The South China Morning Post reports:

Digital China Holdings and Britain-based Misys agreed yesterday to jointly expand their presence in the vast small- and medium-sized mainland lenders network, a segment with great potential but one that has been lying in the shadow of state-owned commercial banks.

Both parties consider the market - estimated to have as many as 30,000 players - to be their main growth target, especially after major state and city-level banks complete their reshuffling to compete head to head in the high-end market.

“There are so many small banks and credit unions in China’s second- and third-tier cities and rural areas that need to upgrade their networks and services to keep up with the development in the rest of the country, but they have no tools to do so. I think this is definitely the area we can tap,” said Dong Qiqi, the chief executive of Digital China Financial Software, a unit of Hong Kong-listed Digital China.

Despite most people’s experiences when visiting a large Chinese bank branch, most of them have already gone through a round or two of modernization efforts. Add to this the investment and technical assistance from international banks, and the banking technology market looks pretty mature in China.

Digital China and Misys are smart to look for opportunities in the small and medium banks. Overhauling operations and implementing new technologies are a long, difficult, slow processes. That’s very painful for the customer, but very profitable for vendors and service providers.

Misys is licking its chops:

Misys, which has about 80 bank customers in Hong Kong and the mainland, sees the move as a big thrust into a vast and largely unexplored financial information technology solution sector, which is estimated to see growth of 19.6 per cent from last year to 2011.

“The market could reach 14.75 billion yuan by 2011 and we definitely want to deliver long-term value for new and existing customers in this fast growing market,” said Mike Lawrie, the chief executive of Misys.

For Digital China this appears to be a services play. That’s where the juiciest profits are.

An opportunity in a fast-growing market, indeed. The only real bump in the road would be a round of consolidation amongst second and third tier players. The only thing more painful than introducing new technology is merging two different organization’s technologies.

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