E-BankingE-Banking

BankingBanking

Banking as a business can be Banking as a business can be subdivided into five types:subdivided into five types:

RetailRetail Domestic wholesaleDomestic wholesale International wholesaleInternational wholesale Investment Investment TrustTrust

Technology effect on BankingTechnology effect on Banking

Controlling costControlling cost Development of new products & Development of new products &

servicesservices Interaction between banks & Interaction between banks &

consumersconsumers More competitionMore competition

Changing Dynamics in Banking Changing Dynamics in Banking IndustryIndustry

Changing consumer needsChanging consumer needs• Customer want to access a/c related Customer want to access a/c related

information, transfer funds between a/c, pay information, transfer funds between a/c, pay bill electronically.bill electronically.

• Customers want to be able to bank at their Customers want to be able to bank at their convenience, including over the weekend or convenience, including over the weekend or late at night.late at night.

• Bankers want more stable and long term Bankers want more stable and long term relationship with their customers. relationship with their customers.

Changing Dynamics in Banking Changing Dynamics in Banking IndustryIndustry

Cost reductionCost reduction• The central goal is to reduce operating The central goal is to reduce operating

costs.costs.• As banks merge to reduce their As banks merge to reduce their

operating costs, they are obviously operating costs, they are obviously growing in size.growing in size.

Changing Dynamics in Banking Changing Dynamics in Banking IndustryIndustry

Demographic trendsDemographic trends• Consumers are increasingly careful about their Consumers are increasingly careful about their

personal finances.personal finances.• Americans spend more time working, thus they Americans spend more time working, thus they

are a very receptive audience for time saving are a very receptive audience for time saving products & services.products & services.

• The consumer concerns can be seen in the The consumer concerns can be seen in the trend of customer purchase of investment trend of customer purchase of investment services like mutual funds.services like mutual funds.

Changing Dynamics in Banking Changing Dynamics in Banking IndustryIndustry

Technology based financial service productsTechnology based financial service products• The cost associated with e-payments The cost associated with e-payments

technologies can be high because e-cash technologies can be high because e-cash requires large investments in computer s/w requires large investments in computer s/w and other resources to establish a network to and other resources to establish a network to secure electronic transactions.secure electronic transactions.

• Development of e-banking might actually Development of e-banking might actually increase competition in banking markets.increase competition in banking markets.

• Many banks have started web sites on the Many banks have started web sites on the internet and many plan to offer banking internet and many plan to offer banking services over the internet.services over the internet.

• Some banks are already offering certain Some banks are already offering certain banking seervices over the telephone. banking seervices over the telephone.

Home Banking HistoryHome Banking History Financial institutions were interested in home Financial institutions were interested in home

banking concept into reality as early in 1970.banking concept into reality as early in 1970. The most popular approach of the 1970 was The most popular approach of the 1970 was

home banking via touch tone telephone, which home banking via touch tone telephone, which enable customers to check a/c balances, transfer enable customers to check a/c balances, transfer funds and pay bills.funds and pay bills.

With telephone banking customers use a numeric With telephone banking customers use a numeric password on a push button telephone to access password on a push button telephone to access banking services.banking services.

In 1980, cable television also was considered as a In 1980, cable television also was considered as a possible medium for home banking. possible medium for home banking.

Then comes home banking from PC.Then comes home banking from PC.

Why it will be different this time?Why it will be different this time?

Consumer up the learning curveConsumer up the learning curve• Consumers are becoming increasingly comp-literate and Consumers are becoming increasingly comp-literate and

are able to interact more fluently with their financial are able to interact more fluently with their financial service providers.service providers.

Increasing consumer awarenessIncreasing consumer awareness• Mainstream magazines are increasing the amount of Mainstream magazines are increasing the amount of

coverage given to comp aided topics. As a result, coverage given to comp aided topics. As a result, consumers are increasingly aware of alternatives to consumers are increasingly aware of alternatives to traditional branch banking.traditional branch banking.

Large base of installed PCsLarge base of installed PCs• Today there are more than 30 million PCs in american Today there are more than 30 million PCs in american

homes and consumers now spending more on PCs than homes and consumers now spending more on PCs than TV sets. Modem penetration into house hold is a key TV sets. Modem penetration into house hold is a key issue for home banking, as online services require a issue for home banking, as online services require a modem.modem.

Why it will be different this time?Why it will be different this time?

The alternative is too expensiveThe alternative is too expensive• The cost associated with writing, mailing The cost associated with writing, mailing

and processing these checks is and processing these checks is staggering.staggering.

Fierce competitionFierce competition

Home Banking Implementation Home Banking Implementation approachesapproaches

Proprietary bank dial-up servicesProprietary bank dial-up services Off the shelf home financial s/wOff the shelf home financial s/w Online services based bankingOnline services based banking World wide web based bankingWorld wide web based banking

Home Banking using bank’s Home Banking using bank’s Proprietary S/WProprietary S/W

Bank mainframe comp system Bank mainframe comp system connected with terminal server with connected with terminal server with modem.modem.

When a consumer wants to When a consumer wants to communicate with Bank, then the communicate with Bank, then the information has been transmitted via information has been transmitted via terminal server which is connected to terminal server which is connected to bank.bank.

Banking via the PC using Dial-Up Banking via the PC using Dial-Up S/WS/W

Intuit: is the leading provider of Intuit: is the leading provider of home & small business financial S/W, home & small business financial S/W, supplies and services for PC users.supplies and services for PC users.

Quicken: allows users to organize, Quicken: allows users to organize, understand and manage their understand and manage their personal finances.personal finances.

Intuit Services Intuit Services To check current a/c balances, transfer funds To check current a/c balances, transfer funds

between a/c, determine the clearance of given between a/c, determine the clearance of given transactions.transactions.

Online bill payments enables users to pay bills by Online bill payments enables users to pay bills by transmitting payment instructions via modem.transmitting payment instructions via modem.

E.g. a Quicken user needs to pay three bills, the E.g. a Quicken user needs to pay three bills, the user would open Quicken and type the names of user would open Quicken and type the names of the payees and the amounts and then hit the payees and the amounts and then hit transmit.transmit.

Multiplatform strength: DOS, windowsMultiplatform strength: DOS, windows New revenue strength: new products & servicesNew revenue strength: new products & services Recurring revenue opportunities: e-credit card Recurring revenue opportunities: e-credit card

statement delivery, attractiveness to s/w product. statement delivery, attractiveness to s/w product.

Banking via Online ServicesBanking via Online Services Prodigy & CityBank providing home banking Prodigy & CityBank providing home banking

services.services. Prodigy providing home banking to consumers Prodigy providing home banking to consumers

since 1988 and has relationship with more banks since 1988 and has relationship with more banks than any commercial online services.than any commercial online services.

Customers can check their a/c balances, transfer Customers can check their a/c balances, transfer money between a/c, pay bills electronically, money between a/c, pay bills electronically, review their CitiBank credit card a/c, buy & sell review their CitiBank credit card a/c, buy & sell stock through CitiCorp Investment services.stock through CitiCorp Investment services.

AOL users will not need to use Quicken s/w to AOL users will not need to use Quicken s/w to access the banking services. Rather Intuit built a access the banking services. Rather Intuit built a Quicken like application into AOL that will have Quicken like application into AOL that will have the basic banking functionality of transferring the basic banking functionality of transferring funds etc. funds etc.

Banking via the Web: Security First Banking via the Web: Security First Network Bank(SFNB)Network Bank(SFNB)

The goal is to provide superior customer The goal is to provide superior customer service & secure electronic environment.service & secure electronic environment.

Internet banking: Consumers do not need Internet banking: Consumers do not need to purchase any additional s/w, store any to purchase any additional s/w, store any data on their comp, wait for new versions data on their comp, wait for new versions & upgrades, since all transactions occur on & upgrades, since all transactions occur on a secure server over the internet.a secure server over the internet.

The first Internet bank to provide e-The first Internet bank to provide e-banking services to internet users was banking services to internet users was SFNB.SFNB.

Secure registration via login id & passwordSecure registration via login id & password SFNB provides joint a/c facility. SFNB provides joint a/c facility.

Open vs Closed ModelsOpen vs Closed Models In an open system, content changes can In an open system, content changes can

occur easily because of the use of occur easily because of the use of standard technology and components.standard technology and components.

Banking(web) used open system : easy to Banking(web) used open system : easy to customize to a bank changing needs.customize to a bank changing needs.

Closed system: in which the changes are Closed system: in which the changes are difficult since everything is proprietary.difficult since everything is proprietary.

E.g. Banking interfave developed around E.g. Banking interfave developed around Intuit cannot be modified unless the Intuit cannot be modified unless the vendor distributes a new version of its s/w. vendor distributes a new version of its s/w.

Management issues in Online Management issues in Online BankingBanking

Banks must deliver high quality products.Banks must deliver high quality products. Creation of online financial supply chainCreation of online financial supply chain Low cost interactive access terminals for he homeLow cost interactive access terminals for he home Some banks are forming cooperative partnership Some banks are forming cooperative partnership

with bank s/w companies, while others are writing with bank s/w companies, while others are writing their own s/w.their own s/w.

Pricing affect online banking via:Pricing affect online banking via:• Initial s/w pricingInitial s/w pricing• Financial product pricingFinancial product pricing• Usage pricing Usage pricing

Marketing issueMarketing issue Back-office support for online bankingBack-office support for online banking