I had the chance to sit down with Ping An Bank’s chairman Xie Yonglin who shared with me what I thought was one of the world’s most authentic ambitions to become a leading technology centric financial services player that brings together traditional banking with insurance, brokerage, payments and related services. I also explored his own 25 year career milestones and aspirations since December 2016, when he was appointed chairman, at a time when the Chinese banking industry was facing challenges in sustaining profit growth and managing non-performing loans.
Ping An Bank is a subsidiary of Ping An Insurance Group, that wants to take its 500 million customer behemoth digital, just to give us scale. The group once counted HSBC as one of its investors and it is now the single largest investor in HSBC. So we are looking at an institution that has changed the world.
The retail business became core to the bank’s revenue growth after two years of transformation. The proportion of retail revenue and loans exceeds 50% of total assets of the bank today. The number of retail customers increased by 20% in 2018, among which, wealth management customers increased by 30%. The number of credit cards in circulation and the number of monthly active customers of its mobile banking app went up by 34.4% and 74.6%, respectively.
Xie is transforming the business on many fronts that will make it unrecognisable yet again. The bank recruited a large number of technical experts from leading internet technology companies to push the integration of technology and finance. In 2018, the IT capital expenditure was up by 82%, and the number of technology staff increased by over 44%.
The next stage in 2019 is to implement a retail artificial intelligence (AI) strategy and build an “AI bank”. Artificial intelligence is used as the internal driving force to improve the innovation mechanism and deepen the idea of an “agile organization”. In his own words, Xie shared insights on the transformation journey, the role of AI and the integrated retail and wealth management business model.
Here is the transcript of the video in English, while Xie speaks in Chinese:
Emmanuel Daniel (ED): I’m very pleased to be able to speak with Mr. Xie Yonglin, the co-CEO of Ping An Group and the chairman (CEO) of Ping An Bank, a very interesting and important financial institution today that has made that journey from a traditional institution to the kind of technology-driven, forward-looking financial institution of the future. It’s a journey that is still a work-in-progress, but one which has been setting up the benchmarks for the rest of the industry around the world. Today, speaking to Mr. Xie, I feel that I’m actually speaking to somebody who has been part of this journey from the very beginning. So my first question to you is that you are a career banker with Ping An Bank. You’ve been with the bank for a very long time. What are the most important memories you have of the most important milestones in the journey that you’ve been with the bank?
Xie Yonglin (XY): I have been working for Ping An for 25 years and I spent a lot of the time on transformation. The one with Ping An Bank was very impressive in my career. We made material alteration to the business structure and profit structure of the bank and also reorganised the drives of future developments. It took the last three years for us to transform Ping An Bank from a traditional bank to a tech-driven bank, which was very impressive.
The retail business transformation
ED: The technology-driven ambition is quite a new ambition. There is another important goal that you have to work on, which is the transformation of the balance sheet of the business. You were traditionally a very corporate bank, and now you are moving to the retail environment. How much of that is developed from within the bank and how much of that is developed in conjunction with Ping An Group, the insurance group?
XY: For the Ping An Group, we are known for our retail business, and we have been working towards a world-leading technology-powered personal financial services group. As for the bank, I considered three things when I became the chairman of the bank. The first thing is we will work with the same vision and towards the same direction of the group. And second is retail business will be vital to future banks. The third is there’s an opportunity as technology could better drive retail business. So in the past three years, we did everything from strategy to resource to pivot to a smart retail bank.
ED: I read your group report. It talks about more than 500 million internet customers of which a small proportion will be for the banking business that you want to transform into. At the same time, it’s been an amazing journey, even for me, to be able to see the transformation of the retail financial services industry in China from about the year 2001 when the big four banks were the dominant players in China. At that time and even today, the big banks have access to 400 million customers and a very strong brand that is for the whole country. And then we saw the rise of the more agile smaller banks and the joint-stock commercial banks, such as China Merchants Bank (CMB), China CITIC Bank and so on, which have taken the journey much sooner than you have. So how do you construct the competition that you are up against, given this history in China’s retail banking industry?
XY: China is doing a great job in the application of technologies, thanks to the openness that Chinese citizens showed to new products and services. We have digitalised 95% of all our transactions. We are facing fierce competitions, not only from banks, but also from companies like Alipay and WeChat Pay. Within the banking industry, China Merchants Bank has been our role model for the last 20 years. CMB also drives the emergence of UnionPay, which connected the Chinese payment system. As for competitions, we believe tech-driven finance innovation will be the major trend in the future. But customer experience is the key measurement of future innovations. We need to provide professional service at the back office, but display in a very simple way to customers.
ED: In fact, I’m very curious that you actually mentioned Alipay and WeChat. They’ve also revolutionized the industry. So it’s not just the banks but also the tech-companies that are forming a new dimension in terms of competition in China. The idea is to provide a simplified front or a platform to the customers. But how do you envision the nature of the competition changing in the next five years, which is not just a matter of service and technology but also in terms of business models that will be successful, which would be very different from the last five years?
XY: I believe disruptive technologies like AI, blockchain and internet of things (IoT) will greatly change banking in the next few years, while simple payment methods and customer experience will not drive banking for long. AI can help a lot in terms of risk control, portfolio selection, customer interaction, and also enabling the banking staff to work more efficiently. AI might even reinvent the banking industry and the current business model. On the other hand, IoT and blockchain will reinvent the small and medium-sized enterprise (SME) business of commercial banks because blockchain and IoT can preserve the authenticity of trade finance, which is our biggest pain point. With blockchain and IoT, we can greatly lower operating cost, and in terms, lower the cost of corporate finance. To conclude, new technologies will reinvent the business model of commercial banking, and better serve real economy.
AI is a concept, which is easy to talk about but hard to apply in real life. Take call centers for example, we need to collect lots of data and standard questions, then categorize and extend the questions, in order to give better answers. It takes time and a lot of effort to collect data for machine learning, otherwise AI wouldn’t exist.
ED: You were not originally a retail banking man, but you speak about retail banking with such passion. Where does it come from?
XY: I started my career with property insurance, then life insurance, and continued with retail business. I find retail business very interesting, as it’s diversified and stable. I also have faith in what technology can do to change us human beings – change the way we think, the way business goes. And retail banking is the largest field in technological application. So as long as the company has a large scale of retail business, a stable income and profit, and it’s welcomed by the investors and customer, I’m willing to do it.
ED: You speak with such a passion about what you think the retail banking business is. Just speak to us a little about the relationship that you have with the rest of the Ping An Group in terms of the insurance business, the security business and even the peer-to-peer (P2P) lending business for example. So, Ping An has all these different facets of the retail business, how would you describe your relationship with them?
XY: I am the co-CEO of the group and the chairman and CEO of the bank. I am in charge of Ping An Securities, Ping An Leasing, Ping An Trust and Ping An Annuity. Ping An Bank is an important subsidiary of Ping An Group. If an integrated financial group does not have a bank to connect customers’ accounts and transactions, the group is not good enough. In the financial industry, abundant data, frequent customer interactions and customer viscosity are found in credit card and stock business. For Ping An Bank, Ping An Group has rich customer resources and advanced technological ability. Ping An has 99,000 IT personnel, 29,000 research and development personnel, 1000 plus scientists.
Interdependence with Ping An Group
ED: How do you calculate customer level profitability at the group level?
XY: The group has many indicators to measure customer development, such as number of products per customer, number of contracts per customer and operating profits per customer. The profits per customer has reached 8% by increasing every year. So every year we assess those indicators, as well as the growth of annual income or profit – how many customers are newly acquired each year, through which channel, which product, cross sales, how much time customers use our mobile applications on average, etcetera.
ED: I notice that you have put the “App Access” as one of the matrices that you measure at the group level. What is interesting is as a retail banker, what do you think retail bankers understand about synergy with the insurance business that is not previously understood? Is there something about insurance business that retail bankers need to understand?
XY: The bank needs to know about the salesperson, the insurance products, the relationship between customers and insurance companies, and the circumstances where the customers need insurance companies. As soon as you understand the above factors, you will know the exact scenario of how an insurance company operate and how retail banking can benefit.
ED: So this relationship between retail and insurance is a relationship that the Western model has tried to perfect over many years and failed. In a lot of ways, the bancassurance model did not really take off although many conditions were right in Europe in the old days. So what you are trying to achieve today is of great interest to the industry, this collaboration between banking and insurance, which is called bancassurance.
XY: I think there are several reasons why Ping An is good at integrated finance. First, we have a concentrated supply of data, technology, etcetera, which is the foundation. Second, the application of technology has enabled us to transform efficiently. Third, our culture. Our subsidiaries are about 90% owned by the group. Fourth, our internal assessment. Collaboration between subsidiaries is greatly emphasized and there are also assessments accordingly. We have been doing these for more than 20 years and have gradually transformed from an insurance company into an integrated financial group, aiming for our goal: one customer with one account can get multiple products and one-stop service. We did what other companies couldn’t do.
ED: But the insurance industry is very manual and also driven by agency network. So there is a lot of information on the manual agency network that is not captured by the system, not captured in data. Has Ping An Group achieved that?
XY: For individual life insurance, our agency is directly managed by Ping An Group, so we have the first-hand resource and data. For auto insurance, there are a few ways for us to get real data. One is for Ping An internal tele-sale. The next one is the data from our life insurance. The last is from automobile shops. We get data from automobile shops by packaging auto loans and auto insurance. Thus, we have a comprehensive collection of individual data, unlike many of our peers.
Views about regulation and competition
ED: How is your relationship with the regulators given that now in China the insurance and banking regulators are unified. Does that work in your favour?
XY: Within Ping An Group, China Everbright Group and China CITIC Group, the three pilot holdings group approved by the state council of China to provide integrated financial services. However, the related transactions between subsidiaries must be at a fair price and cannot be transferred for interests. We strictly follow the relevant laws and regulations in internal cross-selling and service.
ED: Who do you see as your competitor in the next few years given how technology would be changing because you have players like JD, even Alibaba and so on who want to be, who actually, effectively, have financial services today?
XY: Real competition comes from disruptive technologies. In the end of the day, those who are more focused on the application of technologies will be the winners. Banking was already a highly competitive industry and now companies of other industries have entered the game. So in the end, it really depends on your own tech ability, on whether you can build a good foundation before applying any new technology or concept. A good example is the P2P market for the last few years. Everyone was talking about P2P, but it tends to be very messy because they didn’t build a good foundation on risk control.
ED: As the cost of the business goes up, there will be a need to collaborate with technology companies, also from what is called the open source platform. What is your thinking about the future of institutionalized centers given that it is cheaper for technology to be sourced from outside?
XY: For retail business, we prefer do it with in-house because we have 100,000 tech employees. But on the corporate level, we are collaborating with open sources and combining our business model with their technology.
ED: Outside of China, what organizations do you look out for? What do you consider to be organizations that you learn from?
XY: We used to, and still look up to Wells Fargo for its concept of “one customer with multiple products”. Nowadays, we learn from JP Morgan. JP Morgan has invested a lot in technology and made great progress in key areas like investment banking, asset management and retail banking. Its “asset-light and capital-light model” in corporate banking is also very good.
ED: It’s interesting that you mentioned wealth management as a business because right now as an insurance company or an insurance holding company, you have many challenges in terms of giving good returns on investments, on insurance products. How is the group organized in order to develop profitable wealth management products which don’t have a risk element to it? I ask this question also because JP Morgan has a huge trading book, and therefore it’s not just a bank but also a trading company. Do you find you need to develop that part of the business to make the banking business and the wealth management business especially profitable? They have proprietary trading which means that they trade their own assets. They make money from trading in the securities industry.
XY: JP Morgan is known for its remarkable performance on asset management, including securities, bonds and derivatives transaction. Ping An Bank’s reputation is not as high as JP Morgan in the global market but we still attract excellent traders who are good at Interest Rate Swap in Wall Street, including Chris Hodson who created the Chris Hodson curve, and he is irreplaceable. Ping An Bank has a good reputation in the bond market. The same transaction ability can be used to improve our asset management. We are now developing a subsidiary for wealth management, to which transaction ability is vital, as it has to provide great products. We will learn a lot from JP Morgan for its trading ability and asset management.
ED: If the Chinese economy slows down, will that look very different for your business model? Because there is a chance that the Chinese economy might slow down.
XY: The business model wouldn’t be affected, as we would proactively adjust our business model to lower the cost. What will be affected is our risk management policies, we would need to be more conservative in the present situation.
ED: Is Ping An Group essentially a south China business or a total China business? Because you are very successful in the southern part of China. Are there things that you need to achieve in the northern part of China?
XY: We are a country-level company. We are going strong in China’s tier 1 and tier 2 cities, our market share of life insurance in Beijing is more than 50%, which are both large shares.
ED: Mr. Xie, my final question in this very passionate interview that we had together. How do you see your own career evolve with the bank in the next few years?
XY: I wish I could work more for Ping An. In addition to the role as chairman of Ping An Bank, I’m also one of the three co-CEOs of Ping An Group. I am responsible for the bank and corporate business, together with Ms. Jessica Tan, who is responsible for technology, and Mr. Lee Yuansiong who’s in charge of retail business. The group is currently number seven in Forbes ranking, and is expected to thrive under the leadership of Mr. Ma. Last but not least, Ping An Bank is vital to the group. Like what we say, our retail banking is the supporting office for the whole group, while corporate banking is the engine. The banking industry is the best battlefield for digitalisation and Ping An Bank is the pioneer within the group in terms of digitalisation.
ED: One question, just put it in context. I notice from you balance sheet that you’ve grown the bank very slowly. You have transformed the balance sheet to be more retail. That one was very aggressive but the total asset size you’ve grown is 5% less than 10% a year. Is there a deliberate attempt to keep the bank small as a percentage of the whole financial group?
XY: No. We encourage it to grow as fast as possible, as long as it is not too risky. In the past few years, Ping An Bank has been transforming and decreasing corporate business, in order to maximize growth in a secure context. Now, we have a retail-oriented banking structure. As for corporate banking, we will follow national policies, and focus on certain industries to support the real economy.
ED: Mr. Xie Yonglin, thank you very much for this passionate interview. The reason I wanted to do this interview with you very much is because you are transforming the financial services industry through this amazing bancassurance model that is pioneering in China, some of which has been tried in the West but did not reach its full potential because of lack of technology and nature of the business in the West which is very different from China. I do believe that you are making a huge difference to the retail financial services industry as a whole and not just insurance or banking. It’s been a pleasure meeting you. It’s a pleasure to get an essence of how you are driving the business and how the whole of Ping An Group is connected together. Thank you very much.
This interview was originally published in The Asian Banker
