Bridging the Urban-Rural Corridor in China

In the financial inclusion landscape, remittance and payment services are of particular importance in China as more workers leave their rural homes in search of urban jobs. According to official statistics, there are 269 million migrant workers in China, an increase of 44 million since 2008.

Although many migrant workers have been able to increase their wages, they remain one of the most financially excluded population segments in China. And this is not a market held back by lack of demand. Nearly 60% of the growing number of migrant workers consistently send money home to support family members. With an average remittance of CNY 350 per month (about 56 USD), this would represent over a 100 billion USD market in yearly transaction value.

When it comes to sending money home, some migrant workers may opt to carry money home, but the majority use traditional remittances services offered by providers such as China Post or the Agriculture Bank of China, which have a presence in rural China, but are more costly and/or take a longer time for funds to arrive. New remittance services that use card-based, mobile-based or online banking technology have emerged that offer real-time transfer and lower costs. However, these services sometimes require the remitter to open a bank account, or the receiver to have a bank account or a debit card. Overall, most of the available money transfer services have at least one or more limitations:

• Documentation requirements: Migrants with a rural hukou (household registration) may not be able to open a bank account in the urban areas where they work.
• Geographic coverage: Migrants’ families may live in townships where there are limited to no financial service providers. The most recent Global Findex data shows that only 58% of rural adults have an account at a formal financial institution (compared to 82% of their urban counterparts).
• Time and Cost: Traditional transfers such as postal money orders are costly and need more time to clear. In addition, the more remote the receiver is, the higher the fees the service provider will charge.

In general, the more traditional remittance options offer greater geographic coverage and more flexibility in terms of offering over-the-counter services with limited documentation requirements, while the new remittances services offer lower costs and real-time transfer. To further complicate things, migrant workers may have difficulty navigating through misleading information and disclosures about different products and services. As a result, they may not always select the most efficient options.

On the remitters’ end, two-thirds of the migrant worker population in China are under the age of 34, an age bracket for which mobile phone penetration in China is close to 100%. Increasingly, this new generation of migrant workers is relying on mobile phones, particularly smartphones, for more than just messaging and communication. In addition, more and more Chinese consumers are becoming aware of and willing to try mobile payments.

On the receivers’ end, improved branchless banking offerings can play a significant role in closing the last mile gap in service delivery, particularly with regards to increasing agent coverage to rural areas.

The government of China is taking steps to recognize the needs and abilities of the migrant worker segment, and offering solutions to facilitate their financial inclusion. The China Banking Regulatory Commission issued a notice in October 2013 stating that they aim to “accelerate the establishment of a modern payment and settlement network that covers most rural banking institutions and promote the application of modern payment instruments such as online banking, mobile banking and telephone banking in rural areas”, as well as to “strengthen the publicity and education of financial knowledge for migrant workers and constantly raise financial awareness and enhance the capability of using modern financial instruments and products.” In March of 2014, the government of China outlined a plan to grant permanent urban hukou permits to 100 million migrant workers by 2020.

What remains a question is how private sector players will integrate into this push. What are the enabling conditions necessary for payment providers to offer appropriate, affordable, and accessible financial services to migrant workers and their families?