Impacts of the Internet on banking services

ABSTRACT:

E-commerce is changing the way we do business today. New business models are replacing outdated ones and businesses including banks are launching new management strategies for new customer relationships. This article addresses issues including strategies for online banking services, impacts of online banking services on customers and experience of customers when using online banking services. This sarticle is expected to help leaders of banks consider online banking services a strategy that can reduce transaction costs while providing good customer services and improving cross-selling opportunities for online banking services.

Keywords: Bank, e-commerce, internet banking services.

1. Introduction

Innovations in IT and communication technologies are taking place at an increasing pace. And even firms are approaching the Internet and related information technologies at an increasing pace to improve business efficiency and service quality and attracting new customers. This also reflect that use of internet in conduct of business is growing at a rapid pace. According to a study more than 95% of firms studied have been using internet to buy and sell. Revenue generated via e-commerce are growing at an exponential rate. The amount of e-commerce revenue generated by business firm with interaction to consumers is many folds not only this but the business-to-business (B2B) e-commerce revenue is increasing at rapid pace. And the major factor contributing this growth is the rapid increase in the number of line users.

Both the Internet and e-commerce is having a revolutionary effect in changing fundamental of business. E-commerce is changing the traditional methods of relationship between internal functions, customers and supply chain partners and is virtualizing the market place in a way which was not possible earlier. Due to its potential, every firm wants to board the train named e-commerce and none of them can afford to miss it.

In other words, we can say that today none of the business is left untouched by Ecommerce so is the case of banking and financial institutions, a revolution of this sort has taken the industry on a new dynamic path in the last few years. The number of households using web and the number of Internet Banking customer has risen sharply in the past few years. And the analysis shows that majority of these online customers are individuals as compared to business.

Even the banks have not disheartened their customers. Almost all banks offer internet banking in its basic form access to accounts, statements, transfers, stop payments and clear item like facilities. Many of these banks also offer 'full service" internet banking including bill payment online loans and brokerage services.

The literature suggests that both customers and banks can benefit from Internet banks. But most of evidence in support of this proposition is either anecdotal or in the form of case studied. There is paucity of empirical research dealing with banks perceptions of internet banking its strategic and operational value, impact on customers and related technology issues. The article addresses following questions:

What are banks perception of internet banking and its strategic andoperational value?
What are banks perception of how internet banking affects customers andtheir relationship with banks?
What are key technology consideration in offering internet banking?
Internet Banking Models

There are two prevalent internet models in the banking industry viz: e-banks and e-branches. An e-bank is an institution that exist only on the internet which do not have any geographical location. This concept gives banks a opportunity to exist without paper, with no brick and mortar access. While on the other hand e-branch model is where a traditional bank offers internet banking to its customers. It is quite certain that though e-banks are beginning to gain traction, it is easier for a traditional bank to get existing customer to try internet banking than e-banks to entice customers from traditional banks. In stimulus to the competition created by e-banks, traditional banks have independent e-bank subsidiaries. The reasons which they site for this are as follows:

+ To separate internet banking from traditional banking structure, they have replaced the blow moving corporate structure with entrepreneurial one.

+ It gives the new unit much freedom from bureaucracy, where they aim at creating an autonomous unit in accordance with the recommendation of expert.

+ This approach allows a so called "skunk-works" team to manage internet banking by creating a group of innovative thinkers from existing business lines that reports directly to the CEO.

This has initiated a process on not only establishing new internet only banks but also has provided them a new strategy for many of them make reference to mortgage companies and has alliance with insurance company to offer various plans to customers. These internet clients are mainly offered the services on a remote basis, after having been customer of internet at a previous time. This should be not misunderstood with that, these banks only aim at profit making rather there are banks where seizing customers take precedence over making profit. But with only few barriers any one can enter the banking market and offer customer innovative banking solutions.

2. Advantages to banks

First and fore mostly bank can reduce the cost of transaction and make it a quarter of what it incurs in processing a transaction physically also the bank can present the bills of the customer electronically. Electronic bill presentment costs 40% less than paper delivery. These cost saving can offer customers and banks alike reduced cost of banking and still provide efficient and varied services.

Customer loyalty is the second pillar for internet banking, clients of the bank claim that if their banks offered the financial services they wanted, they would prefer to utilize the bank's service, taking it into consideration banks services which includes bill presentment and payment, financial planning, estate planning, insurance, loans and brokerage services all this is only possible with internet.

Websites that offer financial convergence for the customer will create a more involved banking customer who will more frequently patronize the banking site and more likely use the services offered. The basic idea behind it is by creating a more loyal customer who depends on a bank for many financial services, more bundling can occur and higher revenue per customer can be generated.

Simply having an internet presence does not provide banks a revenue stream. However, by providing distinguished and differentiated products and services banks can benefit from internet integration. By creating financial portals where customer can manage a broad range of financial activities such as stock & mortgages, banks can profit from offering internet capabilities to clients. This in turn increases the involvement of customers who will patronize the banking site and more frequently and will use the services offered.

Apart from core banking, banks can also offer additional services which further increases the role of bank in serving clients by offering a wide array of product and services, banks can benefit from internet integration by creating financial portals where consumers can manage a broad range of financial activities such as stock & Mortgages, banks can profit from offering internet capabilities to clients.

A judicious mix of E-commerce with existing banking operations can lead to substantial cost savings and higher profitability. Automated customer transaction like fund transfer, balance enquiries etc. strategic alliance with insurance companies, mortgage companies and stock brokerage firms can lead additional business opportunities that otherwise will go unrealized and are also major course of cost saving, offering these added value services helps banks to retain their customers. The demographics of internet banking customers are enticing i.e. they have decent level of annual average income, with higher education level and also this group is more profitable than their counterpart.

3. Benefit to consumers

Cyberspace is cheaper to operate than brick & mortar structure and its cost benefit is often passed along to consumers. Many banks offer more interest rate to their clients who transact online as compared to their counterpart. Some of them even offer advance facility too their customers for electronic bill payment and offering the services for no extra cost while on the contrary in case of brick & mortar form customers are charged to do the same.

Basic transactional web sites allow customers to review account balances, holding and recent banking statement. System that allows customers to initiate transaction online such as transferring money between accounts or making payments, provide additional advantage to the customer. These enhanced web sites enable customer to pay bills, apply for the review loans and mortgages, and check credit card bills. Institutions offering online services are well positioned to be market leaders by offering this large array of services from one trusted banking institution these firms will be able to garner a greater share of a customer financial business. Customers will benefit by having a wider selection of services available from one trusted institutions. These features improves stickiness of customers leading to a lower attrition rate.

Banks are adding real time loan application, the ability to make IRA investment and the opportunity to trade in stock through their web site. This has given birth to a concept of "one-stop" shopping which is not of convenient but also leads to more satisfied customers.

4. Threats to internet banking

Security of Internet transaction is of paramount concern to most customers particularly where financial information is involved. It depends on the bank to convince their customer that their website are secure and sufficient measures has been taken to assure security at transaction level. Also safeguarding the privacy of customers financial information and profile are imperative if public is to embrace internet banking. These should be broad guidelines regarding customer privacy threat of intrusion from hacker's and issues of surrounding the relationship of customer anonymity on the internet and also banks responsibility to monitor any suspicious activity.

While a study reveals that 44% of banks offering internet banking services had not fully adopted web banking risk measures proposed by regulators. These security measure include inadequate agreement with third party vendors, insufficient strategic planning and incomplete audit procedure for the online banking system. The highly advanced and sophisticated encryption technology that is available today points to a lack of clearly defined security. Implementing the available security technology in the appropriate manner, the safety and security of an internet bank should not pose a severe risk to the accounts of individuals.

A study suggests that almost a one-third of the people who sign up for online banking discontinued due to various reason viz-internet banking was too time consuming, unhappy with customer service, no need or interest in service, too costly, and concern for privacy.

A lack of knowledge about customer perception of what internet banking can offer might present some explanation for why these customers have closed their internet accounts. This further clarified that users’ satisfaction and retention must be addressed for the internet banking to become well accepted.

Even with the best internet has to offer in banking services, consumers still need to visit on ATM or a bank branch to withdraw cash. Customers also have to deposit checks by mail, through an ATM or by visiting branch. ATM's are currently the most convenient means of acquiring paper money from an internet bank. And most ATM transaction are chargeable. To overcome this problem many e-banks reimburse customers for a limited number of ATM transaction each month. In future electronic cash could provide a possible solution. But so far, electronic / digital cash has not been well received by the public. These limitation and issue of e-banking need to be addressed in order to make it more convenient.

5. Conclusion

The sole purpose of this article is to bring out perception of banks regarding the strategic and operational value of web-based banking it's benefit to customer & banks and the key technology consideration. We can say that internet banking is in its nascent stage only a small number of banks offer web-based banking to customer and full benefit of internet banking are still to be realized by many banks. On the other hand, a significant number of banks believe that providing these services to customers in the new economy is essential for survival and thus mandatory. Another benefit of internet banking was the impression it gave to the public of cutting-edge bank, thereby enhancing its reputation.

The article shows that e-banks are not perceived as a threat by many brick- and-mortar banks. In fact, most e-banks are attempting to form alliances and partnership with bank, financial institution, and other business with physical presence in order to provide service that cannot be delivered on the web alone.

From operational perspective banks with web-based banking realized significant benefits but simultaneously majority of banks concerned about customer reduction trust in bank and a degradation in the customer - bankers relationship as a result of internet banking. Technologically implementing web-based banking so that it is transparent to the end user is challenging careful planning is pre requisite if full benefits are to be realized.

In not shell we can say that banks are embracing e-commerce slowly. They appear to realize the potential to this profound change and do not want to be left behind. Banks are very well aware of strategic and operational value of internet as an effective channel and seen to realize that the benefit outweigh the cost. However, they have a variety of concerns ranging from security to the integration of the internet channel with existing business processes and system. Despite these concerns in the future banks will have to include web-based services in their portfolio of offerings to customer or else risk losing customer to the bank do.

REFERENCES

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Thierry Buchs and Johan Mathisen (2007). Competition and Efficiency in Banking: Behavioral Evidence from Ghana. Strategic Management Journal.

TÁC ĐỘNG CỦA INTERNET ĐẾN DỊCH VỤ NGÂN HÀNG

LỮ PHI NGA - NGUYỄN QUỐC HUY

Trường Đại học Lạc Hồng

TÓM TẮT:

Thương mại điện tử đang thay đổi các phương thức kinh doanh hiện nay. Các mô hình kinh doanh mới đang thay thế những mô hình lỗi thời. Và các doanh nghiệp, bao gồm cả ngân hàng đang đưa ra các chiến lược quản lý đối với các mối quan hệ khách hàng mới. Bài viết này phân tích các vấn đề, gồm chiến lược về dịch vụ ngân hàng trực tuyến, ảnh hưởng của dịch vụ ngân hàng trực tuyến đến khách hàng, cũng như trải nghiệm của khách hàng sử dụng dịch vụ ngân hàng trực tuyến. Nghiên cứu được kỳ vọng giúp các lãnh đạo ngân hàng nhìn nhận dịch vụ ngân hàng trực tuyến là một chiến lược có thể giảm chi phí giao dịch, cung cấp dịch vụ khách hàng tốt và cải thiện các cơ hội bán chéo dịch vụ ngân hàng trực tuyến.

Từ khóa: Ngân hàng, thương mại điện tử, dịch vụ ngân hàng trực tuyến.