone, true digital transformation cannot be achieved. User value is the most important thing. Abrupt changes in user value can bring about exponential growth of KPI. The WeChat red envelope launched by WeChat in 2015 perfectly combines Chinese culture and user value, achieving a record of 200 million tied cards during the Spring Festival. Through KPI, we may force the following people to do it, which will generate a certain KPI, but we can't match the huge contribution to the business brought by the creation and breakthrough of user value.

Misunderstanding 7: Re-pull the new business and neglect the business

Nowadays, banks attach great importance to customer acquisition, but once customers come in, they seem to seldom take care of them, and they are even less concerned about customer follow-up new service needs. The author is a payroll card customer of a large state-owned bank. Except for the enthusiasm of the account manager when applying for the card, the other time I don't feel the "warmth" of this bank at all. Later, I was going to go abroad to apply for a credit card that was used overseas at the bank. The bank’s account manager locked it in the cabinet for a month and forgot to apply it for me. In banks with very powerful financial technology, even with powerful digital tools, it is not good to use them in this mentality of focusing on new businesses and neglecting business operations.

Misunderstanding 8: Focus on development and light on integration

The value of financial technology and digital tools must be fully integrated with the entire business process to form a contribution to the main channel business. At present, some banking departments blindly launch new projects in the name of innovation, regardless of their contribution to the main channel business. As a result, a lot of manpower and financial resources are wasted. The head of the science and technology department of a city commercial bank once told the author that they have purchased and developed a lot of tools, but they can't be combined with or integrated with the business process. They cannot form the value contribution of the whole process and become a bunch of toys on the shelf.

Endless frontier

At the end of the Second World War, Wannevar Bush published "Science: Endless Frontier" (Bush Report for short). This report regarded the development of science and technology as an American war. A core task of post-construction was proposed, which pointed out the direction for the development of American science and technology after the war, became the blueprint and milestone of American science and technology policy, and established the dominance of American science and technology.

The digital transformation of the banking industry also has endless frontiers. This road is full of hardships, there will surely be winners, but also full of losers and losers.

The most frightening thing is that in the era of digital economy, losers may not be defeated face to face by the enemy, but ruthlessly abandoned by the whistling tide. The digital economy has put forward unprecedented requirements for the digitization and efficiency of the internal and external connections of banks. A slow step will become the yellow flower of yesterday. After the bank realizes digitization, it can easily become any form, extend its business space in various digital economy scenarios, and continue its life. Those banks with incomplete digitization or fake digitization will lose nutrients and gradually wither due to the decreasing ecological connection.

(The author is Sun Yang, a senior researcher at Suning Institute of Finance)


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