Direct Banking model Favored by City Commercial Banks

Earlier this year, we published our 2014 “Top-10 China Banking Industry Trends” report and predicted the advent of direct banks. We were right: in a month Minsheng Bank rolls out its Chinese direct banking institution.

It is then followed by city commercial banks including Bank of Shanghai, Bank of Chongqing, Bank of Baoshang and China Resources Bank of Zhuhai.

A “direct bank” is a bank without a branch network which offers its services remotely through online banking, telephone banking, ATM, VTM, mail and mobile phone. With the sweeping success of internet finance, it is clear that this distribution channel will only increase in importance for financial institutions. The business model of Chinese direct banking seems to be favored by city commercial banks, which have been restricted for regional businesses from the beginning, a binding factor inhibiting their growth. However, direct banks are beyond the regional restriction. Due to the unique feature of direct banks, we believe such banks have a growth potential.