China Report Financial Services Reputation of
REPUTATION OF FINANCIAL SERVICES CHINA REPORT Foreword 3 Key Takeaways 4-5 Economic Outlook & Consumer Attitudes 6 Perceptions of Financial Services 9 Attitudes of Risk 13 Consumer Concerns & Choices 14 Financial Sector Facts 17 Asset Management 18 Banking 19 Credit Cards 20 Financial Advisors 21 Fintech 22 Insurance 23 Private Equity 24 Venture Capital 25 Payment Systems 26 Trusted Financial Services Brands 27-29 About North Head 30
Finance is the lifeblood of the real economy. Serving the real economy is the duty of finance. It is the purpose of and the fundamental measure of finance to prevent financial risks.
--Xi Jinping, President of PRC, National Financial Work Conference，June 2017
Throughout this survey report: ‘China’ refers to the mainland of the People’s Republic of China, ‘Hong Kong’ refers to Hong Kong Special Administrative Region
2 FOREWORD
The 2008 financial crisis was a watershed moment for the reputation of financial services around the world. In North America and Europe it was a period characterised by bail-outs and institutional insolvencies while ushering in the “Global Financial Crisis (GFC)” or “great recession.”
However, in November 2008 China launched the “great stimulus”. This ensured that most of East Asia was only tangentially affected by the GFC. Ten years ago China represented 6% of global GDP, while today it is close to 16%. But success was achieved by reliance on debt which impacts the Chinese economy to this day.
China’s financial services industry did not suffer the same kind of deep, long-term John Russell reputational damage that occurred in the US and the EU. Still, the legacy of the crisis Managing Director and efforts to mitigate its worst effects live on. North Head Leverage and shadow banking are now being addressed through campaigns to reduce financial risks and tackle indebtedness. The regulatory tightening and liquidity squeeze are creating headwinds for financial institutions and narrowing options for policy-makers.
Nonetheless, efforts to modernise and open-up the financial system continue, creating opportunities for both foreign and domestic investors. While some financial sectors remain underdeveloped, the industry has seen rapid growth and transformation overall. The sophistication of its fintech ecosystem is unmatched elsewhere. Consumers are early adopters of technology, leapfrogging from cash to digital payments and savings accounts to digital wealth management.
The rise of an affluent class, demographic trends, and opening-up of China’s financial services market point to a strong growth outlook for the sector. Yet, a stream of negative publicity has hurt the image of financial services, including defaults of peer-to-peer (P2P) lenders, data breaches, stock market volatility and fraudulent practice by asset managers.
Trust and reputation emerge as priority attributes. This survey bears important practical guidelines for those seeking to win over increasingly sophisticated Chinese consumers in a fluid and increasingly competitive marketplace. The index also shows that trust levels vary significantly across different sectors and consumer groups, with particular concerns and sensitivities quite different from other markets in the region.
I hope the findings will be useful to companies and individuals working in financial services in China. But more so, I hope they highlight where greater focus is required and what companies need to do to advance their reputations.
3 KEY TAKEAWAYS
Overall, North Head’s survey paints a positive picture. Young optimists & old cynics 83% of Chinese consumers had a favourable perception Chinese consumers were more polarised in their of the industry. However, there is a large variation of attitudes to financial services. Younger people trust levels across specific financial sectors. Notably, under 35 were more positive than in other markets, payment systems (96%) had the most positive views, while those over 40 were more negative than their followed by banking (87%), and credit cards (83%). At peers elsewhere. Younger consumers believe that the other end of the spectrum, venture capital (60%) financial services have improved their reputations in and private equity (52%) funds have significantly lower the past decade, primarily due to more regulations levels of awareness, trust and reputation. and transparency. Older people were more likely to Institutions trusted rather than their people believe that financial services have not become more trustworthy and that where there was progress it was Financial institutions are more trusted than individuals due to more competition. working within financial services. Bankers in China are lowly ranked, compared to police, lawyers, journalists, Data security paramount concern, then honesty and government officials which all scored higher. Those Data security is the top concern of Chinese consumers financial sectors dependent on individuals providing when dealing with financial services. Almost half (48%) advisory services such as accountants, insurers, were most worried about data theft, a much higher wealth and asset managers are generally viewed less level of concern than in Hong Kong (23%). Protection favourably. Securities and equity markets are seen and use of data weighed most heavily on consumers’ as high risk, constituting a weak link with detrimental minds for banks, credit cards, and payment systems. reputational effects for a number of sectors such as insurance, asset management and private equity. Honesty was the second biggest concern for the sector as a whole, and the number one priority with insurers, Technology and fintech are “winners” financial advisors and asset managers. Over 70% Chinese consumers have fully embraced fintech. of consumers felt dishonesty contributed to overall Digital-based financial services enjoy higher levels of negative perceptions of financial services. Notably, trust than their traditional counterparts, and this was the performance of financial products was less of a consistent across all age groups. While in Hong Kong concern, ranking outside the top three for every sector. the reverse is true. Of consumers that believe financial Enhancing reputation services have become more trustworthy in the past decade, 40% feel it is largely due to digital technologies, Transparency ranked top when consumers were asked more so than in other markets. Over 90% of Chinese how the industry could enhance its reputation, with consumers believe digital financial services are as, if 68% sharing this view. Improving customer service not more trustworthy than traditional ones. 83% of (58%) ranked second. Significantly, providing better Chinese respondents think that fintech companies are rates of return on products was only third priority. reputable, compared to less than 70% of respondents Chinese consumers’ preference for high rates of return in Singapore or Hong Kong. is the lowest in the region.
4 CONSUMER ATTITUDES IN 10
92% 68% rate digital services want more either more or transparency by equally trustworthy financial firms to Criteria for choosing a financial service provider as traditional services enhance industry Most consumers felt that it was important to choose providers reputation, next is a responsible corporation (90%). Having a good better customer CEO (79%) and a strong public profile (75%) follow service as the next priorities. All of these top three factors are important components for a firm’s reputation and branding.
Regarding trusted sources of information, word 84% 66% of mouth is more important for China than other consider financial consider more surveyed markets. Friends or family (65%) or existing/ services positively, regulation as the past customers (52%) are the most trusted. Social and with younger reason why financial online media and bloggers are much less trusted than consumers most firms improved their traditional media. This hierarchy of trusted sources positive and older reputation over the has implications for marketing and communications people significantly past 10 years strategies. more negative
Conclusions and Recommendations
To consolidate positive levels of trust and build 77% 44% sustainable reputations: view investing in the variation in trust • Chinese consumers need assurance about stock and shares levels from payment “high risk,” even services (96%) to protection and proper use of data. higher than investing private equity (52%) • Actions and communications are required to with online P2P dispel pervasive fears of dishonesty and enhance platforms trust, especially for personal advisory services. Otherwise these areas are prone to technological disruption, particularly given that younger consumers readily embrace digital, fintech solutions. 74% 31% • Financial services can build trust by improving see cybersecurity of consumers have a transparency in all communications and offering and data privacy negative perception clear, simple value propositions. This may involve as their top of private equity with leveraging digital technologies. concern, followed another 17% that by defaulting P2P “don’t know” what • Caution is required for financial services which lenders and high private equity does entail equities and securities. house prices
• Tailored messaging for market segments is necessary for resonance with young, mature and older consumers respectively, based on their prevailing attitudes and preferences. 72% 26% • There should be a valuable reputation dividend cited “dishonesty” rank bankers as if companies can convert their customers into as number one very trustworthy, advocates for their brands. reason for negative well below ratings perceptions of for the police (65%) financial services and lawyers (45%) but above property agents (10%)
5 Economic Outlook and Consumer Attitudes
Brands are based on trust, customers are based on scale, management is based on risk control, and information is an integral source for a comprehensive competitive advantage. The ideal financial services company is one that provides the highest quality, best service, lowest cost, and substantial risk control.
--Jiang Jianqing, former Chairman of ICBC, July 2018
6 In 12 months from now, In 12 months from now, do you think economic do you think your family’s conditions in China will be financial situation will be better or worse than now? better or worse than now?
8% 18%
21%
15% 67% 71%
Better Unchanged Worse Better Unchanged Worse
Chinese consumers remain sanguine on their family finances and the national economy. 64% feel economic conditions are better in China than 12 months ago. Despite headwinds facing the Chinese economy, around two- thirds (67%) believe that economic conditions will be better in 12 months. The outlook for family finances was more positive, with 71% believing they will be in a better financial situation in a year’s time. Just 8% thought their family’s financial situation will be worse in 12 months.
What effect does use of technology have on reputations of financial services?
Increase of trust / 52% Chinese consumers have much higher levels reputation 21% of trust in technology than other markets. This is particularly so in comparison to developed and mature financial markets. Chinese are No change 42% “early adopters” of new technology, creating 71% challenges for incumbent market leaders and the less agile as China’s market is more prone to technological disruption. Decrease of trust / 6% reputation 9%
China Hong Kong
7 Rank occupations in terms General financial concerns of trustworthiness impacting Chinese consumers
Police 65% Cybersecurity and data 74% privacy breaches 33%
Defaulting P2P Lawyers 44% 73% lending companies 73%
Excessive house prices 72% Journalists 28% 36% Falling stock market 61% Government 27% officials 13% Defaulting bonds 59%
Bankers 26% Trade disputes 37% 53%
10% Property Excessive local 51% agents 8% government debt
Too much interference 39% from the government
China Hong Kong Lack of competition in 38% the financial sector
Ranking of occupations by trustworthiness While media and commentators focus on risks reflect reputation challenges facing financial from overleveraging and the trade war, Chinese services in China. Bankers were rated the least consumers’ top concerns are closer to home. trustworthy (27%) of six professions listed except Cybersecurity and data privacy was the biggest for property agents. Notably, police shone worry (74%), followed by defaulting P2P lenders through as the most trustworthy profession. (73%) and excessive house prices (72%). At the By comparison, in Hong Kong, bankers were other end, lack of competition in finance sectors the second most trusted profession (37%) after (38%), excessive government interference (39%), lawyers. and local government debt (51%) were less of a concern.
8 Perceptions of Financial Services
To further improve the quality of the industry and protect the lawful rights of consumers……insurance companies must not exaggerate the function of products, must not make empty promises, and must not mislead consumers…they should push out practical solutions that can improve service quality, raise the reputation of the industry, and serve our people and real economy better.
China Banking and Insurance Regulatory Commission, August 2018
9 Overall views of the financial services industry
4% Good
88% 12% 85% 84% 86% 81% 82% 76% Ages 18-24 25-29 30-34 35-39 40-44 45-49 50-55 Good 84% 9% 9% Bad 11% 10% Don’t know 16% 15% 18% Bad
Financial services viewed positively in Asia
Overall, financial services enjoy a good reputation in China. 84% of consumers rated the reputation of financial services as positive, slightly higher than in Hong Kong (82%) but below India and Singapore (90%). Views in Asia were vastly more favourable that Western markets such as the UK, where 32% of respondents rated the industry negatively. Notably, views were more polarized in China than elsewhere in the region with more people rating the financial services industry as “very bad” (4%) or “very good” (38%).
Looking at the age breakdown, consumers under 40 had a more favourable view of financial services, particularly in the 30-39 age bracket. On the other hand, the proportion of older people (40 and over) who rated the industry as “very bad” was over twice the regional average.
Reasons for negative perception of Dishonesty fuels negative perceptions financial services Dishonesty was the number one reason cited for negative perceptions of the industry (72%), by far the highest in the region. This was followed by the belief that financial service providers work Companies are dishonest 72% only for self- interest (61%) and charge too much (46%). Just over a third of people (37%) felt that Self interested 61% firms in the industry made too much profit and paid executives too much. Service charges too high 46% As elsewhere in Asia, culpability for the global Profits too high 37% financial crisis has had less of a negative impact on the reputation of the industry (11%) compared Executives paid too much 37% to Western markets. Reputation for dishonesty was found to be a Inadequate lending to small businesses 25% challenge across all age groups. All except the youngest (18-24) saw this as one of the top two Responsible for GFC 11% causes of negative perceptions. Those from 25 to 34 in particular view financial services as Companies don’t pay enough tax 7% dishonest (>85%).
In general, young people tend to feel the industry Other 7% is selfish and expensive, while older people (45- 55) are more concerned that the industry does not lend enough to small businesses (44%).
10 Has the financial industry Reasons for improvement become more trustworthy in over the last ten years the past decade in the eyes of the public?
Increased regulation to 66% protect customers
13% More transparent 63%
Increased competition 57%
Growth of digital 47% 87% services
Care more about 43% customers
Agree Disagree
Regulation and more transparency has improved levels of trust
A large majority of respondents (87%) felt that financial services have become more trustworthy in the past decade, compared to just 68% in Hong Kong.
A higher proportion of younger people think that the reputation of the industry has improved, from around 90% for 18 to 39-year-olds, falling to 75% for those above 50. The most commonly cited reason for this improvement was improved regulation (66%). This was closely followed by better transparency (63%), the highest rating in the region by some margin (50% in Hong Kong, 38% Singapore, and 53% India).
By age, it was found that younger people tend to attribute improved trustworthiness to regulation (around 70% for 18 to 34-year-olds), followed by transparency. Older people placed more emphasis on increased competition in the industry.
11 How positive are Chinese How can the financial consumers about specific industry enhance financial sectors? reputation?
Actions to enhance industry reputation (Multi answer) Payment 96% systems First priority Banks 87% Be more transparent 68% 27%
Improve customer service Credit card 84% companies when I have a problem 58% 19%
Provide better rates on their Fintech 81% products (e.g. savings rates) 54% 17%
Insurers Improve communication 73% with customers and outside 54% 15% Financial world advisors 71% Be more consistent in how 51% 9% they operate Asset managers 70% Increase range of digitally- 44% 8% based services Venture capital 60% Invest more in the community 19% 1% Private 52% equity
Broad spread of trust levels across different sectors
There is considerable divergence in the reputation of different financial sectors Better transparency and customer service wanted; less in China. Services that are familiar and concern for returns, pay levels & tax established, and those that have been Above all, Chinese consumers want to see more reconfigured by digital technology tend to transparency in financial services (68%), followed by do well. Those that depend on individual improved customer service such as resolving customer financial advisors are viewed less favorably. issues more efficiently (58%). These two priorities held Payment systems, a sector that has been consistent across age groups, though young people transformed by technology, was the stand tended to put more weight on better communication out winner with a 96% positive rating. and customer service, while older people emphasized Banks (87%), credit card companies (84%) transparency more. The motivation for high rates of and fintech (81%) also performed well. return products is the lowest in the region. Venture capital and private equity occupy Overall, respondents prioritized personal experience and the bottom two slots, reflecting their lower customer service, showing relatively little concern for public profile and a spate of negative broader “fairness” issues such as how much companies publicity in recent years. 14% of people pay in tax and high executive salaries. rated private equity as “very bad,” more than any other sector.
12 ATTITUDES TO RISK
How do consumers view risk for Broad spectrum of risk perceptions various investments? Perceptions of risk vary widely across different types of investments. Stocks and shares were seen as the most Low risk Moderate High risk Don’t know precarious, with 77% of people rating this asset class “high risk.” This is Bank deposits 90% 7% 3% significantly above the average for the region (61%). This has ramifications with Government respect to China’s efforts to establish bonds 70% 20% 9% 1% sound market management processes and for other financial sectors such as Public offered insurance, asset management, private 33% 44% 20% 3% funds equity (PE), venture capital (VC), and Real promotion of SMEs and the private estate 28% 40% 31% 1% sector more generally.
Corporate Views of P2P platforms, considered bonds 19% 49% 30% 2% “high risk” by 62% of consumers, reflect the major trust issues that next- Private offered generation services and investment 12% 35% 51% 2% funds classes face in China (55% regionally). 27% of Chinese consumers consider Online P2P/ 10% 26% 62% 2% P2P investment “very high risk” - the lending platforms same as investing in shares.
Stocks / 4% 19% 77% shares
Trustworthiness of digital vs 92% think digital services equal or traditional financial services more trustworthy
Digital considered more trustworthy
33% In Asia there is a clear divide between established and emerging markets regarding perceptions of digital services as compared to traditional offerings. 60% In China, where digital transformation has challenged inefficient incumbents and increased financial inclusion, 7% 32% of respondents saw digital financial services as more trustworthy than traditional counterparts. 60% rated them the same. By contrast, almost a quarter of consumers in Hong Kong and Singapore believe digital providers are less Equal trustworthy.
Less trustworthy This trust in digital held across all demographics. For each age group, the proportion preferring digital financial More trustworthy services was higher than the regional average.
13 Consumer Concerns & Choices
Among all challenges for the development of fintech in China, the main issue is that of trust. How can one establish a financial system, in a business environment where the financing environment is not as mature and as time-tested as it could be, that everyone can trust? In this case, what is most important for business is risk management.
--Andrew Yao
Professor of Information Sciences at Tsinghua University and 2000 Turing Award Winner, September 2017
14 Top concerns when dealing Data security and honesty are priority issues While Chinese consumers have embraced digital with financial services innovations, it is issues around data that concern them most when dealing with financial services. Data security 48% Across multiple questions relating to different 29% aspects of financial services, data security consistently came out as the critical trust issue. Honesty 21% For financial services as a whole, almost a half 21% (48%) of Chinese consumers cite data theft as the top concern, significantly more than other Excessive risk 10% markets in the region such as Hong Kong (29%). 9% The second-ranked concern was honesty. 21% Performance 8% of respondents cited dealing with an untruthful 14% individual as their greatest worry. Notably, Financial literacy 7% performance was a lower-order concern for 14% Chinese consumers when dealing with financial services. Only 8% cited results in terms of benefits Data use 6% or returns as their top concern, considerably 13% lower than Singapore (21%), India (19%) or Hong Kong (14%). China Hong Kong As to be expected, there was some variation between different sectors in line with the nature of the service and relevant risks for each. Data Comparison of data security security is the leading concern for Chinese consumers dealing with banks, credit card and concerns payment providers. When dealing with insurers and financial advisors, honesty is most salient. 48%
29% 25% 24%
China Hong Kong India Singapore
The rise and demise of P2P investment
The success and subsequent downfall of P2P lending platforms across China has affected perceptions of similar financial services. The saga also reflects broader points about the financial system.
P2P lending platforms proliferated over the last decade, providing a link between the growing mass of funds from middle-class retail investors and small borrowers underserved by the banking sector. This growth was further fuelled by increasing smartphone penetration and adoption of fintech services.
After years of unchecked growth, regulators stepped in to tighten rules governing the sector. This saw a wave of platforms fold in 2015-16. Despite these failures, investors continued to be drawn to P2P by the promise of high returns, enticing promotions and referral bonuses. This included many mom-and- pop investors looking to boost family wealth for household investments such as education.
2018 has seen another spike of P2P lenders running into trouble as the campaign to tackle financial risk is stepped up. In the long term, this shakeout should help rationalize the industry. However, consumers that have been burnt and lost funds in the process may think twice before making such investments in future.
15 How important are the below Which information sources aspects when selecting a are most trusted for advice financial services company in about financial services? China? Multi answers Regional Multi answers Average
Friends or family 65% 5 1 %
Is a responsible 90% corporation Existing or past customers 52% 3 2 %
Has a good CEO 79% Company information sources / website 48% 3 2 % Has a high public 75% profile Independent financial advisor 45% 2 9 % Is a good employer 74% Traditional media (Newspaper, magazine, 27% 1 6 % broadcast) Supports causes I 65% Employees of a care about company 23% 1 3 % Gives back to the 64% community Social and online media 20% 1 2 % Invests in local & national 63% Independent online 12% 1 0 % sponsorships bloggers
Advertising by the company 7% 5 %
Reputation is paramount Word of mouth is king
When asked what matters when selecting a financial Compared to the regional average, Chinese consumers services company, most consumers cited choosing a place a greater degree of trust in information that “responsible corporation” (90%). Having a good CEO comes from friends and family (65%) or existing/past (79%) and high public profile (75%) also contribute customers (52%). This indicates that companies can significantly to the reputation of a financial services achieve most impact by converting their customers into company. brand ambassadors. Somewhat surprisingly, traditional media still wins more trust than online and social media sources. Firms should be mindful of this when designing marketing and communications strategies.
16 Financial Sector Facts
In cracking down on illegal fund-raising, efforts have been made to make people realize [...] that high-yield means high risk. If the yield exceeds 6%, a question mark should be noted. If it exceeds 8%, it will be dangerous. If more than 10%, the investor should be prepared to lose all the principal.
--Guo Shuqing,
PBOC Party Secretary and Chairman of China Banking and Insurance Regulatory Commission, June 2018
17 ASSET MANAGEMENT
How Chinese consumers Concerns when dealing view asset managers with asset managers
Data security 26% 13% Honesty 25% 17% Financial literacy 16% 70% Excessive risk 12%
Performance/Results 11%
Good Bad Don’t know
Good Data security ranked as the top concern for consumers 77% dealing with asset managers (26%), significantly above 76% 76% scores in Hong Kong (21%), India (14%) and Singapore 72% 66% 64% (14%). Concerns about honesty, the second-ranked 56% issue, were also the highest in the region. A quarter of people worried that the service provider would not be Ages truthful or fail to share important details. 18-24 25-29 30-34 35-39 40-44 45-49 50-55 On the other hand, concerns about performance when dealing with asset managers were notably lower than 10% elsewhere in the region. Just 11% of consumers cited 14% 15% 17% performance as the top concern, way below Hong Kong 19% (21%) or Singapore (28%). 24% 27% Bad Asset management was the sector for which consumers felt most vulnerable due to their lack of knowledge. 16% rated financial literacy as their top concern, the highest Asset management in China has come a long way since score of any financial service and also highest in the the industry was launched in 1998 when there were just 11 region. products on the market. Today, consumers can choose from a growing and increasingly complex range of almost 7,000 This indicates that consumers trying to navigate products, ranging from mutual funds and trusts to digital an increasingly crowded and complex marketplace products supported by China’s tech giants. will appreciate asset management services that provide more transparency and clearly stated value Asset management was rated positively by 70% of propositions. Where necessary, assistance or facilitation respondents, placing it in the middle bracket of financial may be welcomed to increase financial literacy. services along with insurance (73%) and financial advisors (71%). Like these sectors, perceptions of asset management are likely tarnished by a general mistrust of individuals providing financial advice. In addition, the sector is partially exposed to high risk securities.
Still, the rating for asset management was above that given in Hong Kong (61%) or Singapore (63%). Consumers under 40 had a more positive image of asset managers than their older peers.
18 BANKING
How Chinese consumers view Reputation of own bank the banking sector
2% 1% 3% Good 11% Bad
Don’t know
Good 95% 87% Bad
Don’t know
When asked to rate their own bank, the reputation score rose to a stellar 96%, the highest in the region. Even in the digital age, established and familiar bricks and mortar institutions continue to be seen as highly trustworthy by Views of banking sector their customers. by age
Good Concerns when dealing with 90% 89% 87% 87% 87% 86% banks 83%
Ages Data security 42% 18-24 25-29 30-34 35-39 40-44 45-49 50-55 Honesty 18% 9% 9% 10% 12% Performance 13% 13% 13% 15% Bad Financial literacy 11%
China’s banking sector, the world’s largest, continues to be Excessive risk 5% dominated by state-owned giants that are generally seen as safe and reliable, if not always very efficient. Unlike in Data use 5% Europe and the US, where trust in banks was severely hurt by the financial crisis, banking enjoys a solid reputation in China. 87% of respondents reported a positive view of Data issues loomed large in the minds of consumers, with banking, close to the regional average (compared to 55% for almost half citing issues related to data protection as the the UK). This strong showing is largely consistent across age top concern when dealing with banks. Data security was groups, with some drift towards more negative attitudes for the number one concern for Chinese consumers (42%), older customers. considerably higher than Hong Kong (27%) or anywhere else in the region. A further 5% of people were most worried about how their data was used.
While performance was ranked as the third biggest concern (13%), this was less of a worry compared to other markets in the region such as Hong Kong (20%).
19 CREDIT CARDS
How Chinese consumers Views of credit card companies view credit card companies by age
88% 87% 10% 86% 82% 83% 83% 6% 74% Ages 18-24 25-29 30-34 35-39 40-44 45-49 50-55
84% The positive view of credit cards was fairly consistent for consumers aged 18 to 49. Over 50s had a more ambivalent view, with 13% viewing credit cards negatively and 14% responding “don’t know.”
Good Bad Don’t know Over 50s views of credit cards in China Comparing negative views of credit cards 13%
China Hong Kong India Singapore 13% Good Bad 74% Don’t know
10% 13% 15% 19% Concerns when dealing with credit card companies
Trusted, but older consumers are more ambivalent Data security 50% Credit cards enjoy a positive reputation in China, despite their relatively low penetration rate compared Honesty 13% to markets such as Singapore and Hong Kong. 87% of Data use 12% consumers rated credit cards positively, placing credit cards as the second most trusted financial service after Financial literacy 9% payment systems. Only one-tenth of respondents had a Performance/Results 7% negative view of the sector, the lowest in the region and significantly below markets such as Hong Kong (15%) Excessive risk 7% and the UK (37%).
Notably, more Chinese consumers had no particular Data protection stood out as the top concern for consumers opinion on credit cards (6%) than anywhere else in the when dealing with credit card companies. 50% of respondents region. This was three times the rate in Hong Kong, cited data security as their top concern, more than anywhere which has the highest credit card penetration rate in else in the region and the highest score of any financial Asia. This was particularly so for the youngest (18-24) service in China except for payment systems. A further 12% of consumers and those over 45, likely reflecting less use consumers were most worried about data use. of credit cards among these age groups.
20 FINANCIAL ADVISORS
With rising wealth, a growing number of Chinese consumers How Chinese consumers are seeking financial advisory services such as accountants view financial advisors and wealth managers. The industry is maturing in terms of products, professionalization, and regulation. However, older consumers in particular retain doubts over whether they can trust financial advisors to serve in their best interests.
13% Overall, 72% of consumers reported a positive view of financial advisors, ranking the profession in between insurers (73%) and asset managers (70%). This was a more favorable 15% score than given in Hong Kong (61%). People under 40 tended to rate financial advisors more positively, with a Good noticeable cooling of views among respondents 45 years and 72% Bad older. Around a quarter of this older group rated financial advisors negatively, with another 20% having little awareness Don’t know or knowledge of this sector.
Concerns when dealing with Views of financial advisors financial advisors by age Data security 30% Good 79% 80% 22% 76% 75% Honesty 70% 15% 57% 57% Performance/Results Ages Financial literacy 15% 18-24 25-29 30-34 35-39 40-44 45-49 50-55
10% Excessive risk 8% 12% 12% 13% 16% Data use 7% 23% Bad 25%
When dealing with financial advisors, Chinese consumers differed from their peers elsewhere in the region, who Comparing positive views of ranked honesty as their top priority. Instead, the perennial concern of data security (30%) again stood out as most financial advisors important for Chinese consumers. This issue did not figure in the top three for any other market.
80% Chinese consumers still worried about whether their 71% advisor would be completely upfront with them (22%), but 65% 61% performance (15%) was graded as less of a concern – the lowest score in the region. Feelings of vulnerability due to lack of knowledge when dealing with financial advisors (15%) were among the highest reported for any financial service, just below asset management (16%).
These findings indicate that Chinese consumers tend to be risk averse when dealing with financial advisors, more China Hong Kong India Singapore preoccupied with avoiding data theft or deception rather than seeking to maximize their returns.
21 FINTECH
Consumers in China rated fintech more positively (81%) How Chinese consumers than anywhere else in the region, compared to just 66% view fintech in Hong Kong. This reinforces findings mentioned earlier that 92% of Chinese consumers see digital financial services to be as or more trustworthy than traditional alternatives. 11% Unsurprisingly, younger people that have grown up with 8% digital technologies are more trusting of fintech. Older people are somewhat more sceptical, with a spike of negative views from those over 35 and a drop off of 81% Good positive views for those over 45 years old. However, even for these age groups, positivity towards fintech was Bad higher than same-aged peers elsewhere in the region and way above the score from UK consumers (8%). Don’t know
Views of fintech by age Concerns when dealing
Good with fintech companies
85% 86% 83% 83% Data security 39% 82% 78% Honesty 16% 67% Excessive risk 12% Ages Data use 12% 18-24 25-29 30-34 35-39 40-44 45-49 50-55
8% 8% Data security was the top issue of concern for Chinese 9% 12% consumers dealing with fintech service providers 15% 17% (39%), the highest score in the region. Data use (14%) 19% also figured in the top four. These worries are perhaps Bad unsurprising given the high level of concern about data security generally in China and fintech’s reliance on Comparing positive views digital technologies and sharing of personal information. of fintech Being more familiar with fintech than their peers in the region, Chinese consumers have somewhat different 81% 80% concerns to other markets when dealing with companies in the sector. For example, Chinese consumers were the 66% 65% least concerned about being vulnerable due to lack of knowledge (9%) and only 2% said they would never deal with a fintech service provider, compared with 11% in Singapore and 10% in India.
These findings indicate that service providers investing in fintech offerings will be more successful in appealing to Chinese consumers if they can also allay concerns China Hong Kong India Singapore around data protection.
More than anywhere else, Chinese consumers have embraced a fintech revolution that has transformed the way they make payments, save, invest, and insure themselves against risk. This rapid adoption is partly due to business models that integrate fintech services into existing social media or e-commerce platforms.
22 INSURANCE
How Chinese consumers Views of insurance view insurance companies companies by age
Good
6% 83% 76% 77% 75% 21% 74% 74% 72% 74% 74% Good 73% 72% 71% 73% 67% 60% Bad Ages Don’t know 18-24 25-29 30-34 35-39 40-44 45-49 50-55
14% 18% 17% Opportunity for brands that win trust 24% 24% China’s insurance industry has a promising growth 26% 26% Bad outlook. The population is growing older and richer, while the level of insurance density and penetration Good remains relatively low compared to advanced market Regional average economies. Consumers now have more options in insuring against risk than ever before, including a Bad growing number of products from foreign companies and digital platforms. companies, older people are considerably less so. Compared to the average (73%), positivity dropped for Overall, China’s insurance industry was viewed 45 to 49-year-olds (67%) and again for those 50 to 55 positively by 73% of consumers, compared to 67% in (60%). At the same time, around a quarter of those over Hong Kong. This puts the reputation of insurance just 35 reported a negative view of the industry. The number above financial advisors and asset managers. of people over 45 with no opinion of insurance companies Unlike other markets in Asia, in China, views of was significantly higher than the regional average, likely insurance companies varied significantly by age. While reflecting unfamiliarity with insurance products among young consumers are enthusiastic about insurance this cohort.
The top concerns for insurance differed somewhat from Concerns when dealing with the relatively consistent pattern found across other insurance companies sectors. Fitting for an industry based on trust, the risk of dishonesty was the top-ranked concern (30%). This made insurance one of only two financial sectors for which data security was not the top concern in China Honesty 30% (24%), though at a level higher than other markets. At the same time, more people cited performance as a top Data security 24% concern than any other sector in China (18%).
To capitalize on the strong growth potential for Performance 18% insurance in China, service providers should think hard /Results about how to make their brands more trustworthy. This is particularly so for older demographics where there is a reputation deficit. Given the trust issues surrounding individual advisors in China, fintech solutions that reduce dependence on a human intermediary may appeal to some segments.
23 PRIVATE EQUITY
How Chinese consumers view Views of PE funds by age PE funds
Good 56% 60% 54% 53% 47% 17% 42% 34% Ages
18-24 25-29 30-34 35-39 40-44 45-49 50-55 52% Good 31% 21% Bad 26% 26% 29% Don’t know 39% Bad 41% 42%
Survival of the fittest
Private equity (PE) funds have multiplied as the sector grew rapidly over the last decade. Many small and inexperienced funds entered the market, and the sector has seen a series of high-profile scandals relating to illegal fundraising and other irregularities. In 2018, many funds have struggled to make pay-outs or dissolved amidst a more challenging economic environment and tightening under the deleveraging campaign.
This has left China’s PE industry with significant trust and reputation challenges. Just over half of Chinese consumers (52%) rated PE favourably, the lowest score in the region. Among all financial services,PE was seen as the least trustworthy by some margin. This view held across all age groups. Mistrust of the sector increased with age, with over 40s in particular taking a dim view, with negative opinions equalling or exceeding those with positive views.
The high proportion of “don’t know” responses (17%, rising to a quarter of the youngest and oldest consumers) likely reflect unfamiliarity and ambiguities about what constitutes a PE fund in China.
Concerns when dealing with PE funds
Excessive risk 23% Ranking of top concerns reinforced the finding that many Chinese consumers view the entire PE industry as inherently risky. 23% of Chinese consumers were Data security 21% most concerned about excessive industry risk, compared to a uniform score of 17% in Hong Kong, Singapore, and India. Honesty 20% Following a series of high-profile scandals in the industry, Chinese consumers Performance/ 15% are more concerned about trust than performance when dealing with PE Results funds. A fifth of respondents were most concerned that the person they were liaising with would be dishonest.
24 VENTURE CAPITAL
How Chinese consumers view Views of VC funds by age
VC funds Good 72% 67% 65% 68% 63% China Region 60% 60%
44% 38% Ages 27% 22% 18-24 25-29 30-34 35-39 40-44 45-49 50-55 15% 13% 21% 19% 24% 25% 28% 38% Good Bad Don’t know Bad 39%
China has emerged as a global hotspot for venture capital Positivity towards VC funds varied significantly by age, (VC) funds, fuelled by an abundance of capital, enthusiasm with a marked deterioration of views among consumers for tech start-ups, and a supportive policy climate. While over 45 years old. The proportion of consumers aged 45 VC funds have fostered major breakthrough firms and to 55 rating the industry as “bad” was double the rate for innovations in China, some see a sector driven by goldrush the 30 to 34 age group (19%). This divergence of views mentality and its reputation is mixed. with age was more pronounced than in the region at large. A high proportion of consumers, particularly the Our survey found that only 60% of Chinese consumers had youngest and oldest, responded “don’t know.” a positive view of venture capital. 27% rated the industry negatively. This ranks venture capital as one of the least With intense competition between VC funds and trusted of any financial service in China, though it is still market tightening amidst the government’s drive to seen more favourably than private equity (52%). reduce financial risks, reputation will become even more important for fundraising.
Concerns when dealing with VC funds
Data security was rated the top concern when dealing Data security 24% with venture capital funds (24%). China was the only 14% market in the region for which data figured in the top three concerns (14% for Hong Kong). Excessive industry Excessive risk 21% risk was ranked in second place (21%). 23% Chinese consumers prioritized honesty (19%) over 20% performance (15%) when dealing with VC funds. This was Honesty the reverse of elsewhere in the region, where performance 17% was rated as more important than honesty.
Performance/ 15% Results 18%
China Hong Kong
25 PAYMENT SYSTEMS
Payment systems enjoy a glowing reputation among Chinese How Chinese consumers view consumers. While traditional card payments are dominated payment systems by the state-backed giant Union Pay, digital payments account for a growing share of transactions as Chinese society becomes increasingly cashless. 3% 1% Payments systems had the best image of any financial service. 96% viewed the sector positively, higher than anywhere else in the region. Only 3% of Chinese respondents rated payment systems negatively, compared to 14% in Hong Kong.
The strong positive view of payment systems in China held across all age groups, dipping only slightly for over 35s. Good 96% Bad
Don’t know Concerns when dealing with payment systems Views of payment systems by age Data security 61% Good 97% 97% 98% Data use 13% 95% 95% 93% 92% Honesty 11% Ages
18-24 25-29 30-34 35-39 40-44 45-49 50-55
1% 2% 2% 74% 3% 3% 5% 5% of top concerns Bad related to data
Issues around data were by far the biggest concern for Comparing positive views Chinese consumers when dealing with payment service of payment systems providers. Data security ranked top at 61%, the highest in the region. This was followed by data use, which accounted for another 13%. 96% 91% 89% Reflecting widespread acceptance of payment systems in China, only 1% of consumer responded that they would never 83% deal with a company in this sector
China Hong Kong India Singapore
26 Trusted Financial Services Brands
“If the banks don’t change, we will change the banks”
- Jack Ma, Executive Chairman of Alibaba Group, 2011 Alipay is the world’s largest digital payment provider
27 TOP FINANCIAL SERVICES BRANDS IN CHINA
Asset Management (AM) 15 Banking (BK) 20 Credit Cards (CC) 15 Branding & Awareness: * (low) Branding & Awareness: *** (strong) Branding & Awareness: *** (strong)
Alibaba (Alipay/Ant Financial/Ali Finance/ 1 Industrial and Commercial Bank of China 1 China Construction Bank 1 Yuebao) 2 China Construction Bank 2 Industrial and Commercial Bank of China Bank of China (BOC Investment Manage- 2 3 Bank of China 3 Bank of China ment) 4 Agricultural Bank Of China 4 China Merchants Bank 3 China Construction Bank (CCBPAM) 5 Bank of Communications 5 Bank of Communications Tencent (Wechat/Tenpay/Tencent Asset 4 Management) 6 China Merchants Bank 6 Agricultural Bank Of China Industrial and Commercial Bank of China 5 7 Ping An Bank 7* Visa (ICBC Asset Management) 8 Shanghai Pudong Development Bank 8 China CITIC Bank 6 Ping An Insurance Group 8 Postal Savings Bank of China 9 China Unionpay 7 JingDong (JingDong Finance) 10 Alibaba (Ant Financial/Alipay/Yuebao) 10 China Guangfa Bank 8 Agricultural Bank of China Hongkong and Shanghai Banking Corpora- 10 Alibaba (Ant Financial/Alipay/Yuebao) 11* 9 China Life Insurance tion (HSBC) 10* MasterCard 10 China Huarong Asset Management 12 China Everbright Bank 13 Ping An Bank 11 China Merchants Bank 12 Industrial Bank 14 Postal Savings Bank of China CITIC Bank (Capital Asset Management / 12 12 The People's Bank Of China International Asset Management) 15 Shanghai Pudong Development Bank 12 Rural Commercial Bank Lufax (Shanghai Lujiazui International Finan- 13 Strong Brand cial Asset Exchange) 12 Tencent Wechat
14 Baidu (Baidu Finance) 17 China Guangfa Bank
15 China Great Wall Asset Management 17 Hua Xia Bank 17 Shanghai Bank Strong Brand 17 JingDong Finance
Very Strong Brand Strong Brand
Financial Advisory (FA) 4 Fintech (FT) 15 Insurance (IS) 15 Branding & Awareness: * (very low) Branding & Awareness: ** (medium) Branding & Awareness: *** (strong)
1 Ping’An Insurance (Group) 1 Alibaba (Ant Financial/Alipay/Yuebao) 1 China Life Insurance
2 China Guangfa Bank / Securities 2 Tencent (Tenpay/Paipai) 2 Ping An Insurance
3 Alibaba (Ant Financial/Alipay/Yuebao) 3 Jingdong (Jingdong Finance) 3 China Pacific Insurance
4 Bank of China 4 Baidu (Baidu Finance) 4 People’s Insurance Company of China
Lufax (Shanghai Lujiazui International Finan- 5 Taikang Insurance 5 cial Asset Exchange) 6 New China Life Insurance 6 Ping’An Bank 7 China Taiping Life Insurance 7 Bank of China 8 Sunshine Insurance About the Listing of Brands. 8 China Construction Bank 9* American International Assurance (AIA) 9 Creditease Respondents were asked to 10 Alibaba (Ant Financial/Alipay/Yuebao) 9 Xiaomi list up to five companies for 11 AnBang Property & Casualty Insurance each financial sector. This 11 China Merchants Bank 12 China Construction Bank gauged levels of awareness, 11 Zhongan Insurance strength of brands/reputation, 13* Metlife 13 Industrial and Commercial Bank of China and provided indications of 13 Industrial and Commercial Bank of China consumer perceptions of the 13 renrendai 13 Bank of China concentrations in each sector. 15 yirendai Very Strong Brand Strong Brand 15 qudian
Very Strong Brand Strong Brand
28 Private Equity (PE) 10 Venture Capital (VC) 10 Payment Systems (PS) 5 Branding & Awareness: * (low) Branding & Awareness: ** (medium) Branding & Awareness: *** (strong)
1 Alibaba (Ant Financial Services Group) 1 Shenzhen Capital Group Co., Ltd 1 Alibaba (Alipay)
2 JiuDing Investment 2 Sequoia Capital 2 Tencent (WeChat Pay, Tenpay)
3 Ping An Insurance (Group) 3 IDG Capital 3 China UnionPay
3 JD Finance 4 Alibaba (Ant Financial Services Group) 4 Industrial and Commercial Bank of China
5 CITIC Capital 5 Bank of China 5 Baidu (Baidu Wallet)
6 CSC Group 5 Matrix Partners China 5 Apple Pay
7 Noah Private Wealth Management 7 DCM Capital 5 JD Finance
7 CDH Investments 7 Fortune Capital 5 Bank Of China
7 Industrial and Commercial Bank of China 9 Soft Bank China Capital Very Strong Brand Strong Brand 7 China Construction Bank 9 Sinovation Ventures
9 Legend Capital
Branding & Awareness.
% consumer awareness Payment systems, banking, insurance, and credit cards had the highest levels of consumer awareness. These Strong same sectors exhibited stronger brand recognition Top 14 Branding with a number of clearly evident market leaders, 100% followed by a discernible second tier of companies, 95% and then a long tail of remaining companies with little 94% brand recognition. For credit cards, it is notable that 93% 93% 93% consumers largely link brand recognition with the 89% 89% issuing banks rather than the credit card companies. 85% 87% 85% 83% Medium Branding Fintech, venture capital, and asset management 79% 75% 76% 76% 79% constitute a middle group of sectors with lower 75% consumer recognition than the first tier. Fintech and 71% 70% VC have a small group of one to three companies 68% 68% 71% Low with recognition distinctly above the remaining sector 63% 59% 61% Branding companies. These two sectors lack tier two branded 58% companies. Asset management is different: at 113, it 55% 55% has the largest number by far of companies identified 53% 55% by consumers, but has a weak market leadership 51% 47% 47% 47% group. This pattern is indicative of a young sector in China with many recent entrants. The market has yet 40% 39% to consolidate, which would allow discernible leaders with strong brands and reputations to emerge. AM (113) FA (50) PE (55) 30% BK (61) FT (92) VC (42) Lastly, private equity and financial advisory 26% (accountants and wealth management) both have CC (51) IS (59) PS (14) low consumer awareness, seemingly less distinct leadership companies, and low market concentration. Top 2 Top 3 Top 5 Top 10 Top 15 Top 20
( ) No. of companies cited by respondents
Notable Takeaways
Brand Extension. With the growth of newer financial sectors, ownership restrictions being lowered in a number of key sectors, it will established brands from banking and insurance have moved into be interesting to see whether MNC’s can carve out a greater share of these sectors with recently created business units or joint ventures consumer brand recognition and higher reputation profiles in years to (JVs). Large fintech companies are agile in expanding their scopes come. of business. Of the top 10 listed asset managers, the first nine places consist of four banks, three fintech companies, and two insurers. Of The Rise of Fintech. For the big three fintech companies - Alibaba, the top four financial advisory firms, two are units of banks, one is an Tencent, and JD – it is not just a matter of expanding business scope insurance company, and the fourth is fintech. Payment systems and PE and vertical integration. Chinese consumers perceive them to be have similar profiles. Such extensions have the benefit of tapping into pervasive across all financial sectors. Among the eight other sectors high growth sectors while providing enhanced vertical integration. in addition to fintech, Alibaba is listed st1 in three sectors (asset management, PE, and payment systems), 2nd in financial advisory, th4 in Domestic Chinese Brands Dominate. Despite 40 years of China’s VC, and 10th in banking and insurance. The only sector where none of opening-up policy, there are few foreign brands among the list of the three are in the top 10 is credit cards, where their highest position leading brands. HSBC is alone among banks; AIA and Metlife with is 13th. insurance; Visa and MasterCard figure in the list of credit cards, while Apple Pay figures under payment systems. Soft Bank Capital and Second Wave of Disintermediation? With the readiness of Chinese Sequoia Capital made the VC list, with the latter achieving second consumers to adopt new technologies, plus the agility of the domestic place, the highest listing overall for any multinational corportation fintech industry, the conditions seem to be in place for China to (MNC). No foreign companies made the asset management, PE, lead the way to disrupt key sectors of the financial industry in the and fintech lists. In sectors where foreign investors are operating coming years. This will be achieved through a second wave of within JVs, the consumers’ default assumption has been to link the disintermediation, with changes and ramifications just as profound as enterprise to the Chinese partner with respect to branding. With those of the first wave 25 years ago.
29 North Head is one of the leading strategic communications companies in China. Given the specific characteristics of the China market, we specialise in crafting and implementing integrated communications campaigns, which are scalable and attuned to the complex, highly regulated, though rapidly growing markets of China.
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If you require further information about this survey and services which can be provided by North Head please contact:
John Russell Managing Director [email protected] 1105, Full Tower, 9 Dongsanhuan Middle Road, Chaoyang Beijing 100020
Small and micro enterprises play a very important role in the process of economic development. Formal financial institutions should become the main source of finance for small and micro enterprises. Specifically, private financing should strongly supplement the financing of micro enterprises.
--Yi Gang, Governor of the PBOC, June 2018
30 About this Survey
North Head, a strategic communications consultancy, partnered with ORC International, an international market research and business intelligence company for drafting and conducting this survey in China during Q3 2018. The respondents were adults aged 18 to 55 from tier one, two and three cities. If you require further details of the survey in China, contact Wang Chen at [email protected]
As well as China, surveys were conducted simultaneously in a selection of key markets in Asia including India, Hong Kong and Singapore. Overall ORC International surveyed 4,049 adults aged 18 to 55 from China, Hong Kong, India and Singapore, with at least 1,000 respondents per market. The data has been taken from a representative of the populations between the ages of 18 to 55 in each market. The survey results of these other markets can be obtained by contacting Kelly Johnston of MHP Singapore, at [email protected]
This research is powered by ORC International.
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