Overcoming Underdeveloped Infrastructures
Lack of a check system is just one of the challenges banks face in emerging markets as some developing countries still are plagued with poor telecommunications and electrical infrastructures. But this has improved dramatically over the past decade, according to Wachovia's Fitzgerald. "If you compare where the infrastructure is today compared to 10, 20 years ago, it's dramatically different," he says. "For economic reasons, [emerging countries] have to modernize to be relevant on the world stage."
However, asserts BearingPoint's Ramsey, infrastructure limitations still present huge problems and actually are driving the movement to electronic payments in developing countries. "In China and India, there's no infrastructure in the rural areas, so they're moving to the wireless channel," he relates. "The cost to build wireline infrastructure there is incredible. The same is true in Africa and in the rebuilding of Afghanistan and Iraq. You build a wireless infrastructure to support the electronic movement of money."
In fact, skipping over the hardwired, transportation-dependent check processing stage actually may help these emerging markets surpass ours to some degree on the electronic payments front, Ramsey suggests. "They'll be able to leapfrog to areas of banking technology that U.S. banks are only thinking about," he contends. "It's such a drastically different way of operating and a drastic change in the current delivery model." In fact, Ramsey adds, U.S. banks may not always be ahead in the banking technology race.
Wachovia's Wilmot, however, disagrees. "Banks all over the world look to U.S. banks to provide the electronic products and technologies to make them more competitive in their own markets," he asserts. "U.S. banks are at the vanguard in much of the transaction processing and settlement areas."
Regardless of whether U.S. banks can maintain their competitive edge in financial services technology, there is a need in emerging markets for their technological know-how, says JPMorgan Chase's Groppi. "Local banks in [emerging] regions need a set of global products to be able to compete with global banks that have a local marketing presence because their corporate customers are becoming more global," he explains. "Globalization means you're competing with many more banks throughout the world."
However, American banks need to know where to start upon entering an up-and-coming market. The smart strategy, according to Frost & Sullivan's Aravindh, is to attack the urban centers first. "City people are aware of what the technology is and this saves you a lot of time," he says. "So many cities in Asia don't even have a basic ATM infrastructure. To go into rural areas doesn't make sense -- it's too premature at this point."
Of course, one of the most important things to keep in mind is to allow a degree of flexibility when dealing with clients in developing markets. Bank of America's Brown notes that the degree of technological sophistication among and within developing countries varies. "Countries without existing landline infrastructure for telephone are going directly to cell phone usage," he explains. "A bank serving clients in this market must be equipped to cater to all levels of sophistication -- providing a variety of channels, from paper- and fax-based to electronic data exchange through host-to-host to Internet."
The Bank of New York's Bascom notes that sometimes bank technology actually is more of an issue when entering developed markets rather than emerging ones. "In the mature markets where they have a long history of legacy systems, it is a lot harder to integrate the technology than in certain emerging markets that have newer systems," he says. "These are places with young economies, and they're not working with a lot of legacy systems."
In the end, however, banks share many commonalities, no matter where they are located. "The solutions we bring -- whether they are revenue-generating, cost-reducing or adapting IT innovation -- aren't unique to North America or Western Europe," says Wachovia's Wilmot. "These are phenomena being embraced by banks throughout the world, whether you're providing service to a bank in Latin America, Cyprus or Australia. Products and services tend to be universal." **