Electronic money transfers into and out of China will soon be possible thanks to a new service from China Post, the government-owned postal service.
The service, which will begin sometime this fall, is being developed jointly by China Post, Deutsche Bank and Eurogiro, an international electronic payments network that connects many of the world's largest postal agencies.
Deutsche Bank will connect China Post to the SWIFT network via Eurogiro, enabling money to be sent to or from individuals in China. Transactions will be for U.S. dollar remittances at the outset.
"By using us, they have linked Eurogiro and SWIFT together, and are able to enjoy all the benefits of a normal banking institution," said Robert Kung, regional head of sales for global cash management for financial institutions at the Greater China division of Deutsche Bank.
In China, where retail bank accounts are rare, the service provides an alternative to using domestic banks for electronic payments.
"An individual in other parts of the world can simply instruct their bank to send their money to China Post via Deutsche Bank, through the SWIFT payment system," said Kung. "They don't have to bring cash to buy a money order at a postal agency and then send it to China."
Instead, the funds will be wired from the sender's bank to China Post's account at Deutsche Bank.
"When Deutsche Bank gets a payment, we'll credit China Post's account," said Kung. "Through the Eurogiro linkup, China Post will get the data immediately, real-time."
Then, recipients can choose how to conveniently collect.
"They can go to any of the China Post collection points," said Kung.
China Post plans to increase the number of collection points from 514 today to between 2,000 and 3,000 by the end of 2003, and over 20,000 by the end of 2008, said Kung.
China Post now handles 11,000 payments per month.
The new service will compete head-on with traditional and well-established money transfer services like Western Union, which has a contract through 2006 with the Agricultural Bank of China and an agency agreement with China Post.
Western Union, a subsidiary of First Data, has set ambitious goals for its in-country agent network.
"We are on track with our original plan to reach up to 10,000 agent locations in the country, but our goal is to have an agent network of 30,000 locations over the next three to five years," according to Bill Thomas, president of Western Union International.
Western Union's Internet site lists 1,247 branches of Agricultural Bank of China and of China Post as its collection points within China.
Still, the bank-powered China Post service enjoys certain advantages. Transactions can be conducted electronically through a bank instead of at a counter using cash. And electronic payments are considered less vulnerable to misuse.
"Governments worldwide are looking upon cash wiring with certain doubt," said Kung. "It does present a lot of risk when it comes to money laundering."
Although other global banks are deploying ATM networks, they will have difficulty gaining a foothold in mainland China, Kung said.
"If you're looking at just a city like Hong Kong, top foreign banks could be really effective," said Deutsche Bank's Kung. "When you're looking at China as a whole, it will be very difficult for a foreign bank to have a significant market share."
For its part, Deutsche Bank doesn't participate in the retail market in Asia and the U.S., making it an appropriate fit for China Post.
"We don't handle the consumer-side business, so we won't go after their business," said Kung. "It's a perfect match."