The Industrial and Commercial Bank of China (ICBC), the country's largest state-owned commercial bank, has seen extensive growth in its e-banking program recently, with 176,000 corporate clients and 12 million customers registered in several large cities.

In September, ICBC noted that its e-banking transactions totaled 170 billion yuan (US$21 billion) in the first five months of 2005, up 27% from the same period in 2004. This marked a dramatic increase from only five years ago, when e-banking transactions totaled only 15.4 billion yuan.

In early October, ICBC reported e-banking transactions volume for customers hit 80.2 billion yuan for the month of September, breaking the 80 billion yuan monthly mark for the first time. "The era of [really] tough competition between foreign and local banks is yet to come for Internet banking in China," said Zhou Yonglin, marketing director of ICBC.

In July 2004, China Construction Bank (CCB), the largest Internet bank in Hong Kong serving over 60% of the online bankers in the city, reported its e-banking business was developing rapidly. In October, CCB noted that over 10 million new online banking accounts were opened in 2004, while transaction volumes grew by 40% over 2003 figures. The bank recently described its e-banking service as "a core strength and fundamental to its business." To achieve its goal of becoming a leader in e-banking, CCB has strengthened its online management team, encouraged employee training, improved marketing strategies and enhanced customer outreach programs.

The Chinese government has also recognized the importance of e-banking to the country's continued economic growth. The People's Bank of China (PBoC), the country's central bank, announced in September that it would oversee all electronic payment businesses and grant licenses for Internet service providers. In July, the PBoC's Department of Payment and Clearing published a draft "Management Regulation on Payment Organizations" for public comment addressing key payment system issues. The China State Council solicited opinions in January on accelerating the development of e-commerce related to payment and settlement services, while the Standing Committee of the 10th National People's Congress passed the Law on Electronic Signatures in August 2004.

As with any new technology, e-banking presents certain risks for banks. Inadequate planning, faulty deployment, insufficient internal controls, legal and regulatory ambiguity and weak outsourcing standards all pose significant risks to an e-banking system. Data integrity, confidentiality, authentication and authorization issues will also place certain stresses on an immature e-banking system.

To address these concerns, banks will need to implement risk management practices that effectively identify, measure, monitor and manage risk. "Banks must put in place concrete development plans and a system of controls and security that boosts competitiveness and sustains further progress," said Liu Mingking, chairman of the China Banking Regulatory Commission (CBRC).

Phishing (sending emails faked to look like they came from a particular bank in a bid to obtain passwords from that bank's customers), money-laundering schemes, phony Internet banks and the unauthorized use of personal information to conduct e-banking activities are an increasing concern for e-banking.

Consequently, Chinese banks that offer e-banking solutions will need to implement effective fraud prevention methods. Any risk assessment should include the type of customer (retail or commercial), customer transactional capabilities, the sensitivity of customer information being transmitted and the volume of customer transactions. Reliable customer authentication using passwords, digital certificates, tokens and biometric identifiers will help e-banking take root and flourish.

The success of the recent manned Shenzhou VI space mission shows the extent to which China has become a technologically driven society. As a country, China understands the importance of technology in today's world. It is only natural, then, for banks and their customers to pursue e-banking.

A properly configured e-banking infrastructure will ensure orderly growth and sustainable economic progress for China. Consumers will evaluate e-banking products and services based on trust, confidence, user privacy, transaction legitimacy, security, system dependability and merchant acceptance and conveyance. To ensure success, the Bank of China must take a leadership role by providing a blueprint for banks, customers and third-party vendors to follow. Without such guidance, China may find itself with several conflicting e-banking standards which will ultimately inhibit the development and growth of the country's financial system.

Technology has become the great enabler for the global banking industry, helping today's banks meet the changing needs of their customers, while at the same time optimizing cost savings and improving operating efficiencies. Moving forward, a careful balance of regulatory reform that includes an industry-wide architecture and affiliated governance structure, coupled with well-managed bank initiatives, will be needed. Moreover, increased financial transparency, clearer banking standards, predictable regulatory enforcement and curtailing financial corruption will be of enormous help.

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