Amid an industry-wide transformation, Chinese banks are placing a premium on technology spending to cope with intensifying competition.

The IT (information technology) system upgrades will result in big opportunities for technology providers.

"There is a heightened need for banks to adopt technologies to improve transparency and timeliness," said Jia-bin Duh, president of Cisco Systems (China).

"In the future, we will see fewer and fewer people standing in line to do their banking business, while ATMs and online banking businesses will thrive."

Duh made the remarks during a recent interview with China Business Weekly on the sidelines of a forum entitled "Enabling the Retailing Bank for Growth - the Cisco Asia Pacific Banking Executive Summit 2004."

"Banks have found technologies are major tools to increase efficiency and reduce labour costs to survive market competition," Duh said.

"The sweeping banking reform in China will spur competition, and banks' technology spending."

Domestic banks are projected to spend a whopping 18 billion yuan (US$2.17 billion) on technology solutions this year, indicates Beijing-based data tracking firm CCW Research.

The firm estimates 53.2 per cent of the expenditure will be allocated for hardware, while software and services spending will account for 28.6 per cent and 18.2 per cent respectively.

Chinese banks allocated 40.7 per cent of their technology spending on data warehousing in the first half of last year, CCW's statistics indicated.

Thirty-seven per cent of the expenditure was spent on servers, 29.6 per cent on CRM (customer relationship management) and 22.2 per cent on routers.

Consultancy Celent Communications, in an earlier report, predicted technology spending by banks in China would total US$6 billion between 2003-05.

"The deregulation of the banking industry, marked by the establishment of the China Banking Regulatory Commission (CBRC), has created a fairer, sounder and more transparent competitive environment for domestic banks," CCW said in a research note.

"That will help buoy banks' technology spending."

The Chinese Government established CBRC last April, as part of its efforts to reform China's staggering financial system.

Chinese banks are well known for their massive bad debts, inefficiency and slow adoption of advanced technologies to spur productivity.

It is estimated China's five major banks spent 36 billion yuan (US$4.34 billion) on technologies between 1995-2000.

Although Chinese banks have gradually increased technology spending in the past three years, they still lag far behind banks in Europe, the United States and Japan.

Better-equipped and more experienced overseas banks have long been seeking to make their mark on China's retail banking market, a highly lucrative, but largely closed, business.

Under China's commitments to the World Trade Organization, foreign banks will be allowed to enter the nation's retail banking sector market beginning in 2007.

That will create a formidable challenge for China's banks, suggest industry professionals.

Increasing technology adoption will help Chinese banks fend off competition from their overseas rivals, they noted.

"Network technology plays a critical role in the financial industry," said Gordon Astles, president in charge of Cisco Systems' Asia-Pacific operations.

Build-outs of data warehousing, CRM and business intelligence capabilities, as well as the deployment of ATMs, Internet banking, mobile banking and call centres, are the top strategic priorities for banks, experts said.

According to the Industrial and Commercial Bank of China (ICBC), the country's biggest lender, its online banking trade volume in the first six months of 2003 totalled 7.73 trillion yuan (US$930.92 billion), up 91 per cent year-on-year.

The trade volume at ICBC's ATMs and POS terminals increased 32 per cent and 71 per cent, respectively, year-on-year.

The bank aims to recruit 20 million new online retail banking customers.

Duh noted Chinese major banks' awareness of technology adoption has increased significantly compared with previous years.

Cisco and IBM are among the biggest technology solutions providers to the global finance sector.

James T. Le Mon, vice-president of global technology solutions for J.P. Morgan Chase & Co, told the forum hosted by Cisco, the information network that forms the heart of a banking operation is integral to customer relations.

The information network enables retail branches to obtain accurate and complete customer information for introducing new banking products and services, he said.

It also facilitates communications between a bank and its customer base, he added.

As part of its retail branch network evolution strategy, J.P. Morgan Chase & Co is adopting IP (Internet protocol) Telephony in its retail branches.

At the summit, Douglas A. Jaffe, senior research manager at Financial Insights, IDC's parent company, said Asian banks face increasing competition.

Therefore, he added, they must fulfil the ever-increasing customer demand.

Enhancing the effectiveness of multichannel sales and e-banking are key success strategies for banks, he noted.

Lance Tay, with Cisco's Internet Business Solutions Group, said Asian banks must quickly align and prioritize IT spending.

"To thrive, Asian banks cannot blindly adopt a fast-follower strategy," he said.

"To be a leader, Asian banks must make sound decisions on strategic business directions and IT investments."

(Business Weekly 02/03/2004 page1)