ATM2.jpgChina's domestic banks are not often seen as dynamic go-ahead institutions ready to embrace the latest business and technology trends.

Which is why EngagingChina was intrigued to read this article on China's banking sector which predicts “substantial demand” for IT solutions and opportunities for international vendors.

The article was written by Celent, a US consultancy that specialises in financial IT, so the opinions are hardly disinterested. Nevertheless, its Beijing-based author, Wenli Yuan, previously had tech roles with Chinese financial services firms, so she probably knows more about the industry than most.

Yuan argues that China's state-owned banks have spent the the past few years trying to consolidate the data that had traditionally been distributed across multiple provincial branch data centres. This consolidation phase, described as a “milestone”, is now largely done, meaning that banks can now focus on using that data in a wide range of areas including new products, cost analysis and investment management.

Commercialisation and internalisation of the banking sector present particular challenges to legacy core systems at Chinese banks. Banks that choose to upgrade or change their core systems must align their systems with international standards. One obvious solution is to buy mainstream software packages which have been tried and tested in western banks.

However, Yuan says that some Chinese banks have encountered difficulties in implementing foreign software packages, and there have been delays in completing projects. This has made some banks suspicious and made some vendors develop doubts about entering China.

A new banking system is about much more than just new technology. Chinese banks that seek to import concepts and technology from the west will come unstuck unless they also re-engineer their operational processes and reorganise their management structures.

Compared to domestic IT vendors, western firms have a big advantage in China's banking technology market due to the maturity of their products and their track record working on big projects for Tier One banks. But they also face disadvantages: lack of familiarity with the Chinese market, lack of contacts with Chinese banks, high prices, high capital cost of implementation, and a lack of local customer support.

The domestic vendors score over western rivals in all the areas mentioned, but they are at a disadvantage when it comes to predicting future customer requirements and their products may fail to meet customer expectations and struggle with international standards.

Because of these weaknesses, Yuan predicts consolidation among China's small and mid-sized software vendors as they seek to gain the expertise and critical mass to compete with the bigger western vendors.

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