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Lands of Opportunity

Despite the challenges, emerging markets are an increasingly attractive outlet for U.S. banks.

However, cautions Amdocs's Blum, China's scale could throw many banks for a loop. "The proportions there are extraordinary," he states. "Do we have the right architecture to address this volume? Many banks underestimate the speed of growth and the volume in China." Based on technology alone, Western banks have the edge, adds Blum, especially in China, since the core banking systems there are quite antiquated.

The same is true in Eastern Europe, says Wachovia's Wilmot, who sees many parallels between the two regions. Before the fall of the Soviet Union, financial services institutions "had very centralized banking models, limited competition and limited investment in technology -- they were stagnating," he says. "Now they're looking to banks in Western Europe as potential investors to buy into their banks and to provide the technology solutions that they have starved for for so many years."

India presents a slightly different situation. Although, like China, it boasts a large population, unlike China there already is an existing banking infrastructure. ACI's Hale says the payments infrastructure there is growing and is primed for more electronification.

"India has some huge banks, unlike China," adds BearingPoint's Nikonovich. "These banks have centralized technology. The Chinese banks don't have nearly the same branch coverage as the Indian banks, and they have very regionalized IT systems."

When examining Latin America, insiders agree the financial systems in some countries, including Brazil and Argentina, actually are quite advanced. This is especially true around electronic payments, according to ACI's Hale. Competitively, however, the situation in Latin America is somewhat akin to that in Eastern Europe, he relates, since many Western European banks -- Banco Santander and ABN AMRO, for example -- already have made inroads in South America.

Culture Shock

Of course, there's the matter of actually getting Latin Americans to use banks in the first place, comments Tim Ramsey, senior manager in the payments and transactions fulfillment practice at BearingPoint. "Culturally, Latin Americans have little trust in banks," he says. "Much of the unbanked population in the U.S. is from these countries. That's why Latin Americans still rely on cash."

An understanding of subtle cultural variations can make all the difference to a bank's efforts in emerging regions. "Sensitivity to local culture and business practices is very important," comments Richard Brown, regional head for global treasury services with Charlotte, N.C.-based Bank of America ($1.3 trillion in assets). "Each country is unique culturally and economically. Even within these countries there are significant differences in local practices, for example, between Beijing and Shanghai." Providing support in the local language, especially when implementing new solutions, as well as understanding local business practices and protocol, are significant challenges for Western banks, he adds.

The key to navigating these cultural waters, say the experts, is hiring the right people. Bank of New York's Bascom explains that the bank has 2,000 correspondent banking relationships and approximately 5,000 people offshore. "It's essential for us to have people on the ground to listen to the trends and concerns in the local markets," he says.

JPMorgan Chase uses a similar tactic, according to the bank's Groppi. "The vast majority of our staff are local, including the management," he says. "We like to mix in some Americans, Asians and Europeans in the various regions. But, first and foremost, you need to understand the local language, customs and standards to succeed."

That said, the first thing U.S. banks must keep in mind is that when it comes to channels and technology, what works for U.S. customers may not translate very well in emerging markets. For example, checks, the foundation of U.S. branch banking, are practically nonexistent in other parts of the world, points out BearingPoint's Ramsey. "Banks must change their mind-set so that everything is done electronically," he comments.

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