Article
Future looks bright for ATM growth in China
World's fourth-largest economy is fertile ground for ATM growth.
November 9, 2008 by Mike Lee — CEO of the ATM Industry Association, ATM Industry Association
The 2008 Olympic Games in Beijing saw China take center-stage for an extravagantly well-produced global event. This victory for Beijing was categorically not a matter of luck. China is a nation whose time has come. What the world will remember, perhaps more than the sporting achievements themselves, is that 2008 was the year China arrived on the modern world stage.
Economically, this future super-power has been growing consistently at a rate faster than most countries can aspire to match for a single year, let alone for over 20 years on the trot. China is now the world's fourth-largest economy. And according to the Center for Strategic and International Studies and the Institute for International Economics, it has been the world's fastest-growing economy for almost three decades.
China is one of the world's oldest and longest-lasting civilizations. The nation's Great Wall is one of the man-made wonders of the world. And from a population standpoint, China is huge, with about 1.3 billion people dwelling on a land mass of 9.6 million square kilometers.
According to the World Bank: "Since initiating the reforms and open policy, China has achieved tremendous success. Growth of about 9.7 percent per annum since the late 1970s has helped to lift several hundred million people out of absolute poverty."
The country's annual GDP growth rate in 2006 was an amazing 11.6 percent. The size of its GDP in that year was $2.7 billion. The World Bank estimates that 40 percent of that GDP derived from the export of goods and services, up from 23 percent in 2000, indicating the increasing extent to which China is becoming integrated into the world economy.
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On the back of decades of high economic growth, China certainly had the money at its disposal to fund a memorable 2008 Olympic Games. But it also had the talent, the cultural finesse, the resourcefulness, the organizational power, the determination and the motivation necessary for creating this successful global event. The world knows now that China can produce whatever it sets out to achieve.
But what successes are in store for its growing ATM industry? How many ATMs can the world's largest nation and fourth-biggest economy produce by the next Olympics in London 2012?
Installed ATM base: present and future
According to London-based Retail Banking Research Ltd., 130,000 ATMs were installed in China at the end of 2007. "This means there are just 98 ATMs per million people in China, compared to an average of 770 ATMs per million people in Western Europe," said RBR's Sarah Jones. "There remains huge growth potential for the ATM market in China, particularly among the big four state-owned banks, which have not yet equipped all their branches."
To reach penetration levels equivalent to those in Western Europe, China's number of ATMs will need to increase almost eightfold.
RBR forecasts that the Chinese ATM market will double over the next five years. I will stick my neck out and challenge the ATM industry in China to go beyond a quarter of a million ATMs in 2012 and double its installed ATM base to 260,000 ATMs by the time the London Olympics begin.
What are the growth dynamics for ATMs? In general, to understand how demand for ATMs can grow, one can look at factors like:
- What are the economic prospects for the nation?
- How much cash is in circulation per capita?
- What kind of electronic banking systems and networks exist in the country for inter-bank-transaction processing?
- How many city-dwellers are there versus rural population?
- How many bank cards and cardholders does the nation have?
- How large is the so-called consumer society in China?
Those types of conditions directly impact the ongoing demand for ATMs in a country such as China.
Demand drivers for ATMs
1. Cash
Economic growth is the first demand. China's economic growth is a given, and it has a direct impact on the amount of cash in circulation.
China is strongly cash-based, as are so many countries, from Japan in the east to the United States in the west. The Bank of China's 2006 Annual Report provides monthly figures for currency in circulation in China as part of the country's money supply. In 2006, the average monthly amount of currency in circulation was just more than 2.8 trillion yuan. That is a vast monthly circulation of banknotes in the public arena in China, equivalent to approximately 2,174 yuan per person. Given that banknotes typically pass through many hands in their lifecycle, the number of cash transactions in China in any given month would be almost immeasurable.
2. Electronic Banking System
The successful establishment of the China National Advanced Payment System augurs well for the future of electronic banking in China, including ATM banking. The core of the system is a high-value payment system and a bulk e-payment system. In the first half of 2007, HVPS processed 650,000 inter-bank transactions with a value of 1.6 trillion yuan. Chinese bankcards can now be used on an inter-bank basis on a nationwide level at all ATMs joined to the system.
China UnionPay owns and operates the country's sole bank-card transaction system. It has plans to enlist 60 percent more merchants and roll out 14 million terminals, including mobile payment services. By the end of March 2008, 203 institutions, including 168 domestic banks, had joined UnionPay.
About 804,500 merchants now accept bank cards, and CNAPS' system permits numerous innovations, such as migrant workers' cards. So far, migrant-card schemes have been launched in at least 13 municipalities. About 1.6 million transactions on migrant workers' cards have been completed, totaling 785 million yuan. And no fewer than 12,000 rural credit cooperatives are connected to CNAPS.
Clearly, China has the innovative e-banking and payments infrastructure required to support a large, growing inter-bank network of ATMs.
3. City-dwellers
The United Nations forecasts China's population to grow from 1.3 billion in 2000 to 1.4 billion by 2050, a net addition of 1.4 million people.
Around 540 million people live in the mega-cities and cities of China, meaning there are already more urban Chinese than the entire combined populations of the United States, the United Kingdom, Australia and South Africa.
In 2000, approximately 35.8 percent of the Chinese nation lived in urban areas. The U.N. has forecast this level of urbanization to rise to 60.3 percent by 2030, with only 39.7 percent still living in rural environments.
The scale of that increase indicates that China is expected to transform from a predominantly rural country to an overwhelmingly urban one. Between 2015 and 2020, China's population will shift. By 2020, more than 900 million people will be living in cities, translating into a migration of 61,643 people to China's cities every day.
Readily attainable penetration rates of one ATM per 1,000 citizens would result in installations of 540,000 ATMs in the cities of China alone. By 2020, this could become 900,000 ATMs for 900 million city-dwellers.
Future long-term forecasts should see 540,000 ATMs as a mere baseline target for China. This translates into an additional 410,000 ATMs from the installed base at the end of 2007.
But that baseline figure would not be anywhere near the saturation point for ATM growth in China. Like most figures about China, those kinds of numbers look impressive, especially when the size of the revenue this could generate for ATM manufacturers is calculated, as well as the scale of ATM transactions, with associated fees, which this estate of ATMs could bring in for Chinese banks.
4. Growth of consumer culture
Today, there are more 390 million mobile phone subscribers and 111 million Internet users in China. Those are the kind of consumers who also will use ATMs. When you have massive urban populations using self-service banking and consumer technologies, the market is ripe for ATM banking. China's growing middle-class aspires to the kind of lifestyle America and Europe have popularized. That lifestyle translates into a car, plastic cards in the wallet, television, Internet and mobile phones.
The ATM is the most important self-service consumer technology for modern societies. And it is especially popular for cash-based economies like China's.
5. Growth of bankcards
The Bank of China issued its first credit card in 1985. By 2001, Chinese banks had issued more than 140 million cards. In its Annual Report of 2006, the Bank of China outlined the number of credit cards it issued between 2003 and 2006. In addition to the 2.15 million credit cards issued in 2006, the bank had also issued 98.6 million debit cards in mainland China by year-end. And Bank of China also had enlisted 190,000 merchant acquirers for acquiring transactions from its bank cards by the end of 2006.
China's total bank cards, including debit and credit cards, topped 1.58 billion by the end of March 2008. Debit cards still dominate China's bank-card market, accounting for 93.4 percent of the market total. And the recently launched Bank of China Great Wall credit card can be used to withdraw cash in more 10,000 Bank of China branches all over China and at more than 80,000 merchants nationwide.
The scale of electronic payments and transactions in China is already enormous — a mere 23 years after the first credit card was issued by the Bank of China.
The growth potential for newly installed ATMs is situated in both bank branches and in the retail environment, not to mention some rural villages.
ATM market share
The immense potential in the Chinese ATM market is demonstrated by the number of manufacturers now active in the country. Local involvement has often proven beneficial to foreign companies in their attempts to gain a foothold in the Chinese market. Diebold and NCR established joint ventures with Chinese manufacturers in 1993 and 1997, respectively, while Wincor Nixdorf formed a partnership with domestic ATM supplier Eastcom at the end of the last decade.
Though the market share has changed in the last three years, the market is still monopolized by a few suppliers, which hold more than 80 percent of the ATM market.
While service and support have become a crucial issue for competitive edge, the new breakdown of market share for 2007 is: Diebold, 26 percent; GRG Banking, 21 percent; Wincor Nixdorf, 14 percent; Hitachi, 13 percent; and NCR, 9.5 percent. (Source: Financial News China, July, 7, 2008.)
China's domestic ATM suppliers, spearheaded by GRG Banking, have contributed to China's ATM industry by providing enhanced services and national support networks, lowering the total cost of ownership of ATMs through competition, while optimizing the functionalities of the ATM to be more localized.
Future ATMs in China
The target is to have 260,000 ATMs installed in China by mid 2012. ATMs should be viewed as flexible cash-distribution channels for consumers who need 24/7 access to their cash where they live, work and shop. And the "retailization" of ATMs in China will really get cash flowing at a faster rate.
Undergoing a paradigm shift from seeing ATMs mainly as "mini-bank branches" to self-service consumer cash machines will delight retailers, owners of restaurants, operators of shopping malls and all of their suppliers.
The future looks good for ATM multifunctionality in China. In addition to withdrawals, enquiries and transfers, it is expected that ATMs in China in future will be required to provide value-adding new services like bill payment, invoice printing and multimedia advertising. In particular, cash recycling is being gradually applied in all the major cities of China, and this will become a major ATM trend.
I encourage Chinese banks to fully embrace the concept of the convenience (retail) ATM, along with nimble independent ATM operators. It is the retail ATM which accelerated ATM growth in successful ATM markets like the USA and United Kingdom. The long-term dream of at least 540,000 ATMs in China is a big dream that will require many players and contributors.
Trends / StatisticsRetail / Off-PremisesAsia, Australia & PacificBank / Credit UnionDiebold NixdorfGRG Banking Equipment (HK) Co., LtdWincor Nixdorf International
About Mike Lee
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