The changing landscape of the retail bank industry, amid and beyond Covid-19
Since the launch of ‘through-train’ and QDII scheme in 2007, Hong Kong has served as a gateway for the wealthy Mainland households to invest in the global financial market, and for the global financial institutions to tap into the growth of this second largest economy in the world. Such status is now being called into question. The pandemic has facilitated the power shift but the larger picture tells us more.
Covid-19 has undoubtedly caused some turbulence in the retail banking industry. The two pillars of retail banking, insurance and investment services, have been critically challenged. Regulatory measures of the financial service and the insurance industry require mainland customers to show up in person to buy products and insurance policy, and the border restriction between Hong Kong and mainland China has caused a plummet of sales. For example, prior to the pandemic in 2018, new individual business for insurance policy issued to mainland visitors has generated a total of HK$47.6 bn premium, amounting to 4.7% of all direct individual new business in 2018. In 2021, the figure dropped to HK$0.69 bn, amounting to only 0.1% of all direct individual new business.[1] In 2022, there is a gradual easing of the face-to-face requirement across the financial sector and industry players are also actively developing ways to engage their customers online. More and more investments products could now be sold over recorded phone calls. However, the change of the retail banking is not a typical remote- is-the- new-normal covid story.
In time of crisis, many of the industry players are upping their game to expand their cross-border business. Banks are increasing their sales target which has created tremendous pressure on the front line staff. Many of the relationship managers are being forced into performance-improvement-plan (PIP). Foreign banks, including a British bank notably, have been particularly ruthless in putting staff on PIP and letting them go. On the other hand, they are hunting down high-performance sales with 15-40% salary increment. Why is that happening?
The reason behind all these is the Cross-boundary Wealth Management Connect (WMC) in the Guangdong- Hong Kong-Macao Greater Bay Area (GBA).[2] As part of the GBA integration policy and a milestone in China’s financial market liberalisation, WMC was launched in September 2021, allowing Mainland, Hong Kong and Macao’s resident to invest in respective banking systems with the flexibility to open and operate cross-boundary investment account directly. Foreign banks, having less branches than Bank of China and other state-backed Chinese banks, are disadvantaged in this scheme as the scheme still requires investors to visit a local branch to open an account.[3] Some foreign banks, such as Citi Hong Kong chose to team up with Chinese banks to maximize their investor base[4] while other banks such as Standard Chartered Hong Kong chose to rely on the attractiveness of their products and a robust sales team.[5] With an initial quota of RMB300 bn of total fund flows through WMC, foreign banks need to act quickly to keep up their share of the southbound market.[6]
[1] https://www.ia.org.hk/en/infocenter/statistics/quarterly_release_of_provisional_statistics_for_long_term_business.html
[2] https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/wealth-management-connect/
[3] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/bank-of-china-s-hong-kong-unit-aims-at-more-mainland-clients-via-wealth-connect-66440586
[4] https://hongkongbusiness.hk/retail-banking/news/citi-hong-kong-cgb-team-offer-wealth-services-under-wealth-management-connect
[5] https://hongkongbusiness.hk/retail-banking/news/standard-chartered-hong-kong-launch-wmc-services
[6] https://www.reuters.com/lifestyle/wealth/china-kick-off-long-awaited-wealth-connect-wrapping-hk-macau-2021-09-10/
