China and Transaction Banking

It is 15 years since my first business trip (on behalf of a bank) to China - Pudong which, as a New Open Economic Zone, was still a work in progress and then visits to factories along the Pearl River, including the Victoria’s Secret supplier employing hundreds of machinists - all men. I asked the owner of the factory about his longer term plans – where would he expect to be in say five years time? Rather puzzled he replied, “in China, longer term is measured by generations, not five years”… fast forward to 2010 - China overtakes Germany as the world’s largest exporter.

Today only the US has a larger economy than China. Ovum’s recently published report predicts a 49% growth in Asia Pacific banking technology spend over the next five years with Chinese banks accounting for US$7.8 billion by 2015. This will have to be funded out of revenue growth which European bankers can only dream about. Any vendor capturing just 1% of the forecast spend will add the better part of £50 million to their annual sales.

Where will this five year, £5 billion spend be directed? On line and mobile solutions (no doubt), risk and compliance solutions (probably) and then… Transaction Banking? Chinese exports rose from US$1.2 trillion in 2009 to US 1.5 trillion in 2010 and this exporting Leviathan is predicted to generate 10% year on year growth in 2011. So, is China the global sweet spot for Transaction Banking specialist vendors? Is the minimum entry level determined by those capable of delivering today fully scalable, fully integrated front to back solutions with no platform dependencies and proven, multi lingual, trade finance/receivables finance/cash management/supply chain finance capabilities? Personally I’d stick with these as pre-requisites – agreeing on long term planning criteria may not be any easier today than it was in 1996.