Internet banking in China is seen by many to be the new frontier. Beijing still places restrictions on foreign banks doing business in the country, such as high capital asset requirements (due to come down for Hong Kong banks under the recently negotiated Closer Economic Partnership Arrangement). Foreign institutions see online banking as a different avenue into the mammoth Chinese banking sector.

Although online banking in China is in its early days, many experts believe that it will be the main driver for foreign banks hoping to tap into the huge amount of Chinese savings. At the same time the emergence of online banking can help prepare domestic banks for the increased competition that will come after banking barriers are lowered in 2006 in accordance with agreements Beijing signed in order to join the World Trade Organisation.

So in recent months at least six foreign banks have sought licences to operate Internet banking services on the mainland. They are the Bank of East Asia, Citibank, Deutsche Bank, the Hang Seng Bank, HSBC and Standard Chartered. Developing online banking services is considered much cheaper than trying to compete through the traditional "bricks and mortar branch system". "The Internet might be a good way to penetrate the market if your presence on the ground is limited," says Douglas Jaffe, research manager of the Framingham, Massachusetts-based IDC.

One can easily see why considering that China's four main banks have more than 200,000 branches spread over the vast country. By comparison, Standard Chartered, which has had hundreds of branches and ATM outlets in Hong Kong for decades, currently operates only seven branches, two sub-branches and six representative offices on the mainland. Along with other foreign banks, they account for only about 2 per cent of total deposits.

The main attraction for online banking customers in China, as elsewhere, is the convenience it provides to those with Internet connections, such as savings in time spent standing in lines to see a teller. All six of the foreign banks offer a full line of online services such as paying bills, checking bank balances and transferring funds between accounts. All you need is a computer and access to the Internet.

And rapidly increasing numbers of Chinese are getting connected. As of 1997 only about 630,000 of China's 1.3 billion people were known to be using the Internet. Six years later the figure had grown to nearly 46 million. This usage figure is expanding by an estimated 13 per cent each year. Of course, not all Internet users do their banking online, but the numbers that check out a bank website or make even one online transaction a month are growing rapidly.

ACNeilsen, a leading Australian Internet consulting service, estimated in late 2001 that China had 2.5 million Internet bank users. That was a 50 per cent increase over the previous year, and this figure can be expected to be correspondingly higher now. "China is in the early stages of an enormous transformation - from a traditional cash and carry banking system, where customers use the branch for almost every banking activity, to a modern Internet banking system," says Richard Sandlant, senior analyst at ACNeilsen.

Adding to great expectations surrounding wireless banking is the explosion of mobile phone use in China. More than 300 million Chinese people have mobile phones, more than the entire population of the United States. Many of them can be expected to use Internet connectivity to do their banking from the palm of their hands.

The Bank of China introduced the first mainland online banking services in 1997, but China Merchant Bank was the quickest to grasp the opportunities of e-commerce. It claims more than 20,000 corporate clients on its Internet platform and has garnered more than half of the market for Internet bank users, so far. While the other two of the "big four", Industrial and Commercial Bank and China Construction Bank, have been laggards, they still have vast reservoirs of customers who are becoming connected to the Internet but do not yet do online banking. All of these, of course, have the potential to move from cash and carry to wireless transactions.

But the technical capabilities of many domestic banks are still fairly primitive. Many that do have websites use old programmes with minimal functions. But that spells opportunities for purveyors of computer software and equipment, both foreign and domestic. Digital China, an offshoot of the Legend computer giant, China's largest distributor of computer equipment, is eager to provide solutions and become a part of what it sees is nothing short of a revolution in Chinese financial services.