China's Banks Hike Tech Spending

Banks in China will see a $6 billion increase in technology spending by 2005, according to a recently released Celent Communications report.

"In general, the banking technology in China is lagging behind the technology in Europe, the U.S. or Japan," said Celent analyst Neil Katkov. "China is now playing catch-up by revamping and putting in new banking systems."

China has an estimated 232,000 bank branches, more than the U.S., Germany, and Japan combined. But more than 30 percent of them lack branch automation technology beyond the telephone, Katkov notes. That leaves a lot of room for increased technology spending.

China's entry into the World Trade Organization has also spurred technology change at banks. As part of this agreement, foreign banks can enter the Chinese banking market beginning in 2007. Chinese financial institutions will have to upgrade their systems to keep pace with better-equipped and more experienced overseas corporate banking competition, according to Katkov.

Brisk competition for customers in the expanding urban markets of China is also fueling technology spending. "A lot of retail customers are switching banks based on services offered, so banks are going after potential customers in a big way," Katkov said. Banks are responding with more ATMs, foreign exchange services and improved interest rates, he added.

The impendent technological expansion will affect mostly city dwellers, particularly those with higher incomes, said Katkov.

"Much of China is still very underdeveloped, so it will be a while before the whole population is using sophisticated banking technology. It's going to be an urban story for a long time."