Core Banking System Trends in China

by Wenli Yuan, April 3, 2008

Abstract

Beijing, China 3 April 2008


A majority of Chinese banks will require either a new business system or an overhaul of the old system to maintain a competitive edge.

The banking industry in China is relatively young. Its core business systems have been gradually established along with the growth of banking operations and therefore lack overall planning and design. With increasing market competition, the requirements of banks in relation to their business processing systems are no longer limited to their ability to handle operations or keep accurate business records.

A new report, , examines how banks can better address their customers’ needs and provide a flexible configuration of products, effective management of risk, and more analytical and management functions through the establishment of new core banking systems.

Globally, many banks are no longer satisfied with outdated core systems developed decades ago. They observed the following:

  • The old systems lack flexibility and can no longer support banks’ rapid innovations, preventing them from maintaining their competitiveness.
  • The maintenance costs of old systems are very high.
  • The risk management and controls of old systems are not strong enough.
  • The support of management decisions by old systems is relatively weak.
  • Global banks are unable to properly integrate their systems in the various countries and regions.

Many banks have chosen to renew their core systems. This trend can be observed in North America, Europe, and the Asia-Pacific region and is now emerging in China.

The entry of foreign vendors has significantly reduced domestic vendors’ chances of winning bids for the next-generation core system projects of joint-stock commercial banks. As a result, domestic vendors are turning their attention to new markets such as urban commercial banks, rural commercial banks, and rural credit cooperatives. Some domestic vendors have also established partnerships with foreign vendors in the development of core business systems, with the hope of maintaining a market share of joint stock commercial banks and large urban commercial banks through localization of these systems.

“Urban commercial banks will be next in line to overhaul their core banking systems. Very few of these banks have introduced the next generation of customer-centered core business systems. Currently, most medium-size and large urban commercial banks are using the integrated operation systems provided by domestic vendors, but there is a need to upgrade,” says Wenli Yuan, analyst with Celent’s Asia Research Group and author of the report.

“Domestic and international vendors, as well as other financial institutions, have set their sights on this particular market,” she adds.

The report looks at the status of core business systems in banks, examining the four developmental stages of core banking systems as they relate to the four tiers of banks. It also explores banks’ core systems models, explaining independent product development and customization after purchase.

This report is 26 pages and includes 13 tables and one figure. A table of contents is available online.

Members of Celent's Wholesale Banking and Retail Banking research services can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Beijing, China 3 April 2008

Executive Summary 04
Introduction 06
Status of Core Banking Systems 07
  The Four Developmental Stages of Core Banking Systems 07
  The Four Tiers of Banks 10
  Development Status of Core Banking Systems 11
Development Model of Core Systems 22
  Independent Product Development 23
  Customization of Vendor Products 24
  Joint Product Development 25
Conclusions 26

 

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