Research & Analysis

China: A New Paradigm in Branchless Banking

While many banked people already use mobile banking in China,the country also has the potential to emerge as an important success story for branchless banking and financial inclusion and potentially a new paradigm. The story will be very different from those of the markets in Africa, which are dominated by large mobile network operators (MNOs). China will likely draw instead from a convergence of forces coming from banks and financial institutions, as well as from innovative technology companies and internet giants providing payments, e-commerce, and social networks that link low-income people to the digital super highway, providing access to markets, services, and information.

Despite dramatic poverty reduction over the past 20 years, more than 100 million people still live under the poverty line in China, nearly all of them in rural areas (World Bank n.d.). However, while China wrestles with many of the same challenges and constraints that other nations face, a number of critical factors are aligning to set the stage for breakthroughs and new potential models in branchless banking and financial inclusion for the rest of the world to consider. This paper is based on desk research, interviews, and field research conducted over the course of 2013. It examines a confluence of key factors contributing to China’s evolving story, including the needs of clients, enabling infrastructure, the role of regulation, and finally retail branchless banking experience. The analysis holds that a number of forces are converging that appear poised to drive branchless banking outreach.

In terms of findings on clients’ demand, a large majority of people in China have access to a bank account, but people in the poorest and most remote communities are often excluded. The high level of banking penetration is largely driven by low-barrier access to accounts and strong government policy that allows government transfer payments and subsidies, such as agricultural subsidies and medical insurance reaching over 900 million people ( n.d.), to be channeled through bank accounts. While the Chinese population is relatively well-banked compared with those in many developing countries, it still has one of the largest poor and unbanked populations in the world measured in absolute terms.

The Chinese population faces significant challenges related to the disparity between rich and poor, massive internal migration, and an aging population. There are also great opportunities since the Chinese show a rapid adoption of technology, including internet, mobile, and smart phones, which gives the average Chinese greater access to services, markets, and information than ever before. In this environment, with 1.104 billion mobile phone subscriptions estimated to cover 84 percent of the population (Butani 2012), there is a great opportunity to leverage technology to address the large economic divide between urban and rural areas, in particular when it comes to financial inclusion.