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Individual Retirement Accounts: A New Battlefield for Commercial Banks

Dec 01-2022   



Documents released by China Banking and Insurance Regulatory Commission on November 18 showed that 23 commercial banks and 11 finance management firms comprise the first lot of financial institutions permitted to offer individual pension account business. For traditional banks, this entails both opportunities and challenges to their retail business, according to a commentary by Shen Shaowei, Chief Fund Investment Analyst of Fullgoal Fund, and Prof. Huang Zhuo of the NSD.

 

By end of 2021, only around 10% of clients still went to physical bank branches for services while 90% used online banking. As a result, a large number of bank branches will have to undergo transitions or simply shut down. Another challenge for banks is a lack of professional competence to meet the clients’ investment and wealth management needs, pointed out the two authors.

 

Catering to individual retirement accounts is likely to accelerate retail business transformation of traditional banks, which, according to current regulations, are the only financial institutions for individual investors to open their accounts with. Each person can only have one account and few are expected to shift their accounts from one bank to another, something allowed by the law. Another advantage for commercial banks is that they are the only ones permitted to sell the whole range of financial products targeting individual retirement accounts, thereby offering one-stop convenience to clients. Moreover, commercial banks can tap their corporate clients to scale up the opening of individual retirement accounts, said the authors.

 

The challenge, though, lies in the product and service homogeneity among commercial banks. As such, they will have to upgrade from the traditional sales-centered model to a new one spanning investment consultancy and services. Another hurdle to cross is to make investors accept market fluctuations at a time when rigid redemption has been banned. Therefore, investor education is of great importance to instill the idea of long-term investment. Lastly, the banks will have to coordinate and harness resources across functional departments to create appeals to individual investors through professional investment consulting teams and service systems. All the more so given that the business might not contribute handsomely to their bottom-line numbers as each client can only invest a maximum of 12,000 yua per year, said the authors.

 

Individual Retirement Accounts: A New Battlefield for Commercial Banks

Dec 01-2022   



Documents released by China Banking and Insurance Regulatory Commission on November 18 showed that 23 commercial banks and 11 finance management firms comprise the first lot of financial institutions permitted to offer individual pension account business. For traditional banks, this entails both opportunities and challenges to their retail business, according to a commentary by Shen Shaowei, Chief Fund Investment Analyst of Fullgoal Fund, and Prof. Huang Zhuo of the NSD.

 

By end of 2021, only around 10% of clients still went to physical bank branches for services while 90% used online banking. As a result, a large number of bank branches will have to undergo transitions or simply shut down. Another challenge for banks is a lack of professional competence to meet the clients’ investment and wealth management needs, pointed out the two authors.

 

Catering to individual retirement accounts is likely to accelerate retail business transformation of traditional banks, which, according to current regulations, are the only financial institutions for individual investors to open their accounts with. Each person can only have one account and few are expected to shift their accounts from one bank to another, something allowed by the law. Another advantage for commercial banks is that they are the only ones permitted to sell the whole range of financial products targeting individual retirement accounts, thereby offering one-stop convenience to clients. Moreover, commercial banks can tap their corporate clients to scale up the opening of individual retirement accounts, said the authors.

 

The challenge, though, lies in the product and service homogeneity among commercial banks. As such, they will have to upgrade from the traditional sales-centered model to a new one spanning investment consultancy and services. Another hurdle to cross is to make investors accept market fluctuations at a time when rigid redemption has been banned. Therefore, investor education is of great importance to instill the idea of long-term investment. Lastly, the banks will have to coordinate and harness resources across functional departments to create appeals to individual investors through professional investment consulting teams and service systems. All the more so given that the business might not contribute handsomely to their bottom-line numbers as each client can only invest a maximum of 12,000 yua per year, said the authors.