China Merchants Bank: The logic behind the adjustment of customer base management

This article deeply analyzes the strategic adjustment of China Merchants Bank in retail customer group management, explores the transmission mechanism of banking business operations and the principles of asset-liability management, and provides valuable insights for practitioners in the financial industry. After reading this article, you will better understand how banks can optimize their business structure through customer group management. I hope it will be helpful to you.

Recently, the first quarter reports of various listed banks have been disclosed one after another. There are basically no surprises, except for a few. It is not an exaggeration to describe it as "widespread misery."

With the fluctuation of performance, various joint-stock banks have also made adjustments to their organizational structures. At the beginning of the year, China Merchants Bank also made changes to its retail department and established a new retail customer group management department. A while ago, China Merchants Bank made minor adjustments to its account management system and brought back customers with retail AUM below 200,000 yuan to the head office. These customers are managed by the newly established retail customer group department.

In fact, behind these adjustments, there is a chain of business logic transmission, which will be discussed in more detail below.

A friend from the media wrote a report before, and asked me on WeChat how I viewed this change before publishing the article. I said I had discipline, so I couldn't comment on the situation of my bank; as for the analysis of the adjustment of China Merchants Bank, most of them were just outsiders watching the fun.

Later he continued to ask me, what do the experts think?

I didn't reply to him because I really didn't have the time to type so many words at the time. Afterwards, I didn't have the motivation to reply - just like when you receive a voice message from a friend, you reply enthusiastically with voice, but then you realize that you didn't press the voice button, and then when you want to send it again with the same status, you can't do it.

Today, this can be considered a distant response. I don’t intend to take advantage of the popularity. I write from my heart, with some thoughts and opinions, hoping to inspire you.

1. The operation of banks is based on a set of transmission mechanisms

To put it simply: balance sheet size > income statement revenue > KPI and performance system > organizational structure design > business strategy arrangement > resource input > market and customer perception.

As a banker, you need to know where you are in the business chain and what role you play. The closer you are to the source of the chain on the left, the more important your position is and the greater the leverage you can exert.

Whether it is the business department of the head office or the colleagues on the front line of the branch, they often get stuck in the specific work at hand. There is nothing wrong with working hard, but it is still necessary to look up at the sky appropriately. What we usually call "big picture view" and "global awareness" actually refers to the degree of mastery of this set of business chains.

As an institution doing business with a bank, you need to know which links in the chain have recently undergone changes at the bank so that you can accurately assess the impact on your own business.

If I were the CEO of a public fund, the first thing I would consider this year would definitely not be building an online banking team, but rather thinking that the bank currently has at least three goals in wealth management:

First, it absorbs the funds flowing out of current deposits and medium- and high-risk products. Otherwise, these funds will either go into regular bank accounts to increase the cost of liabilities or be attracted by the marketing methods of other banks.

The second is to expand the scale and reputation, and attract funds through more cost-effective fixed-income products, including both the scale of AUM and the scale of customers. The asset side of the bank is already struggling to support, and is frantically testing the edge of scale and profit. At this time, it is counting on the wealth business to add some new highlights;

The third is to achieve steady income and build on the inside. We must not only retain customers who hold positions, but also be able to make arrangements on the left side to pave the way for future growth.

Different banks have different focuses on these three goals, and the corresponding strategies for public offerings will also be different, but there are still too few banks that can see clearly and make targeted investments.

2. The fundamental guiding principle of customer base management is asset-liability management.

70% of my country's commercial banks' revenue comes from net interest income. At the end of 2023, the net interest margin of commercial banks had dropped to 1.69%, which has been declining for three consecutive years.

The regularization of deposits has caused banks' liability costs to continue to rise, compressing the interest rate spread; the weak stock market and real estate have caused investors' funds to flow into cash management products or fixed income products, which has eaten up the non-insurance income from wealth; the integration of newspapers and banks has torn off the last fig leaf, causing the collapse of bank-insurance income and the entire wealth income performance to be dismal.

The problem is clear, and the corresponding solution is also clear: stabilize active deposits, meet customers' demand for stable investments, and grit your teeth to do bancassurance.

How to make current deposits? China Merchants Bank has previously summarized that "using agency payment to promote salary deposits, using financial products to promote fund retention, and using agency payment and collection to promote the activity of standby funds." Based on this, the core customer groups of A-side business have emerged: agency payment customer group, investment and financial customer group, and payment and collection customer group.

Furthermore, we can start to design detailed business strategies for different customer groups based on the bank’s situation.

For example, for the customers who send money on behalf of others, we won’t talk about the customer acquisition end. The public-private linkage has been talked about a lot, but the gap is still obvious. After all, the difference in their own endowments and team execution is huge. Let’s look at retention: the average retention rate of each bank is about 15%, and the worse ones are even less than 10%. The high ones like China Merchants Bank can exceed 30%.

Why do customers keep their money? It depends on the supporting services, products and rights. Is it convenient to pay? Are there suitable financial investment products? Are there supporting rights incentives for the corresponding amount of funds? These questions, in turn, are the corresponding customer segmentation management strategies of banks.

There is also the investment and financial management customer group management, which I am best at in the past, distinguishing customer growth inflection points, building user advanced growth paths, and designing supporting operation strategies, operation processes and underlying corresponding products for different customer groups. At the same time, there is also the construction of the account management system for front-line financial managers and the design of assessment incentive measures, and so on.

China Merchants Bank has stopped selling large-denomination certificates of deposit, and many banks are re-evaluating products such as structured deposits and smart notice deposits. There is nothing wrong with the logic of doing so. It is definitely the right thing to do to reduce liability costs. However, being right does not mean being smart, especially in the actual implementation process, it is often easy to cut off sales of such products completely.

In fact, in some areas with fierce competition and some customers that need to be focused on, this highly attractive hook product can still be retained. This requires considering the overall business awareness and ability to calculate the big picture of the head office and branches.

3. The above are just the liabilities and wealth sectors, what about the assets sector?

The short-term turnover population corresponding to consumer loans, the small merchants corresponding to business loans, and the urban home buyers corresponding to mortgage loans all have differentiated asset designs, channel construction and investment strategies.

At the same time, attention should be paid to maintaining pressure on the new medium- and high-risk groups and urging the collection of existing stocks.

According to statistics, the balance of personal housing loans of 54 listed banks decreased by 560.6 billion yuan last year. With corporate non-performing loans and personal early loan repayments, the real estate industry has changed from "Little Sweetie" to "Mrs. Niu", and the customer management strategy must be adjusted accordingly.

The operation of the asset segment is different from that of the liability segment. It is also necessary to consider how to balance profits (including risks), revenue, asset size, and customers, as well as what the operating focus is at the current stage. The corresponding customer management strategies will also vary greatly.

At the beginning of the year, China Merchants Bank launched a personal flash loan with an annualized rate of 3% and a maximum amount of 300,000 yuan, focusing on high-quality customer groups such as listed companies, public institutions, and medical institutions. What is actually tested behind this is the ability of banks to quickly design and launch core products after identifying key customer groups. It is not easy to deal with the underlying FTP pricing, risks, channels and marketing budgets, and to unite all the forces that can be united.

Sometimes, I feel emotional. There are a lot of smart and hardworking people in the banking industry, and there are often some innovations and highlights in many scattered points. But it is rare to see a bank that can do all three of these things at the same time: quickly identify market opportunities, launch appropriate products in a timely manner, and implement them with strong execution. Different banks, due to their different endowments, always fail in one or two of these points.

Some banks have a big deviation in their self-perception: they think what they lack is the ability to identify market opportunities or the efficiency in launching new products. In fact, most of the time, what they lack most is strong execution.

This market will occasionally reward smart people who can seize opportunities with high rewards, often reward people who can output their own unique value and products, and always reward diligent people who act on their ideas.

Most of the time, what we lack is not first-class strategy, but first-class execution, especially the execution that comes with returning to the banking business model and being able to think about business strategies as a whole.

In the past few years, the economic environment was good, and we worked hard to expand our scale. Now that the economic development is not so fast, should we control the scale to seek profits, or appropriately maintain revenue? Different banks have different approaches, but there are still too few banks that can take the initiative to think and implement specific business actions.

Having said so much, I can summarize it in one sentence: through the customer management on the liability side, we can optimize the debt structure to reduce costs and increase wealth income; through the customer management on the asset side, we can improve and optimize the asset structure to increase revenue. Grasping this logic will ensure that you will not deviate from the main line when designing the customer management strategy.

Seeing this, you, as a smart person, will definitely ask me, after saying so much, what is the secret behind China Merchants Bank's acquisition of customers with retail AUM below 200,000 as its head office?

Hey, I’m not from China Merchants Bank, how would I know?