Old cash habits die hard

Despite the problems and alternatives, Chinese consumers still prefer cold hard cash

By Craig Phillips

Historically, a “queue” in mainland China was associated with the hairstyle enforced by the Manchu people more than 500 years ago. Today, a queue in China may be just as coercive, but more synonymous with standing in line – usually in a retail bank.

The Manchu introduced a “queue-order” in the 17th century, commanding the conquered Han Chinese to cut the hair at the front of their heads and turn their remaining hair into a long pigtail – those who didn’t were punished by death. Today, anybody who has waited in line in a Chinese bank to make a simple transaction – sometimes for up to two hours – may feel just as maltreated as the Han!

However, new research by Beijing based dragondata reveals part of the problem faced by retail banks in China is the slow adoption rates of new non-traditional payment methods by consumers.

What you don’t know you won’t use
A lack of education and trust in relation to evolving bill payment options such as credit cards, and online and SMS channels means that many banks are at a loss as to how they can reduce the number of people still flocking to their branches to make cash payments.

The dragondata research of 2,000 people found Chinese consumers generally haven’t heard of third-party bill payment companies and/or don’t know how to use many of the non-traditional payment channels now available to them.

In fact, only one in 10 consumers were aware of third-party bill payment companies (11.8 per cent). Those with the greatest awareness were aged between 25 and 39 (17.3 per cent awareness).

Despite the low levels of awareness, 38.5 per cent of people, and almost one in two people aged between 25 and 39, would consider using a payment service to pay all their recurring bills.

A service provider's credibility was the greatest factor in determining whether a consumer would consider using a service (45.1 per cent). The least important factor, according to 39.7 per cent of respondents, was the service provider’s customer service.

The research suggests that young professionals and other time-poor consumers could be a potential target for any provider looking to enter this space.

Willing to pay
Almost half (49.1 per cent) of all those who said they would use a payment service also said they would be prepared to pay a fee for it.

Older generations are the least prepared to pay for such services – only one in five of the small number who said they would use a service also said they would be prepared to pay a fee for it.

There was reasonable acceptance of prepayment if the money was held with a bank. However, general issues of credibility and trustworthiness would need to be overcome.

Cash still king
Cash remains the dominant means for consumers to pay their bills. The banks do offer, in some instances, the ability to pay via other non-traditional means, yet consumers continue to pay cash – 47.5 per cent of people who pay their bills with cash said they do so because it is universally accepted.

But close to a third (28.8 per cent) of respondents said they pay cash because they have no choice.
The extent people still pay their bills with cash implies a potential opportunity for any provider entering the market to introduce a new non-traditional payment method. However, there are serious awareness and education issues involved in doing this.

Uphill battle
A group of Chinese bank executives interviewed as a part of the research revealed the ideal payment channel in the future would be a non-traditional channel, but that consumers continue (in large numbers) to make physical cash payments despite the inherent problems of doing so.

The problem for Chinese banks is that traditional payment methods are highly inefficient and extremely labour intensive.

As a result, banks are missing out on opportunities for tellers and other staff to focus on more profitable business and cross-selling opportunities such as wealth management.

The bank executives portrayed a sense they’d run out of ideas for increasing the pace of people adopting non-traditional methods of paying bills.

Meanwhile, almost half of all respondents usually pay for their recurring expenses straight after receiving a notice to pay a bill.

From a biller point of view, two out of three people (61 per cent) think billers should build more relationships with banks, so that they can pay bills in a more “one-stop-shop” manner.

Craig Phillips is head of market intelligence at brandmanagement. dragondata is a fully owned subsidiary of brandmanagement.