ATM Dynasty Dawns for Chinese Banks
SHANGHAI, China -- Chinese banks are quickly shedding employees from their bloated ranks, but they are eager to deploy one type of worker: the ATM.
The fast adoption of bank automated teller machines is one facet of the Chinese financial industry's efforts to increase efficiency by relying more on technology, particularly from overseas. Three companies supply most of China's ATMs: two American companies from Ohio -- Diebold Inc. and NCR Corp. -- and Germany's Wincor Nixdorf AG.
Manufacturers are expected to sell 128,000 ATMs in China from 2005 through 2011, when the number of ATMs in use world-wide will total about two million, according to Retail Banking Research Ltd. The U.K. market-research firm says China still will have fewer ATMs than do the U.S. and Japan, but China is expanding its network more quickly, while growth in developed markets such as the U.S. is predominantly driven by machine upgrades.
A decade ago, China's financial industry began importing technology to modernize behind-the-scenes computer systems, such as running branch-office operations and handling employee databases. These days, Chinese banks are making changes customers can actually see, helping local institutions compete with service-oriented giants such as Citigroup Inc. of the U.S. and HSBC Holdings PLC of the U.K., which are expanding quickly in China.
The banking industry's technological upgrade goes beyond ATMs. SunGard Data Systems Inc., a Wayne, Pennsylvania, provider of software to financial-services firms, this month purchased Shanghai Fudan Kingstar Computer Co., a Chinese maker of financial-market trading systems. International Business Machines Corp., which has experienced stronger demand from Chinese banks for its software and services, recently joined Citigroup in purchasing a stake in Guangdong Development Bank, a Chinese lender. The companies said IBM would help provide technology expertise to the bank.
ATMs were introduced in China 20 years ago but only became convenient for customers in 2002 when a network called China UnionPay Co. linked them together. The growth of ATMs has had its hiccups. In 2005, a technology officer at Agricultural Bank of China was convicted of accepting $1.85 million in bribes from Chinese and Japanese vendors of ATMs. This April, $16 billion in ATM and other transactions were paralyzed when the China UnionPay network broke down for six hours, according to China's state-run Xinhua news agency.
Like their U.S. counterparts in decades past, Chinese banks are hoping that moving basic banking functions away from the teller window and onto ATMs and other electronic platforms will enable them to cut staff, improve internal controls, generate fees and offer customers a more-modern banking experience.
Chinese banks are increasing their use of ATMs at a time when they also are scaling back their colossal branch networks. Industrial & Commercial Bank of China Ltd., the country's largest bank, for example, has halved its number of branches in the past decade, to about 18,000, cutting tens of thousand of jobs in the process. At the same time, ICBC has been adding more than 1,000 ATMs annually to a network that now tops 19,000 machines.
"There's not much choice for them. They need to move transactions to machines," says Chris Yao, vice president of NCR's financial-solutions division in China.
Despite its fast-growing market and big potential for continued growth, China poses challenges to ATM makers. Chinese banks demonstrate little loyalty to any one supplier, and, despite costing $20,000 to $40,000 apiece, ATMs increasingly are considered commodity items for which banks seek the lowest bidder.
Chinese banks have taken advantage of the fact that many ATMs use Microsoft Corp.'s Windows operating-system software, enabling the banks to mix and match machines made by different companies in their networks -- and get the best price. "Price erosion is happening every year," Mr. Yao says.
Still, deals in China can be sizable by industry standards: in one sale last year, ICBC bought more than 1,100 of Diebold's Opteva ATMs and other equipment for $25 million.
In the U.S. and Europe, banks have moved an increasing range of services to ATMs, everything from stock trading to account transfers. In China "it's really focused around cash," says Tom Hutchings, an associate at Retail Banking Research. Chinese banks are at the forefront of adopting low-maintenance but expensive machines that "recycle" money so that cash deposits can be used for withdrawals by other customers rather than stored separately.
Not surprisingly, China has become important for ATM makers as a manufacturing center. At Diebold's Shanghai factory, 200 workers in blue smocks last year assembled 12,000 ATMs for the China market and for export overseas. In the same facility, a 24-hour call center connects Diebold staff with technicians in the field who maintain bank ATMs. In another room, Diebold engineers gather market intelligence by disassembling competitors' machines.
At a mock banking center, Diebold engineers use reddish "money" to demonstrate how their ATMs can help change the banking experience: a computer voice in Chinese leads a customer step-by-step through the user process; a 15-inch liquid-crystal-display screen plays color advertising to its captive audience; the machine's face is angled to keep criminals from installing devices that steal cards or personal-identification numbers; a door opens to accept a brick of as many as 50 bills at a time.
The last feature makes ATMs especially important in a country where personal checks and credit cards have yet to become commonplace. Chinese consumers "rely heavily on cash," Zhaohui Wu, a spokeswoman for Diebold, says.
From: Wall Street Journal, By JAMES T. AREDDY
Date: December 28, 2006 Back