The number of wealthy Chinese is rising quickly, creating enormous opportunities for banks that can understand their investment needs
Report on Private Banking in China 2012, a joint study conducted by China Minsheng Bank and McKinsey & Company, was released at an event in Beijing on October 26. Drawing on in-depth research into China’s personal wealth market, the behavior of high net-worth individuals (HNWI), and an analysis of China’s private banking sector, the report provides a new approach to segmenting HWNIs and offers insights into customer needs and the product and service strategies that are likely to appeal to them.
600 quantitative questionnaires and 100 face-to-face customer interviews were conducted over a 5-month period. The report provides in-depth analyses and forecasts of the market size and growth potential of the HNWI segment in China, with detailed insights into their demographic and financial profiles, wealth management needs, investment objectives, and key buying factors. The report also identifies a number of challenges China’s private banking providers face in developing profitable customer relationships, as well as opportunities for improving customer service by deploying a more granular customer segmentation approach.
According to the report, total global private banking assets will rise from US$35 trillion in 2010 to US$53 trillion in 2015, with Asia representing the greatest growth potential. By 2015, private banking assets in Asia (not including Japan) will grow to US$11 trillion, rising at a compound annual growth rate that is more than double that of North America. Asia will become the second-largest wealth market after North America, with 50% of growth coming from China. The report estimates that the pool of HNWIs will expand at a 20% compound annual growth rate in the next 3 years, reaching 2 million people by 2015. According to the report, China’s HNWIs display several distinct characteristics:
1. China’s HNWIs are mostly composed of males between the ages of 40 and 60, and are predominantly business owners, with 73% being entrepreneurs or corporate executives in privately-owned companies.
2. China’s HNWIs focus on wealth accumulation and preservation as their primary wealth management objectives. Their asset portfolios are dominated today by real estate and basic financial products, accounting for 31% and 26% of their asset allocation, respectively. 62% of HNWIs want to increase the share of innovative products in their investment portfolio, such as trust products and private equity investment. 57% of HNWIs want to increase their overseas investments.
3. Key buying factors of China’s HNWIs include financial product selection, investment advisory, channels, and convenience, convenience, value-added services and financial product pricing. 44% of HNWIs say that product selection is their primary buying factor, while 23% of HNWIs say their primary buying factor is investment advisory.
4. China’s HNWIs can be further categorized into 6 segments according to their demographic characteristics and investment needs. Nearly half of HNWIs are “traditional wealth preservers” and “amateur investors” that consider financial product selection as the primary buying factor; 30% are “professional innovators” and “savvy business owners” that value investment advisory the most; the remaining 20% are “gold collar elites” and “business first investors” who value channels and convenience most when selecting a private banking provider.
Competition in China’s private banking will become more intense. While currently, market players offer similar products and services, going forward, private banking players will need to expand their product scope and develop unique value propositions by improving investment advisory service, providing customized value-added services, developing proprietary and remote channels, and optimizing pricing structure.
The report provides a comprehensive overview of the financial behavior and preferences of China’s HNWIs. By helping local financial players understand customer needs better and provide better products and services, the report aims to facilitate the development of China’s private banking industry.