When Tang Hongtao sends money back to his parents living in the outer suburbs of the Chinese city of Xi'an, he withdraws money from his bank account in a commercial bank, and remits it to his local post office. In less than a week, Tang's parents are sent a notice by their local post office that their son has fulfilled his filial duty. Tang doesn't transfer his money through his own bank for one main reason: to collect the money, Tang's parents have only to go to their local post office instead of taking a trip into the city to visit the commercial bank.
The geographical reach of the postal savings and remittance service in China has made it the fifth largest financial institution on the mainland, behind Industrial and Commercial Bank of China, the Agricultural Bank of China, the Construction Bank of China and the Bank of China. As at the end of December 1999, the national postal deposit balance amounted to Rmb381.51 billion ($46.13 billion). Earlier this year, the State Council approved the post office's application to become a bank - with its 66,649 postal branches, a significant challenger to the retail banking sector in China.
"Comparing with commercial banks, Postal Savings Bank (PSB) has advantages of geographic coverage," says Spencer Loh, president and CEO of Shanghai Huateng Software Systems Co Ltd (Huateng). "[The] number of branches in rural and suburban areas is well above the commercial banks." In addition, Loh says PSB charges a comparatively low service or processing fee and has a better electronic network than most state banks. PSB has the largest real-time computer system in the country.
The paper bonfire
But it wasn't always this way. Huateng, along with several foreign information technology companies such as Unisys and NTT Data were appointed the task of automating the entire postal system in 1996. This on-going project is called the Green Card project, after the name of the PSB bank card. Before the Green Card project, all transactions were paper-based. Sackfuls of cheques and cash were ferried from branch to branch, and all PSB customers carried passbooks. Today, PSB is electronically automated on three fronts - switching, processing and on the front line.
The switching platform is used to connect branches with the national centre located in Beijing. It makes inter-branch transactions possible and provides for inter-branch clearing and settlement. To date, 15,153 branches have been networked with more to come. The PSB has also gone international. In some 31 provinces and municipalities nationwide, postal money order exchanges have been set up with 17 countries, including the United States, Japan and Switzerland.
The processing system manages the deposit accounts, all 110 million of them - withdrawals, remittances, cash and cheque deposits. The processing system also monitors and records inter-branch clearing and settlement transactions, as well as producing operation and management reports.
The front line system processes over-the-counter transactions, and also supports traditional devices like teller terminals, personal identification pads, magnetic-stripe readers for the Green Card, as well as the legacy passbook printers.
Some branches are set up as only a switching centre between branches, whilst some are processing centres only, and some are equipped with both functions.
Poised as front-runner
Capturing the consumer savings market in China is big business. "The habit of saving is not just related to tradition," says Loh. He cites the lack of credit products, the unpopularity of personal loans and the lack of credit cards, as opposed to the prevalent debit card, as factors contributing to the burgeoning market.
Despite the lower interest rates set by the Central bank, postal savings have continued to grow. In 1999, the amount of savings increased by 19.9% compared to 1998 figures. The remittance service is popular with the millions of migrant workers who send part of their earnings to their families in rural areas where commercial bank branches are few and far between. In 1999, 229 million money orders were remitted, totaling $34.63 billion.
In the future, PSB is looking to expand its services to phone banking, insurance and treasury bond sales, salary and pension payment distribution, and eventually into e-banking. A Huateng-dominated team are also looking to enable the Green card to be accepted as a type of smart card for small postal purchases such as newspapers and stamps.
Like all state banks in China, the PSB is controlled by the People's Bank of China, and is confined to retail consumer banking only.
