Non-bank competitors seeking to enter a sufficiently large market, with healthy margins, increasingly digital savvy consumers, and a fluid market landscape providing opportunities to gain market share, should look no further than China.
- The higher net interest margins in China, relative to regional peers, offers room for non-bank entrants to undercut the prices of the incumbents and still make a profit or a least break even. In contrast, the wafer-thin margins being made by Taiwanese incumbents would make profits significantly harder to come by.
- Incumbent banks in China have increased net operating income without significantly increasing their cost bases. This suggests they are successfully migrating customers onto lower-cost digital-only platforms. For a non-competitor this is good news, because Chinese consumers are becoming accustomed to digital-only banking; this is helpful to non-banks because it will lower customer acquisition costs. Moreover, it will make persuading new customers to trust and switch to non-bank brands easier due to their growing familiarity with digital-only platforms.
- The dominance of the top 10 incumbents makes it easier for smaller non-bank competitors to take market share from a few big players than it would be if the market was fragmented with more medium and smaller players, which would be likely to defend their customer bases aggressively. In addition, the amount of market share transfer indicates that the Chinese market is relatively fluid, with customers used to switching providers. Some of the market transfers will be down to M&A activity, but nonetheless it still indicates that there is the opportunity to gain market share.
Source: GlobalData’s Global Retail Banking Analytics
By Sean Harrison, Retail Banking Analyst