Further Strategic Planning Is Crucial for Financial Integration in China's Greater Bay Area, Oliver Wyman Principal Says
DATE:  Feb 22 2019
/ SOURCE:  yicai
Further Strategic Planning Is Crucial for Financial Integration in China's Greater Bay Area, Oliver Wyman Principal Says Further Strategic Planning Is Crucial for Financial Integration in China's Greater Bay Area, Oliver Wyman Principal Says

(Yicai Global) Feb. 22 -- China's State Council released the development plan for the Guangdong-Hong Kong-Macao Greater Bay Area. We believe this plan will bring more opportunities to financial institutions and market.

First, the financial institutions in the bay area already have solid foundations on integration. Public data shows that more than 10 Hong Kong and Macao based banks have set up about 30 branches in 21 cities in Guangdong province while banks from China's mainland account for one-third of the banking institutions in Hong Kong.

In the meantime, financial institutions will benefit from the development plan of the bay area. The development plan emphasizes key development objectives, such as 'Building an International Financial Hub,' 'Developing a Characteristic Financial Industry,' and 'Orderly Promoting the Interconnection of Financial Markets' in the chapter 'Expedite the Development of Modern Service Industries.'

Among them, "Orderly Promoting the Interconnection of Financial Markets" is of great significance and will bring opportunities for market development. For example, there are several financial institutions that are applying for Hong Kong virtual banking licenses, which are anticipating to eventually establish a presence and provide services directly to customers in other regions of the bay area outside Hong Kong.

Notably, the value of financial institutions lies not only in the development of an integrated business across the borders, but also in opening up new possibilities for financial institutions to explore alternative operating models. For example, global and Hong Kong-based financial institutions could set up region-wide operations and technology-shared service centers in China's mainland.

The market is generally most keen to understand how the government and regulators coordinate different systems. We believe that financial institutions should also actively explore other business issues of effective development in the bay area. The

Area demonstrates the characteristics of "One, Two, Three, Four," meaning One Country, Two Systems, Three Customs Zones and Four Core Cities, multiple regulatory agencies and systems, and onshore and offshore fund separations. We believe that the challenges of the development of industrial opportunities are not limited to this. When the details become clearer, the real competitive advantages will lie in in-depth understanding of the nuances in commercial environment across the Greater Bay Area. We will further interpret that from the following two aspects.

Customer's Understanding & Proposition

Taking virtual bank applicants in Hong Kong as an example, while there are ambitions to eventually cover all customers across the entire bay area region, customers are inherently different across geographies and this must be considered in the strategic planning.

First of all, core needs from customers across the nine mainland cities would probably be gaining the access to offshore and integrated banking, insurance and wealth and asset management services, which they cannot fully receive under today's service model. On the other hand, the core needs of Hong Kong's customers where the banking industry is well developed are improvements of user experience, as well as a reduction in hassles when selecting and optimizing amongst a range of available financial products.

Secondly, cultural differences and language preferences may also imply that it is necessary for virtual banks to interact with customers in different ways to develop a digital-savvy and intimate client relationship. Taking payment methods as an example, while QR codes have become the default payment mechanism in Guangdong, recent studies have indicated that people in Hong Kong still prefer other payments such as Apple Pay and Samsung Pay, on the back of a well-established credit card network.

Organization and Management

If integration is the key, the question to be resolved naturally is how to run the region as "one business" and get different parts of the business to interact and collaborate with each other.

One key challenge to overcome is on the organizational level. Nowadays, financial institutions with footprints in Guangdong, Hong Kong and Macao operate separately. Taking a typical Chinese bank as an example, their branches in Guangdong report to local subsidiaries for the province which then report to the headquarters, whereas Hong Kong and/or Macao would be managed by separate teams. This means that these businesses do not necessarily operate as a unit, and it is worth it for financial institutions to consider how to break through such, given the huge potential and collaboration required as intended for a well-played GBA strategy.

In addition, this will require future management teams to have broader capabilities and know-how about both the local Chinese market as well as those in Hong Kong or Macau, which represents fairly different business practices, culture and landscape.

(Jasper Yip is a Principal in the Financial Services practice in Oliver Wyman's Hong Kong Office. Jasper has worked with various corporate and institutional banking clients and private equity firms across Greater China and South East Asia.)

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Keywords:   Greater Bay Area,China State Council