China has completely revolutionized the banking industry in the last decade. Today, there are about 30 domestic banks competing for consumer business. As a good example, within five minutes walk from my office building, there are at least 12 bank branches, and I've heard complaints from almost everyone about the excessive direct mails regarding banking products.

In the big picture, foreign entrants like Citibank and HSBC have been operating foreign currency business here for many years, and will be allowed to open up retail business in local currency by next year, which will trigger another round of competition.

Now some sound bites about the current status of China's banking offerings:

Bank is Bank and Bank Only

It is important to understand that the current regulations in China does not allow a bank to offer insurance or brokerage products, so a bank is a bank and a bank only. A typical bank's consumer offering usually involves checking accounts, saving accounts, certificate of deposits, credit card, lending and limited money-market like investments. Banks, however, frequently partner with brokerage firms and insurance companies to offer product packages.

Lack of Personal Check Is a Drag

Although checking account is among the core offerings, there is no personal check per se. Access to checking accounts usually includes ATM, deposit/withdrawal at bank branches, or debit-card-based purchase. For one thing, it is probably cost prohibitive to enforce the security of personal checks -- it is so easy to produce counterfeit copies of whatever products in China. In mny judgment, the lack of personal check is sometime iconvenient, but is not necessarily a bad thing if, down the road, every merchant will honor debit or credit card. After all, personal check usage in the States is also in the decline and it is fair to say a paperless payment era is coming.

Online Banking Is Good Enough

The automation of consumer banking in China is no less advanced than that in the States. Everything from transaction tracking, transfer between accounts, opening CD, online bill payment, inter-bank transfer, and many other things can be done online.

Furthermore, banks in China adopt more security measures when it comes to online bankings. All US banks I tried, including Citibank, Bank of America, E*Trade and Fidelity, all rely on plain username and password (and HTTPS protocol) to provide security, whilst the several Chinese banks I used all assign electronic certificates to customers upon account opening and use custom built Java programs to provide online banking interface.

Online Bill Payment Is A Breeze

In particular, online bill presentataion and bill payment is a wonderful experience in Shanghai. A showcase example is Shanghai Payment Gateway, or SHFFT, a local government sponsored online bill payment site that can provide 1) online bill presentation for all utility bills (water, electricity, gas, home phone, cell phone, cable TV and internet, and 2) real time bill payment from the top 11 domestic banks. To some extent, the monopoly and ensuing limited number of providers in each category allows easier bill presentation implementation, but still, I should say online bill payment here is somewhat more convenient than back in Seattle.

To be continued (and preview below):

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