Kapronasia

Top 10 China Financial

Technology Trends for 2011

A look at the key technologies and trends that will define the
Chinese Financial Technology market in 2011

Kapronasia Research
China Fundamentals Series
Title: Top 10 China Financial Technology Trends for 2011
ID: KPCFS0284
Author: Elsa Yan, Zennon Kapron
Date: January 2011
Contents
Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Trend One: Mobile Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Trend Two: Online Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Trend Three: Business Intelligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Trend Four: Service Oriented Architecture (SOA) . . . . . . . . . . . . . . . . . . . . . .6
Trend Five: Virtualization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trend Six: Core Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Trend Seven: IT Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Trend Eight: Cloud Computing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trend Nine: Banking Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Trend Ten: Disaster Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Final Thoughts / Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Forward

In 2010, China once again took its place as one the fastest growing economy in the world. After
‘suffering’ from high single digit growth for a few years, China’s GDP in 2010 was over 10% once
again. A key part of this growth story is of course the Chinese financial services sector, which is
destined to play an even important role not just in the domestic market, but in the global financial
arena as several large banks and financial institutions start to expand overseas.

Domestically, an increasingly sophisticated customer-base is pushing Chinese financial institutions

to change the way they interact with their customers as competition increases. With an increasingly
fickle customer base in China and an incredibly competitive market, banks are expanding abroad
and face challenges with a IT infrastructure that was barely sufficient for China, much less
international markets.

Technology is seen as a key part of the solution for these challenges, enabling financial institutions
to lower costs and enable business growth and development, 2011 should be an interesting year
for technology vendors as investment continues to increase.

Then, what benefits can global financial technology vendors reap from the rapid development
of local financial services sector and where should they focus? These are the questions that
this report intends to answer. It is the first of its kind looking specifically at Chinese Financial
Technology and the key trends and drivers that will shape the industry in 2011. We have detailed
each of the trends that we see as being key going forward and give you an idea of how to tap into
each of these trends.

We hope you enjoy reading this report as much as we enjoyed writing it.

Kapronasia
Trend One: Mobile Banking
Mobile Banking is set to grow as more banking applications are moved onto a mobile platform and
consumers adopt newer richer mobile devices. However, safety and security remain the biggest
concerns among consumers before they readily embrace mobile banking

The launch of 3G in China has ushered in a
complete change in the way that customers
interact with their banks; the mobile phone has
increasingly become a key integrated platform
for combining telecommunication and financial
applications for Chinese consumers China. Mobile
banking is helping banks significantly expand
their business outlets and reduce transaction
cost especially in the lesser developed areas
of China. Meanwhile, mobile banking is driving
mobile operators’ revenues and bringing greater
convenience to consumers.
The Market
According to China’s Ministry of Industry and
Information Technology, the number of mobile
users in China reached 780 million by March 2010.
22% of these users, or 174 million, are mobile
internet users. A recent survey conducted by
Nielsen and released by the Chinese government
shows that over 80% of Chinese consumers
would prefer that their other forms of non-cash
payment such as transportation and banking cards
be integrated into their mobile phone. Driven by
a further development of 3G networks and the
forthcoming 4G networks, China’s mobile banking
market is expected to accelerate its pace of
development in the coming years, with its market
potential predicting to exceed RMB 100 billion by
2012.
In August 2009, the Industrial and Commerce
Bank of China (ICBC), the world’s largest bank
by assets, became the first domestic bank to
introduce what ICBC has branded the “Mobile
Banking (WAP) 3G” service. The service not
only offers basic banking services like account
inquiry and remittance by transfer, but is the first
in China to offer domestic investment and financial
functions such as payment, repayment by credit
card, instalment, funding and gold trade. The
introduction of ICBC’s Mobile Banking (WAP) 3G
is a clear indication of what’s to come and that
banks are embracing mobile banking on a large
scale.
Partner Up
In 2010, competition in the mobile banking space
among major banks and operators intensified. In
China, mobile operators are not allowed to offer
full banking services to their customers directly,
hence they need to collaborate with banks in
order to offer mobile banking services to their
customers. This need has pushed partnerships
established to facilitate the market growth and has
also led to cross-investment between telcos and
financial institutions.
In May, China Mobile, the world’s largest mobile
company by subscribers, took a 20% stake for
Shanghai Pudong Development Bank (SPDB)
for around US$5.9 billion. The strategic alliance
between the two parties is expected to give both
a competitive edge in developing a more robust
mobile banking business model and technology.
Similarly, in August, another major operator, China
Unicom, joined hands with China Merchants Bank
to deepen cooperation in mobile payment and
mobile banking and push Mobile Banking (WAP)
3G services. In the wake of the recent launch of
Apple’s iPhone 4 in China, the two parties jointly
launched “Merchant Bank Mobile Experience
Services”, under which multiple banking related
applications have been made available for iPhone
users to download, which has resulted in greater
product awareness and uptake.

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Kapronasia Top 10 2011 Chinese Financial Technology Trends January 2011
Trend One: Mobile Banking Continued
Concurrently, China Unicom and The Agricultural
Bank of China (ABC) signed a strategic
cooperation agreement. The companies will
collaborate on e-commerce, mobile banking,
mobile payments, and related value-added
services. With the new services, China Unicom
customers will be able to store a prepaid account
on their mobile phone and top the account up
over-the-air by transferring funds from an ABC
account.
Coming into Focus
Perceived as a more convenient and competitive
mode of service delivery, mobile banking has
been drawing greater attention and resources
from all of China’s major banks, some of which
have already extended their banking services
to nearly every mobile platform. In November,
Bank of Communications introduced iPad mobile
banking application, through which iPad users are
able to access both basic account services and
more complicated wealth management offerings.
Users can also enjoy “Non-card” financial services
and the forthcoming enterprise mobile financial
services.
However, despite the increasing popularity of
mobile banking, safety remains the biggest
concern among ordinary Chinese consumers.
Trend Two: Online Banking
Online banking in China is growing rapidly, driven largely by the increasing popularity of online
personal wealth management; and it is expected to grow faster, underpinned by its cost efficiency
and ever increasing value-added services.
In the last decade, the development of online
banking in China has largely gone through three
phases. In the initial stage, which began in 2000,
online banking mainly served the purpose of
“purchasing” and consuming digital entertainment
(mainly online gaming), which needs relatively
simple payment methods; this led to nearly
homogenous competition with all providers offering
a very similar value proposition.
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Kapronasia Top 10 2011 Chinese Financial Technology Trends
They worry that the money in their bank account
will be gone if their mobile phones are lost. The
low willingness to use or trust on mobile banking
among local consumers will continue to drive
banks to improve the security of the mobile
banking channel in order to convince more
consumers to tap into this new banking channel.
Looking forward to 2011
In 2011, mobile banking will continue to increase
in importance and popularity, driven by increasing
mobile phone penetration as well as aggressive
marketing by domestic major banks. While price
will remain a key tactic for the banks to win and
keep customers, service offerings and security
measures will be key competitive differentiators.
Branding will also play a more important role in
retaining and enhancing customer loyalty, hence,
more banks will be likely to launch mobile banking
exclusive brands for the sake of differentiation.
Given the attractive market potential for mobile
banking, we are expecting to have more tie-up
initiatives between banks and mobile operators,
with more ambitious investments in technology
platforms and market promotions. Thus, China’s
mobile banking market is expected to become
increasingly competitive and dynamic in the next
few years.
The second stage, starting from 2006, featured
online services that were more customized
for various industries, resulting in greater
differentiation among payment suppliers. The
current stage, which started in early 2010, the
banking industry has begun focusing on offering
very specific value-added services for example,
online wealth management, which was in need
of a more mature, reliable and safe online mode,
has been developing rapidly also supported by an
January 2011
Trend Two: Online Banking Continued
explosive growth in internet penetration and more
aggressive online promotion by banks, securities
firms, insurance companies and fund houses;
online wealth management in China made huge
strides in 2010.
Online Riches
Leading the popularity of online wealth
management is the rapid development of wealth
management specific banking services. As this
has developed, more and more higher net worth
users are starting to manage their wealth online.
This has prompted major banks to increasingly
move their personal wealth management business
online, with an aim of reaching a broader customer
base and improving service standards.
China Merchants Bank for instance, through their
“i-financial planning” website, allows the banks
customers to not only purchase various wealth
management product lines and over 700 funds,
they can also invest in a range of diversified
products such as gold, foreign currency and
treasury bonds. It is reported that the total value of
wealth management products sold through online
banking by China Merchant Bank has already
exceeded that generated through bank counters,
surpassing RMB 50 billion in 2010. Its “U Bao”
online exclusive wealth management products,
which the bank launched in June, generated
over RMB 10 billion within a short period of four
months.
According to the bank, there are more than
1,000 financial planners present in the “i-financial
planning” online community, which provides
professional financial planning advice and banking
services to its online customers. In addition, its
“i-financial planning” website has also bridged a
gap for those second- or third-tier cities where
there is often significant wealth, but very little
wealth management infrastructure. Its customers
in these cities can easily open account via online
and carry out various wealth management related
transactions.
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Kapronasia Top 10 2011 Chinese Financial Technology Trends
Getting Funding
Another nascent example of the increasing usage
of online banking is direct fund sales. Currently,
the online direct fund sales account for only 5%
of the total fund sales in China, as opposed to
over 60% in some developed countries. However,
industry players believe that once online direct
fund sales mature, there will be a huge demand for
online payment and settlement instruments from
both fund houses and their agency companies.
In April 2010, China Asset Management Company
secured an approval from China Securities
Regulatory Commission to initiate online direct
sales, which has now already become the firm’s
primary distribution channel for fund products.
Following in its footsteps, we expect that over 80%
of domestic fund companies encompassing more
than 300 domestic funds will be moving online in
the coming years, covering almost 90% of banking
customers who will enjoy a truly one-stop fund
trading services.
Looking forward to 2011
Thanks to convenience, low cost and higher
safety, online banking is expected to grow faster,
with a higher popularity than ever with Chinese
financial institutions and investors in 2011. The
increasingly advanced internet technology will
provide banks with more opportunities to interact
with their customers, who can request customized
services. By addressing these specific customer
needs, banks can significantly improve customer
relationships and experience. In addition, given
its low-cost advantage and abundant information
resources, online banking is expected to offer
more innovative and value-added banking services
such as company credit appraisal, personal
financial planning advisory and expert investment
analysis, which will further enhance the role of
bank as an information intermediary.
As Chinese banks are vying for embracing online
banking, technology vendors will also benefit from
this boom, such as network solution providers and
independent software vendors focused on this
space.
January 2011
Trend Three: Business Intelligence
Ludelum nonituiure, unte anulvis o vignatus, ales in vivivereo, quere tus consus; ne a opubli in
Demand for business intelligence (BI) is rapidly increasing, thanks to richer set of applications; small and
ducere, ve, viverfic te ad fac tem. movivitis, mus et pericul iamquam omnox nique poenitis sil
medium banks are playing catch-up and actively adopting BI solutions
vemquonsu it C. Ast vertem, nique omnique rcerum publi cumenat iusquius conte itelleg ilius.

BI in China is mainly used in the financial services,
telecommunication, manufacturing, healthcare
and retailing sectors. As an instrument to enhance
an enterprise’s intelligence and competitiveness,
although previously not heavily used, BI has been
getting more and more attention from Chinese
companies especially in the financial services
sector.
Getting Smarter
According to ChinaBI, an information website
dedicated to business intelligence, the total value
of China’s BI market reached RMB2.6 billion in
2009, up by 18%, accounting for about 8% of the
overall enterprise management software sales.
Thanks to a faster economic recovery in 2010, the
demand for BI in China is expected to surge for
the next five years.
The Chinese financial services sector is one of
the earliest BI adopters. In the early 2000s, many
local financial institutions were very focused
on consolidating back-end data warehouses.
Traditionally banks were very much managed on a
province by province basis, and data was spread
throughout without having a consolidated single
source of information.
it also is being more widely used at the branch
operations level, particularly in the area of credit
evaluation and decision making. Apart from major
commercial banks, local small and medium banks
have also begun to spark an active demand for
BI, as they keep growing in business portfolio and
geographic expansion.
The adoption of BI provides Chinese banks
with better solutions to improve their financial
auditing and risk control, and thus the overall risk
management capabilities. In addition, BI also
helps banks to integrate their enterprise resources
and implement cost control, profitability analysis
and performance evaluation, meanwhile, enhance
customer relationship through developing value-
added service etc.
SAP is one of the market leaders globally in BI and
has also established itself in the Chinese market.
SAP has provided a wide range of business
analytic solutions to a number of domestic and
foreign banks in the Chinese market including
China Development Bank, ICBC, CCB, BoCom,
Mingsheng Bank, Guangdong Development Bank,
Bank of Chongqing, HSBC and Hang Seng Bank.
Looking forward to 2011

Bringing it together As China’s economy continues to grow, we expect

Today, nearly all of the banks in China have a
consolidated data-warehouse and fairly complete
business processing systems. With that foundation
of data and systems in place, banks are now
starting to figure out how to utilize all of that data;
BI is seen as a key enabler.
This new outlook has rapidly increased demand
for risk management and BI systems. BI is no
longer only used by manager’s decision-making;
that the demand for BI in the local financial sector
will remain strong in 2011 and financial institutions
will be increasingly demanding more sophisticated
and intelligent solutions.
In the context of enterprise’s business strategy
and process, BI is expected to integrate different
business systems through “gateway” technologies,
and provide more personalized one-stop services
such as business decision-making, data mining
and business intelligence. With the advancement

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Kapronasia Top 10 2011 Chinese Financial Technology Trends January 2011
Trend Three: Business Intelligence Continued
of 3G wireless mobile technology, mobile BI is
expected to grow in popularity, as users can
realize dynamic management through data
exchange and obtaining analysis report anywhere
and anytime.
Due to high cost and complexity of developing
traditional BI tools, likely we will see local small
and medium sized banks opt for software
as a service (SaaS) models for their initial
implemenations given the model’s quicker
implementation and lower cost. Hence, SaaS BI is
expected to become another focus of development
and competition for major BI manufacturers in the
coming years.

Trend Four: Service Oriented

Architecture (SOA)
SOA is accelerating in development underpinned by the global players’ push into China and
increased government support; the fast-changing landscape of Chinese banking sector expects
more local banks to adopt SOA framework to stay competitive and compliant

Due to increased market competition, the
development cycle of new products and new IT
systems in the Chinese financial services sector
have shortened greatly. IT staff are under pressure
to reduce difficulties and risks involved in system
development, to ensure the timely implementation
of systems. The emergence of SOA provides IT
departments with a better solution to help speed
up system development and accommodate
constant system changes made by banks in a
more flexible manner.
Driven by a growing push of SOA solutions
by domestic software vendors and system
integrators, SOA sales have grown rapidly in the
local market. According to CCW Research, a
Beijing-based Chinese IT market research firm,
the total value of SOA related software services
market in China reached RMB 1 billion in 2009, up
by 28% from the previous year.
Still a ways to go
Albeit still a relatively underdeveloped market,
nearly almost all the global leading software
companies have begun to push forward the
development and application of SOA in China:
Microsoft spent US$7 billion on a SOA research
and development (R&D) in 2009 and Oracle
launched SOA Suite 11g with Oracle Service Bus
in the mid of 2010.
The Chinese government has also pledged
support for the development of SOA. As early
as December 22, 2009, China established
SOA standard work committee and has made
significant progress in SOA R&D since then. In
May 2010, the Committee of ISO/IEC JTC 1 SC 38
Distributed Application Platforms & Services held
its first plenary meeting in Beijing, when China-
advocated SOA International Standard “New
Work Item Proposal” was officially passed. The
move symbolized that the standardization work
promoted by China in the SOA area has gained
widespread recognition and acceptance among
international community and China’s SOA related
industry is expected to embark on a fast track in
the coming years.
Looking forward to 2011
In 2011, three major focuses will drive the uptake
for SOA in the Chinese banking sector: increasing
international expansion by domestic commercial

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Kapronasia Top 10 2011 Chinese Financial Technology Trends January 2011
Trend Four: Service Oriented Architecture Continued
banks, a more customer-centric approach to
business and better risk management and
control. These focuses will prompt more Chinese
commercial banks to actively pursue “process
banking” based on an SOA framework in 2011,
which will become key source of competitiveness
Trend Five: Virtualization
Virtualization technology will grow even in popularity, benefiting from its green and cost effective
nature; virtual desktop and server applications will lead the way
With nearly all of China’s major banks completing
data warehouse consolidation and application
integration projects in the recent few years,
financial institutions’ data centers have gone from
being a liability to an asset.
Although the data center in the past has effectively
supported bank’s business development and
product innovation, it has been the source of
problems. The data center issues in China are not
unlike those in the west: Disparate systems have
lead to numerous non-integrated applications and
data, poor resource sharing, and underutilization
of an ever-increasing number of servers. This has
all led to higher maintenance and operating cost
as well as environmental issues.
To address these issues, virtualization technology
was introduced by Chinese major banks in an
effort to build virtual IT environment and pursue
“green banking”. In many aspects, virtualization
represents the best type of technology to help
solve these type of data center problems.
Starting to use
An example of a bank that has benefited greatly
by the adoption of virtualization technology is
China Development Bank. By moving a dozen
of applications that were originally operating on
a number of in a handful of servers to only four
HP Superdome servers, the bank has realized
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Kapronasia Top 10 2011 Chinese Financial Technology Trends
for banks to win in the future market competitions
and better comply with the increasingly tightening
government regulations.
dynamic allocation and united management of
its IT resources with HP’s VSE (Virtual Server
Environment) solution.
Another example is Bank of East Asia’s China
subsidiary which, after going through a series of
stages, from desktop virtualization, application
virtualization to server virtualization has built a
complete virtual data center including a virtual
private cloud.
Apart from the banking sector, local insurance
industry has also begun experimenting with
virtualization technology, led by China Pacific
Insurance Group, the second largest domestic
property insurer. Currently, 95% of servers in its
data center are operated on the virtual platform.
Looking forward to 2011
In 2011, IT infrastructure will face tremendous
challenges as local financial institutions struggle
to deal with increasing data and application
requirements as banks further diversify their
businesses and customize product offerings.
This challenge, coupled with the demand from
banks and insurers for mature, localized and
complete virtualization technology solutions will
provide ample opportunities for the application of
virtualization technology. We expect that Chinese
banks will continue to prioritize and focus on virtual
applications on both the desktop and server side,
in order to better meet their demand for faster
future business expansion and product launches.
January 2011
Trend Six: Core Banking
Ludelum nonituiure, unte anulvis o vignatus, ales in vivivereo, quere tus consus; ne a opubli in
Core banking remains a focus by Chinese banks; small and medium banks will be increasingly
ducere, ve, viverfic te ad fac tem. movivitis, mus et pericul iamquam omnox nique poenitis sil
targeted as they advance in geographic expansion and business innovation
vemquonsu it C. Ast vertem, nique omnique rcerum publi cumenat iusquius conte itelleg ilius.

In recent years, China’s banking sector has gone
through rapid changes, driven by deepening
financial reforms, growing presence of foreign
banks and quickly evolving customer demand.
With intensified competition, there is a new
wave of investment in core banking systems
among Chinese banks, in a hope to sharpen
their technology edge and stay ahead of the
competition.
In 2010, core banking system remained an IT
focus for many banks. Many either upgraded their
existing core systems or built their next-generation
core systems with a view to meet their future
business needs and reengineer their existing
business processes. This trend was particularly
evident among small and medium sized Chinese
banks.
banking system. The Beijing-based China Digital
is China’s largest core banking provider and
will supply the Bank of Chengdu with its own
developed ModelB@nk core banking solution. The
solution is expected to provide overall support for
the bank’s existing core banking business and also
meet the demand for its business innovation and
development in the next five years.
With more local banks opting for completely new
core banking systems, some banks also saw their
core banking projects go live in 2010; in April,
Shenzhen Rural Commercial Bank successfully
brought its core banking online, which was
developed and implemented by US-based Fiserv
and China Digital respectively.
Looking forward to 2011

Smaller but better opportunities
Compared to large commercial banks, many
small and medium banks lag behind in core
banking technology largely due to being a newer
segment of the market and not benefitting from
as much government support as their larger
counterparts. Therefore, it has been imperative
for them to upgrade or overhaul their core
banking, which is becoming more crucial for their
business development and expansion. Given the
fragmented nature of small and medium banks,
the potential for the core banking market is very
attractive, hence they are increasingly being
targeted by both domestic and international
vendors.
In September 2010, the largest city commercial
bank in the middle and west part of China, the
Bank of Chengdu, from Sichuan province, selected
China Digital to provide its new-generation core
Driven by the rapid business expansion and
customer-centric product demand, we expect to
see more of small and medium banks speed up
their investment in core banking systems in 2011.
For foreign vendors, localization is key to crack the
market. Compared to their foreign counterparts,
domestic players own local market know how and
have a good customer relationship and a higher
degree of trust from their customers, which is
important for customers when they consider long-
term ‘vendor risk management’.
Local vendors also enjoy higher industry
reputations, have deeper track records in project
implementation and larger customer bases.
Therefore, it is crucial for foreign core banking
players to find and partner with local vendors to
quickly win deals.

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Kapronasia Top 10 2011 Chinese Financial Technology Trends January 2011
Trend Seven: IT Risk Management
Ludelum nonituiure, unte anulvis o vignatus, ales in vivivereo, quere tus consus; ne a opubli in
IT risk management is being prioritized as result of the tightening regulatory environment; increasing
ducere, ve, viverfic te ad fac tem. movivitis, mus et pericul iamquam omnox nique poenitis sil
investments will be made to enhance banks’ risk management capability
vemquonsu it C. Ast vertem, nique omnique rcerum publi cumenat iusquius conte itelleg ilius.

Non performing loans (NPLs) in the early 2000s
were a key issue for banks and with the increased
lending in the past few years, the spectre is
once again looming. Conversely, liquidity is often
somewhat unpredictable in China with reserve
ratios that change with little notice - banks need to
understand their risk exposure at any point in time
to not only control risk, but indeed expand their
business.
Understanding risk
Despite the fact that the leading Chinese banks
such as ICBC, CCB, BOC, and BoCom have
consistently ranked as the world’s top ten banks
by market capitalization in the past few years,
the development of risk management capability
among Chinese banks is still at an infancy stage.
Many banks have taken a ‘if it hasn’t broken – it
won’t, so why do we need to put something in
place in case it does’ attitude. This has formed a
striking contrast with global foreign banks, which
have already developed a complete suite of risk
management systems, including risk identification,
alert, decision-making, prevention and the entire
process monitoring system.
Stimulating yet risky
During the economic downturn, China’s
commercial banks played a pivotal role in
supporting Chinese government to implement
a massive RMB 4 trillion stimulus program. A
large portion of this stimulus was injected into
the economy through an aggressive government
supported lending program which has lead to
increasing credit risk in many of the major banks.
This increase has further increased the need for
local commercial lenders to step up efforts to build
up sound IT infrastructure to improve their overall
risk management capability.
The drive to upgrade risk management systems
and processes is being driven by joint stock
commercial banks such as China Merchant Bank
and CITIC Bank. These banks have initiated IT
risk management system schemes, which include
framework formulation, organization, policy,
strategy, standards, process and methodology with
regard to IT risk management. To support these
policies and procedures, they have also introduced
related software and services from external IT
vendors.

The global financial crisis that took hold in late
2008 has dealt a blow to the global financial
market and pressed Chinese regulators to work
on improving risk management capability of local
banks. Especially with the rollout of Basel III in
September 2010, risk management has emerged
to be a top priority for People’s Bank of China, in
its effort to tighten supervision on local banking
sector and push local banks to integrate faster into
the global banking system.
Smaller starters
Following in the footsteps of larger banks, local
small and medium banks have also started
focusing on building their own risk management
information systems. With a growing business
portfolio and increased market competition, small
and medium banks are facing many restraints and
difficulty, due to lack of sufficient manpower and
information, which cripples their ability to compete
with large rivals.

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Kapronasia Top 10 2011 Chinese Financial Technology Trends January 2011
Trend Seven: Risk Management Continued
As a result, more small and medium banks
have begun to attach a greater importance in
IT investment and rely on IT to realize their fast
geographic expansion, new product launch
and widening of distribution channels. Through
strengthening IT innovation, these banks are able
to effectively reduce their credit and operating
risks.
Trend Eight: Cloud Computing
Cloud computing is still relatively new in China, however, it is ramping up rapidly as customer
understanding grows; small and medium banks are moving faster in terms of cloud adoption
Cloud computing has become a huge buzz word
in the IT world. Since its inception, it has quickly
swept across various different industries. In the
financial service sector, cloud computing can help
financial institutions to enhance data safety, share
technological resources, improve service quality,
and lower operating cost - all of which can be
translated into sources of competitive advantage
for companies.
Cloudy outlook
While more and more foreign banks are
contemplating migration of their IT infrastructure
onto the cloud, China’s banks are still hesitant to
embrace the technology, mainly out of a concern
for safety. Nevertheless, the low cost and powerful
computing capability associated with cloud still
remain very attractive to these banks, indicating
a positive prospect for cloud computing in the
local financial market, although the large-scale
application of cloud computing among local major
banks might have a long way to go.
Small and agile
In comparison to the larger banks, the application
of cloud computing is often very clear for small
and medium sized local banks. Owing to lack of
funds and manpower, these banks are keener on
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Kapronasia Top 10 2011 Chinese Financial Technology Trends
Looking forward to 2011
In 2011, we expect that Chinese banks will put
more efforts to enhance their risk management
controls and infrastructure by leveraging multiple
IT technologies. One key focus area will be IT
risk; banks need to better collect and analyze
IT security logs and monitor the state of its
information risk. Local banks are also expected to
develop auditing tools, in a bid to improve its ‘after-
the-event’ monitoring mechanisms.
exploring new and innovative IT technology and
solutions to assist them to leapfrog their bigger
peers amid the increasing market competition.
For example, one of the biggest obstacles that
village and township banks, part of China’s
grassroots rural banking institutions, are facing, is
how to build their IT systems in a faster and more
cost effective manner; cloud computing fits this
need perfectly.
Major domestic IT players have already lined up
to meet the rising demand from small and medium
banks. Digital China has opened a data center
in Xi’an, the capital of Shannxi province where
systems are accessed via the relatively simple
telnet protocol. Banks with limited IT infrastructure
can install terminals and immediately obtain all the
necessary IT support systems and maintenance
services, thus helping these banks commence
operation within a much shorter time frame.
Jinzhong City Commercial Bank, from Shanxi
province, also deployed its entire bank card
system in the Digital China data center, which can
provide services such as transaction, management
and account checking for the cards business.
In doing so, the bank is able to better focus on
improving services and product offering for its
cardholders, without worrying about potential
January 2011
Trend Eight: Cloud Computing Continued
payment issues among various parties. This model
has set a good example for other regional small
and medium banks to follow in future.
Government involvement
As cloud computing has been evolving in China, it
has also caught high level government attention.
In October 2010, The Ministry of Industry and
Information Technology and The National
Development and Reform Commission published
a note supporting innovation in cloud and set up
innovation centres in five cities: Beijing, Shanghai,
Shenzhen, Hangzhou and Wuxi, paving the way to
promote cloud in the related industries.
Looking forward to 2011
In 2011, we expect that the development of
cloud computing in local financial sector will
continue to gain momentum, driven by a greater
Trend Nine: Banking Security
Banking security monitoring systems are growing in sophistication; networking, intelligence, high-
definition and integration are expected to define the market
Banking security monitoring systems are mainly
comprised of network and automatic teller
machine (ATM) monitoring systems. Currently,
except for Bank of China, the banking security
monitoring systems in the majority of Chinese
banks need to be upgraded or revamped.
Statistics show that the number of ATMs in China
surged by 27% to reach 245,000 in 2009 and that
number is projected to keep growing at 20-30% in
the next few years. The fast penetration of ATMs
in local banks is thus anticipated to drive a rapid
growing demand for ATM monitoring systems.
Keeping an eye out
With extensive branch networks, Chinese major
banks are seeking to build remote networking
monitoring systems, which feature better safety,
higher-efficiency and advanced intelligence. With
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Kapronasia Top 10 2011 Chinese Financial Technology Trends
understanding of the technology itself. An
increasing number of Chinese major banks will
be pursuing cloud computing for the sake of cost
efficiency and easier management; public cloud
will gain further acceptance among local small and
medium banks thanks to its flexibility and lower
cost, and outsourcing will become a growing trend
for these banks will be increasingly using external
companies to host the environment for them.
While local firms enjoy competitive edge in
established customer relationships and operational
experience, foreign vendors will be increasingly
preferred by Chinese customers for their advanced
product offerings.
this system, banks can achieve trans-regional
centralized monitoring with a long-distance
transmission of images and pictures.
The attractive potential of networking monitoring
market has promoted domestic and foreign
security manufacturers to develop related
products such as network cameras and video
servers. These products have been increasingly
well received by the market due to their growing
intelligence and superior networking functionality.
Looking forward to 2011
In 2011, we expect that the technologic focus
of local banking security monitoring system
market will be increasingly emphasized on
digital, networking, intelligent and comprehensive
solutions. In particular, intelligent video technology
will hold great potentials in the local banking
sector, among which face recognition technology
is expected to play a key role in the banks.
January 2011
Trend Ten: Disaster Recovery
Ludelum nonituiure, unte anulvis o vignatus, ales in vivivereo, quere tus consus; ne a opubli in
Disaster recovery systems have drawn increasing attention from financial companies and
ducere, ve, viverfic te ad fac tem. movivitis, mus et pericul iamquam omnox nique poenitis sil
regulators; outsourcing services are expected to thrive
vemquonsu it C. Ast vertem, nique omnique rcerum publi cumenat iusquius conte itelleg ilius.

In recent years, as Chinese banks have been
working on data consolidation at the national
level, the data centres have increasingly become
more important and therefore a key consideration
for banks’ disaster recovery plans. To prevent
and solve these risks and ensure data security
of financial institutions, more local banks have
started attaching greater importance on building
secure and robust disaster recovery systems.
have been seen allocating more resources to
develop disaster recovery related products such
as backup, storage and data security systems.
Nevertheless, the local market for disaster
recovery system is still dominated by global
players represented by IBM, HP, Symantec and
EMC.
Looking forward to 2011

According to IDC’s report “China Business
Continuity and Disaster Recovery Market
Forecast, 2008-2013, data disaster recovery
service and business continuity in China is
expected to become the fastest growing segment
in the local IT service market during 2008-2013,
with a CAGR of 52%. And the firm predicts that
the total investment in disaster recovery market in
China is likely to exceed RMB 10 billion by 2010.
A standard recovery
In 2011, we expect that local small and medium
sized banks will lead the demand for disaster
recovery systems, particularly for joint stock
commercial banks and city commercial banks, as
they seek national expansions in the next phase.
With increased operating risks, banks have
begun to put more value on the benefits brought
by disaster recovery systems, which will be key
to ensure consecutive business operation and
improve risk management capability.

The importance of disaster recovery systems has
promoted Chinese government to formulate a
series of industry standards in this field. In June
2009, China Banking Regulatory Commission
issued a new guideline on IT Risk Management
of Commercial Bank, which has set a higher
standard for the information security and business
continuity of the entire life cycle of banking IT.
With a higher importance being attached to
effective disaster recovery by the Chinese
authorities, some major domestic manufacturers
This trend is also likely to be seen in local
insurance and securities sector, where more
small and medium sized insurers, securities
firms and fund companies will invest disaster
recovery systems. Compared to self-built disaster
recovery centers, outsourcing services on disaster
recovery will be much more popular among these
companies, as the latter can provide lower paid-
up investments, shorter construction period and
higher service standards.

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Kapronasia Top 10 2011 Chinese Financial Technology Trends January 2011
Final Thoughts / Recommendations

In 2011, Chinese banks and financial institutions will continue to mature and expand both in terms
of business footprint and breadth of service. Kapronasia expects financial technology investment to
follow suit as institutions both seek to get the most out of their current IT systems as well as invest
in new technology to support future business growth.

Key for any financial technology vendor coming into the Chinese market is having a clear
understanding of the market opportunity and how to tap into it. We have seen countless technology
companies come into the market with very little forethought to how to move forward; they tend to
waste an incredible amount of resources, both human and financial, pursuing strategies that may
work in the west, but don’t work here.

Established foreign vendors in the Chinese market will still need to focus on developing a track
record and differentiating their products and services. Domestic product and service offerings,
while still largely behind the standards of those from the west, are maturing quickly enabling
domestic players to expand into global markets, often on the coattails of domestic financial industry
customers who are also expanding abroad.

In either case, a clear understanding of the current and future needs of the overall economy,
industry and your specific sub-segment should guide your investment decisions and market
focuses. The Chinese Financial Technology market will remain one of the largest and most
dynamic in the world in 2011, but will also be one of the most challenging!

For any additional information on the research included in this report or on Kapronaisa’s products
and services, please email us at research@kapronasia.com

Kapronasia
ABOUT KAPRONASIA

Kapronasia was founded in 2007 to meet the needs of Financial Service technology companies
doing business in Asia. Kapronasia provides research, consulting and full services marketing to
the financial services industry and works closely with clients to create sustainable value for their
businesses. For more information please visit: www.kapronasia.com

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circumstances of individual or entity. Although we endeavor to provide accurate and timely
information, there can be no guarantee that such information is accurate as of the date received or
that it will continue to be accurate in the future. No one should act upon such information without
appropriate professional advice after a thorough examination of the particular situation.
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