Advances in online and internet technology and its aggressive infusion have brought in a paradigm shift in banking operations. The 2001 Survey of Consumer Finance states that 9 out of 10 US households have a bank account and 93 % of these account holders have at least one value add which utilizes electronic banking through their accounts, ATM cards; debit Cards, direct deposits or internet banking.
(Anguelov, Hilgert, and Hogarth, 2004, Pg 1) It does appear very surprising that10 of households in the US operate without a bank account. ATM cards were introduced during the late 1960s and 1970s (the first recognisable ATM was actually in London in 1967) to enable customers to withdraw cash from electronically operated machines and thus bypass the queues at the cashier’s counters at their bank branches. ATM machines have become ubiquitous not just in the US but all over the world.
ATMs can be used not just inside the country but also in other countries to draw cash in the local currency, electronic banking technology checking the withdrawal request with the amount available in the client’s bank account, converting the request into local currency and instructing the ATM to issue the money to the client. A wonder of sorts. Most ATMs are now off bank premises and a billion transactions are processed through them every month in the USA alone.
Internet technology has lately emerged as a strategic resource for achieving higher efficiency, operational control, productivity and profitability. For customers, it is the realization of the “anywhere, anytime, anyway” banking dream. In the US, banks are shifting from the brick and mortar product centric model to a customer focused model as they sharpen and add to their internet banking capabilities. Banks in the US have been using electronic and telecommunication networks for delivering a wide range of value added products and services.
“These delivery channels include direct dial up connections, private networks, public networks and devices include telephones, Personal Computers, Automated Teller Machines, Debit Cards and other on line devices. ” (Anguelov, Hilgert, and Hogarth, 2004) With the popularity of PCs, easy access to the Internet and the World Wide Web, banks have increasingly been using the internet as a channel for receiving instructions and delivering their products and services to their customers.
Internet Banking could thus be defined as any form that allows customers to access services through a web browser. The range of products and services offered by different banks vary widely both in content and sophistication and could range from just obtaining information about their account status to making payments and transfers online. Internet banking involves consumers using the internet to access their bank account to undertake banking transactions.
At the basic level, Internet banking can mean the setting up of a Web page by a bank to give information about its product and services. At an advanced level, it involves transactional banking, which, inter alia, includes facilities to access accounts, transfer funds and buy financial products or services online. Internet banking services include wholesale products for corporate customers and fiduciary and retail products for individual customers. Examples of wholesale services are cash management, wire transfer, automated clearinghouse payment and bill presentation and payment.
“Retail customers can on the other hand use the net for retail balance enquiry, funds transfer, downloading transaction information, bill presentation and payment, loan applications, credit card requests, investment activity and other value added services. ” (Internet Banking, 1998) Internet banking can be offered in two ways. Firstly, existing banks with physical offices can establish web sites and offer internet banking in addition to traditional delivery channels. Second, a bank may also be established as a branchless, internet only virtual bank without any physical branches.
Broadly, the levels of banking services offered through the internet can be categorized into three types. Basic Level Services use the bank’s websites to disseminate information on different products and services offered to existing customers and to the public. It enables banks to receive and reply to customer queries through e-mail. At the next level, simple transactional websites allow customers to submit instructions, apply for different services and post queries on their account balances, but do not permit fund-based transactions.
The third level of internet banking services are offered by fully transactional websites, which allow the customers to operate their accounts for transfer of funds, making payments of different bills, subscribing to other bank products and to purchase and sell securities. (Carlson, First, Lang, and Noll, 2001) Most banks providing internet banking products and services offer, largely, an identical and standard package of banking services and transactional capabilities. In general, internet banking products are offered in a two-tiered structure.
A basic tier of Internet banking products includes customer account inquiry, funds transfer and electronic bill payment. A second or premium tier includes basic services plus one or more additional services. “As of Q2 2000 … 49 % 0f internet banks … (also) offered business cash management services … targeting small and medium enterprises. ” (Carlson, First, Lang, and Noll, 2001) Another broad way of classifying internet banking services is to categorize them as informational, communicative and transactional.
The first or primary level is the providing of information on the banks products and services and works for the bank more as a marketing tool. This is known as “Brochure Ware” (Megann, 2002) and the information hosted on a web site through a stand alone server does not allow for monetary interaction with the banks customers. Websites carry detailed data about products and services and encourage the visitor to approach the bank through the site for more personalized information. The banks use these websites to build relationships, go back to the customers with information about new products and as a Customer Relationship Management (CRM) tool.
Communicative banking allows for more interaction between the bank and the customer through e-mail or through restricted access gateways, allowing the customer to obtain account information, apply for loans, ask for cheque books or account statements and give stop payment orders. The last phase is transactional banking where the customer uses the internet to draw money through ATMs, authorize payments to points of sales through debit cards, and instruct the bank to pay bills, make drafts and transfer money to other accounts. Transaction banking can again be categorized as follows.
Basic Transactional: providing basic transactional services such as account balances and bill payment check image viewing, fund transfer, and online statements. Broad Transactional: providing a broader range of financial services online by adding products such as brokerage, lending, cash management, wireless, and insurance. In Grant Thornton’s Eighth Annual Community Banking Survey, bankers planning for the future cite key success factors to their business, including providing broker/dealer services (41%), insurance services (33%), wireless access to accounts (31%), and non-traditional services (19%).
Strategically Transactional: providing sophisticated integrated products and services to specific targeted segments of your customer base; examples include push target marketing opportunities via data mining, account aggregation and wealth management services, personal payment services, real-time customer service with online chat and knowledge base capabilities, and customer relationship management. (Winter, 2001) Banks are in various stages of online delivery and only the larger banks offer the complete range of services, that too to selected clients.