Roland Berger recently issued a report titled Consumer Finance: A New Era for Retail Consumption. The report analyzed the potential of China’s consumer finance market, and how retail companies should develop business plans to capitalize on these new opportunities. This report shows that with the upgrade in product quality which individuals are consuming, the changes in consumer structure, and the implementation of favorable policies, the consumer finance asset balance (mortgage excluded) is expected to grow from nearly 5 trillion RMB in 2015 to 15 trillion RMB in 2020, with a compound annual growth rate of over 26%. Empowered by this scenario and big data-based advantages, retail companies are well positioned to tap into this trillion-RMB consumer finance market.
Consumer finance refers to micro-credit and short-term funding services provided to individuals or families for consumption purposes. China’s consumer finance is still in its early stages. In 2015, China’s consumer finance market size to GDP ratio was only one third of the United States’; and consumer credit accounted for 20% of the total consumption expenditures, both lower than Korea’s 41% and the United States’ 28%. By the year 2020, China’s individual consumption expenditure is estimated to reach 43 trillion RMB, and for every 1% increase thereof would create a 43 million RMB market. With the upgrade of consumption patterns driven by higher personal income and the liberalization of consumption concepts fueled by younger consumers; China’s consumer finance market is showing immense potential.
According to this report, the major players in the consumer finance market fall into three categories: a financial stream consisting of commercial organizations and financial institutions, an industry stream originating from industry groups, and an e-commerce stream originating from e-commerce businesses. Among the three categories, e-commerce players, represented by Ant Financial Services and JD Finance, possess a competitive edge not only in collecting and using big data but also in converting online consumers into consumer finance customers. Consumer finance, as retail companies’ most strategic measure, could become the new driver behind profit growth, while helping to stimulate demand and consumption, expanding retail operations, increasing customers’ adhesion, and enhancing overall competitiveness.
The report shows that retail companies will enjoy access to the mentioned consumer scenarios, a substantial customer base, multi-dimensional user data and solid channel management. These all have natural advantages for consumer finance operations, and all have access to significant development opportunities. Operations of these consumer finance companies need to consider the following three aspects:
Firstly, research in demand and precise positioning, referring to fully understanding the most urgent problems and financial needs of customers, is the priority for consumer finance operations. Secondly, data collection and usage: before operating financial businesses, retail companies should take advantage of collected data to implement a risk management data field into their retail business. These retailors should work to uncover and integrate new data in a creative manner so as to establish a unique and efficient data system. Thirdly, these businesses should work to enhance financial expertise and follow the development patterns of finance.
Banks and other financial institutions have accumulated vast amounts of professional financial experience, which enables them to quickly make up for retail companies’ weakness in financial competence and experience. The retailors can leverage such complementary financial know-how and their own strong suits - customer base, channels and scenarios, thereby facilitating the speedy launch of operations. Meanwhile, cooperating with financial institutions is not only a process where retail companies can gain experience in financial business and build up their own capacity, but also lays out a viable path into the financial sector.
Based on experience and business cooperation, retail companies need to plan their licensed businesses step by step based on their own financial strategies, taking into to full account their strategic paths, business requirements, application feasibility and other various factors. Retailers need to apply for
This report analyzes the potential of China´s consumer finance market and provides suggestion on how retail companies should react to seize new opportunities.
