All Banks are Equal on Internet: OfficialsSome banks have more or less financial weight, but all banks are equal on the Internet, banking officials said.Driven by the Internet's penetration into business life around the globe, China is beefing up the construction of an on-line banking system as part of its financial reform and to prepare for the challenge of foreign competition. The new system relies on Internet and telephone technologies to conduct business instead of bank counters. It includes 24-hour customer bank account access, allows transactions between accounts, personal financial consulting, on-line stock trading, shopping and fee payments. "The technological and e-commerce revolution has spread throughout the world. E-commerce is now at the forefront of every company's financial and strategic planning," said Jarett Wait, CEO of Lehman Brothers Asia. China could be well-positioned to enhance its financial restructuring process by taking advantage of the Internet revolution, he said. Speed, convenience and favourable prices have driven the growth of on-line banking, said Richard Repetto, a senior research analyst of Lehman Brothers, an American investment bank which has acquired a foothold in the on-line banking business. "We believe nearly all banks will move to the Internet or risk losing their best customers," he said. Under such circumstances, "We have to move early, or we will fall far behind," said an official from the Bank of China. Though the process is still slow,e-commerce is penetrating into high-tech firms in China, and banks are becoming more enthusiastic about developing Internet financial services to align themselves with their customers. "Our bank has realized that building a computer network inside the bank is not enough any longer; the must trend is to develop our on-line business," said Chen Jingxian, a director with the Industrial and Commercial Bank of China's (ICBC's) on-line banking division. Fortunately, the service, still in its trial phase, has won the initial support of the central bank despite the requirement for huge technological and financial inputs and the need to improve security of the on-line payment system. Dai Xianglong, governor of the People's Bank of China (PBOC), said recently the government is encouraging the financial renovation of domestic banks, including their entry into on-line banking. He said the development of regulations concerning this activity should be accelerated to ensure the sound and healthy growth of the banking business. The Internet wave is spreading to almost all financial hubs, from the State-owned big four to smaller shareholding banks, and policy banks such as the China Development Bank. However, issues such as the need for better security; needed legislative, technological and financial inputs; profitability and e-banking's relationship with traditional banking are major concerns. How can banks control risks associated with on-line banking within the existing limits of technology and help customers build up their credit worthiness? "Most people and enterprises shun e-banking because they feel it is unsafe," said director Chen from the ICBC. The possibility of hacker attacks, the misapplication of customer information, as well as financial losses resulting from defaults of customers who have poor credit rating are risks that are poor credit risks must be considered by domestic banks eager to enter the Internet banking business. Recognizing these problems, almost all banks make safety their first consideration when developing on-line banking businesses, and have invested huge amounts of money in introducing advanced foreign technologies. Some of the banks have opened special accounts for on-line banking customers and have set limits on amounts that can be withdrawn to mitigate risks. "We have been attacked by hackers, especially when we first launched it," Chen told Business Weekly. "Fortunately, we have held them off with our well established firewall," she said. The central bank has set up an authoritative certificate recognition system, which is regarded as the most to provide security. This system authorative system has been adopted by many banks including the ICBC and the CITIC Industrial Bank. But the lack of a genuine credit card system built on the credit worthiness of the customers remains a big obstacle, experts said. Presently, most bank cards in circulation are the prepaid disposable type. Legal framework The lack of regulations covering e-commerce and on-line banking operations has also pushed banks totiptoe on the lines. It has become a hurdle for regulators. "The central bank is willing to design the macroeconomic policies that will promote the development of on-line banking and secure the safe and efficient operation of the financial sector," said Wu Xiaoling, vice-governor with the central bank, while addressing a recent international seminar on on-line banking. The bank is wrapping up drafting regulations concerning the approval and supervision of on-line banking, said Chen Jing, director of the Payment and Technology Department of the PBOC. It has created a special financial certification centre responsible for issuance of licence of banks who want to get a dip in the on-line banking sector. Though bankers have complained that the central bank has been too strict in approving new technologies and services, "We still need to enhance the supervision of on-line banking and on-line payment systems," said Chen. Because of security concerns, he said China's credit system is still too fragile to take on on-line payments. Though the present Internet financial services technologies are not very convenient, but they guard against risks, he said. Technological input A well-developed on-line banking system certainly requires hefty inputs to support systems operations and the research and development of software. Internet businesses, at least now, take years to report profits. Merrill Lynch and HSBC holdings, both financial hubs in the banking and securities sector have joined to develop their Internet banking services. They announced a US$1 billion investment plan to enter their on-line banking businesses, which they expected to begin to make profit in five years. As China's largest bank, the ICBC is wealthy enough to throw billions of yuan every year into its on-line infrastructural construction. But this would add to the high cost of on-line banking operations, said ICBC's Chen. "Only after we have developed a large-scale business will the costs decline," she told Business Weekly. People cannot expect domestic banks, especially small and medium sized banks to inject that much money at the business, an analyst said. "On-line banking services currently available in China are still an extension of traditional banking to the Internet arena. There should be more innovation that will allow us to take full advantage of the net,"said China Development Bank President Chen Yuan. Clients The promotion of on-line banking services is closely linked with a wider understanding of the Internet, analysts said. Most of the companies using on-line banking services now are big companies or high-tech firms, which means there are more potential customers to be developed. "Small enterprises are unlikely to become our clients in the short term because they are financially weak and cannot afford to equip themselves to go on line," said ICBC's Chen. Although the ICBC plans to extend its on-line business nationwide by the end of this year, Chen said it will be quite difficult to spread it in economically backward areas because Internet coverage there remains low. Developing individual customers is an equally tough task. "China has about 10 million Internet surfers so far, but most of them are students and staffers of State institutions who have little money," said Yao Dingyi, a vice-president at CITIC Industrial Bank. He said many millionaires and tycoons in China do not use the Internet. A better way to expand business scale would be developing mobile banking services, he said. "I don't know how big the e-banking pie will be because important underlying factors remain so uncertain," he told Business Weekly. |
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