Analysis of the Impact of E-Commerce on Investment Banking - Research Paper Example

Analysis of the impact of e-commerce on investment banking Introduction The paper enacted on the analysis of affect of eCommerce on the investment banking. The very first section deals with the literature review that together coined detail information of ecommerce, investment banking, how the eCommerce is implemented and its major affect. The next section deals with the methodology used for analysis purpose and a detail analysis of the affect of ecommerce on investment sector. The analysis section includes different variables that actually show the affect of ecommerce. Last, the paper ends with the conclusion showing what actually the analysis shows. This part also shows the obstacles that are seen during the implementation of ecommerce applications in the investment banking. E-commerce [Allen. P. & Wootten. G., (1998)] is the use of electronic media for the trade of goods and services. This trade might be within different firms or within different countries. The e-commerce do not only deals with the trade while general public is enable to do online-shopping’s. This online-shopping requires special mode of payments. The e-commerce has increased the level of business and trade of each entrepreneur as it helps to gain the maximum global market share. The electronic media use the internet resources not only market their products and service but also enhance their sales through the internet mode. Brief description on E-commerce History Electronic commerce (e-commerce) wasn’t a new field rather the concept was initiated in early 1960’s when the use of file transfer and email was in use. The use of this electronic commerce (e-commerce) was limited to few large organizations and some daring financial institutes. Within the years of 1960 and 1970 different other concept arises such as multimedia application and video links [Charles W.L. Hill, Gareth R, Jones (2003)]. The use of multimedia offers the potential to introduce many innovative techniques and application especially within the civil administration, banking applications and other commerce business. Now with time, the concept of electronic commerce (e-commerce) expanded numerously that now companies used to market and sales their product with the help of emails. The communication gap is reduced at minimum levels and the businesses are launched at global levels. The excess to any product and service become convenient, this increases the level of internet commercialization in early 1990. These all enhancement coined the entrepreneurs and business administrators to develop latest and fastest applications for the business. It is the emerging concept in which still further developments are taking place with time augmenting information and communication technology. This augmentation increases the business functions (human resource, marketing, finance and other support area of the business). The concept of electronic commerce (e-commerce) supports all the aspect of trade except the actual delivery [Garth Saloner, Andrea Shepard (2001)]. However, the monetary exchange is possible electronically in the latest year of 1997. The overall ecommerce application was successfully launched in the new era of 2000 and most the banks increased their distribution channels only because of ecommerce applications. Key elements of Electronic commerce (E-Commerce) According to Macleod & Schell (2001), the electronic commerce (e-commerce) needs three technological choices. These simple choices or requirements are 1. Direct connectivity 2. Value-added networks and 3. The internet Direct connectivity [Gregory G. Dess, G. T. Lumpkin (2003)] means an established communication link that enables firms to direct contact with their trading partner’s. This is actually a network system that not only requires the human skills but different hardware and software’s to accomplish a complete network system. Usually this type of networking is present within the firm’s different departments but now with time the concept is enhanced to more advance level as roadmaps. In roadmaps different firms working at different regions established a network system. Value-added networks (VAN) is the most easiest and common way to electronic data [Fred R, David (2005)] interchangeable (EDI). Traditionally only the EDI was in use but with growth now XML and binary data is also formatted and transferred. The Value-Added Networks (VAD) is extensively used by the financial institutes, manufacturers and for different retail activities. Value-added networks (VAN) are provided by the vendors and they offer different services. Their services include mapping software’s, Maintaining logs, archive files and assisting the training of the trading partner. These vendors are usually very costly and direct connectivity is the only way that enables the partners to avoid the charges. The internet is the global market that not only enables the B2B (business to business) trade but also enhances B2C (business to consumers) trading [Steffano Korper, Juanita Ellis, (2001)]. The internet booms the electronic commerce and promoted the global business; marketing, sales and delivering of product via internet. Electronic Commerce and Investment banking Banking sector includes various activities and thus according to these activities the banking sector is divided into different branches. The banking sector includes central bank, advising bank, commercial bank, depository banks, merchant banks and many others. The investment banking is the sector of banking that involves the issues of selling and issuing of securities in the capital market that helps to raise the money for private and public companies. The concept of investment banking remains within the boundary of United States America and Canada since 1980. But later in the years the concept starts emerging in the eastern countries and thus now the concept is widely accepted and used all over the seven continents. Though, the investment banking some times also provide services of advising for mergers and acquisitions and other trading advice. But this strategic advising now expanded on greater level and therefore, the use of the advising banks emerges. The investment banking is split into three main parts [Broad Hurst. P., Williams. V. A. & Horsted. J., 1996] and these are 1. The front office, the actual office that directly contacts with the customers and deal in the capital market. Their main tasks are investment management, sales & trading, structuring, merchant banking, research and strategy. 2. The middle office main task is to analyze the market risk and credit risk. The daily operations are also involved in their task. Risk management, finance and compliance are their major tasks. 3. Back office task is to check the daily data, security measures, recruitment and other major support programs. It also refers to as technology department as most of the technological advancement for the bank is supervised by this unit. The use of electronic commerce (e-commerce) in investment banking starts in late 1990’s but still much of the development is required [Henry Mintzberg (2003)] to make the system more secure and efficient. Broadly speaking, the implication information and communication technologies in the field on investment banking make the banking sector global for the consumers. This ecommerce investment banking enables the consumers to invest largely in banks outside the country boarder to achieve maximum return on the investment. Implementation of ECommerce in the investment banking The e-commerce in investment banking when starts; it was quite different with today’s conditions. Now different steps are involved but here we are taking the simplest structural form to make it understandable that how the ecommerce is implemented in the investment banking. It requires input, transformation and output [Jobber. D., 1997]. The figure that is shown provides a clear picture of the structure. Input requires 1. What are the consumer demands? 2. The capital investment 3. Complete and comprehensive market information. Transformation step requires 1. Money Brokerage [Payne.A. ed. (1995)] or simple the intermediates, the money brokerage place the value of the capital which might be placed in form of financial instruments, which are mainly loans. This brokerage actually access and manage risk in the transaction. 2. Transaction services [Peck et al (1999)] are provided by the firm to facilitate the commercial transaction through the process of billing payment or by general administrative systems. 3. Financial services are provided by the intermediates which offer a standardized and commercial portfolio to the customers. These usually include savings, credit and investments. 4. Administrative and financial functions [Robert S. Pindyck, Daniel L. Rubinfeld (2004)] include the management and support to individual and institutional customers for financial affairs and administration. 5. Advisory services are coined with the purchase of financial instrument, provided to customers and to firms by the intermediates. Output The input and transformation stage both together provided the value added services for the retail financial services in investment banking to the customer market. Effect of ecommerce on investment banking Expanded Market size The very first step is that the market of investment banking expands at global level and thus provides better opportunities for the consumers to invest where they are gaining more profits. Now the private and public companies are seeking to gain consumers at global level while working at one region but dealing all of them through the internet. As the market size increases, other than benefits many drawbacks also emerge. Dealing with consumers at global level increases the risk of default for the firm. Competitive market rate of return Due to increase of ecommerce in the investment banking, their increases the market and thus more competition are faced by the companies. Therefore, in order to meet with this competition firms are required to launch such rate of return that can captures maximum market share and customers. Easy transaction The ecommerce enables the easy transaction on the global basis. The money exchangers and travelers are no more required for transaction services. Rather different new techniques and applications enable the investment market to transact with their customers through internet. This easy transaction helps to restore much of the management time and enhances daily routine operations. Complex services The complex services that are involved in face to face meeting of the customers are now solved by the use of ecommerce in the investment banking. Hierarchy reduction The vertical hierarchy that is used in investment banking holds huge lower level hierarchy that specially deals with customers. The ecommerce reduces the level of hierarchy as most of the customers are deal directly through internet. This enables the use of less human labor and more information and communication technologies, thus reducing much of the human labor cost from the firm. Added value services, retailing, wholesaling The added value services of investment banking [Richard G. Lipsey, Alec Chrystal (2003)] through the use of ecommerce enables to provide different cheap but quality services to the customers. The retailing and whole selling concept arises in the investment banking only due to the ecommerce emergent. Method chosen for Analysis Methodology in the research paper [Stella M. Nkomo, Myron D. Fottler, R. Bruce McAfee (2004)] is the most important ad critical part showing that what methods the researcher uses in the article to fine out various techniques. Usually there are two types of techniques used in the research paper. Usually two types of methods are adopted in the research paper. One is known as exploratory technique and other is known as conclusive technique. The exploratory technique uses the use of secondary data but the data is mostly statistical. This technique uses the survey methods or case studies to know the end result. In this research paper I have taken case studies as an exploratory technique providing different information of financial services of United Kingdom market and the use of eCommerce in the market. The second methodology is used as conclusive and holds primary data. For this primary data collection we use the questioner survey that helps to gain the primary data of the firm. The questioner technique only suit best when the questions in the questioner are so useful that they can provide the result what you actually want. For this research study we go for two main broad categories of research and that are primary research and secondary research. In this section I have hosen two ways, questioner and case studies, which is the primary data. Where as the secondary data is taken from different companies report, showing their enhancement and achievement by the use of ecommerce in the investment banking. Primary research It involves the first hand research conducted by you. It involves the findings through various methods and techniques that enable you to find out the results. Usually simple survey of the market and questioner techniques is used by the canvasser. In this research article I have taken the questioner technique to find out the results. Questioner The questioner technique involves your complete understanding about the topic. It involves various questions that are used by you to know the end result. The questioner technique suit best when you choose the right questions in order to find the right answer, the right question means the topic related questions that actually help you to gain the result. In questioner we try to use two various ways, the very first was sending the letter to different financial companies that we have chosen. This letter informs them that we actually want to survey their company related to the effect of ecommerce in the investment banking. This helps the firm to know that what actually we want to know. Later, we organize the meetings with the two respondent of the company who help us in filling the questioner. They provide the authentic information. All the questioners are filled by the selected companies with two respondents from each company. These respondents inform that what techniques were actually used by them and what are the effects of ecommerce on their investing sector. The information provided helps us to recon the pros and cons of ecommerce on the investment sector. Variables The variables are taken that show the direct impact on the firm’s efficiency and productivity. These direct variables are the productivity level, market share, demand, firm growth and satisfaction level of the customer. The independent variables show the efficiency and effectiveness of the firm at maximum level. The respondents though did not show any numerical or statistical data but show what actually they gain by the use of these electronic commerce techniques in investment sector. The various variables that are used are: Improve Productivity, Less Paper, Less Waste, Less Rework, Increase Market Share, New services Generated, Flatter Organization, Improve Image, Reduce Complaints, Reduce Returns, Increase Repurchase, Improve service Reliability, Lower Staff Turnover, Better Teamwork, and Improve Facility Utility. Where as, business profile, technological profile and motivation and future expectations are also taken in account. Secondary Data The secondary data is the information that is taken from other research papers. These research papers might be the companies profile, a book or any research paper conducted by a second person. Their might be many ways to gain the secondary information and this might help you to provide enough information for your research work. Case studies Case studies of few famous companies are taken in account serving at international level and gaining maximum return on their investment. The case studies hold the manufacturing and service sector. They section not only hold the information about the companies but also the statistical data and the benefits the companies gain after implementing the ecommerce in their investment bank. The case studies are usually the research papers showing what top companies did and how they improve. These studies show the real data and information and provide information about topic you are trying to search. Analysis of information gain (findings) Variables that are chosen by us in the questioner are Market share, demand, firm growth and satisfaction level of the customer, Less Paper, Less Waste, Less Rework, Increase Market Share, New services Generated, Flatter Organization, Improve Image, Reduce Complaints, Reduce Returns, and Increase Repurchase, Improve service Reliability, Better Teamwork, and Improve Facility Utility. We will analyse our research on the basis of these variables. Variables Results Demand The companies show that due to the use of e-commerce in their bank the demand of their services increases 20% to 30%. This increase was in the first quarter of the working year and thus enhances the further demand in the first half of the years. Market share As the firms shows that the demand increases due to enhancement of information and communication technology, their market share increases. The example of HSBC in the UK financial market shows that due to the use of latest techniques the market share of the company increases in their first year performance. It was analyzed that at average within 5% to 15% market share was increased. Firm growth Due to increase in the demand of service, it is obvious that the firm grow. But this growth was not in vertical format rather it was in horizontal format. This enables the firms to capture different markets. Customer satisfaction Due to easy transaction and simple services with the internet, the customers are more satisfied. The use of credit cards, debit cards, and other electronic cards ease the human life and helps to transact safely with no time consumption. This increases the level of satisfaction within the firms. The results of above mention survey shows that 85% of customer satisfaction level was achieved by the use of eCommerce by investment banks. Less paper The firms by the use of information technology and internet enable to do less paper work. This indirectly reduces much of their extra cost and time cost. Not only has this, the employee’s within the firm also felt more satisfactory. The less use of human capital decreases the cost of firms up to 10%. The firms that we survey show that their paper work reduces to 45%, this directly increases their efficiency. Less wastes The use of ecommerce enables the firms to lower the faults within the firm. This increases their internal benefits and profit by reducing the wastes that are mostly done by the human capital acquired by the firm. The wastages in the firm reduce to 29% in the very first year. Less rework The major benefits of the ecommerce are the less rework within the firm. As already mentioned that there is less paper work, less wastes, less faults and therefore, less rework is done by the management teams and by top management. This is the only reason that why the firm expands through the use of electronic commerce in their firms. The firms noticed that their rework was reduced to 34%. New service generation Due to quality services, high demand and better management, the firm is able to launch new services for the market. More IT involvement in the firm, the more capable the firm is. It was shown by the research that 4 banks out of 10 were able to launch new services for the market. Flatter organization Due to advancement in e-commerce the firms are becoming more flat rather taller. The reason is that the banks are growing in horizontal way and expanding businesses to other regions. Almost each bank expanded in horizontal way and becoming more flat. 12% of the banks show huge falter growth where as 27% of banks show medium growth. Improve image The image of the bank improved with time due to augmentation of quality services. The more competitive the bank, the greater image the firm has. Due to eCommerce the image of banks increases from 10% to 15%. This shows that they are providing what actually the customer wants. Reduce complaints The results in 2003 shows high complaints in almost all banks, but our recent research shows that the compliant are reduced to 40%. Almost most of the banks reached at a point where there is almost no complaint by the customer. Reduce returns The return of different shares and stock reduces in the investment bank due to high quality services and competitive rate of return capturing maximum market share. The banks show that return reduces to 2 %. This again shows the high satisfaction level of customers. Motivation and expectations Due to ecommerce involvement the motivation level of the customer increases and they are motivated to purchase most of the shares and stock to gain maximum return. The most important example is of Africans who are investing in foreign markets. Improve service reliability The ecommerce techniques and applications increase the service reliability of the banks. Now transactions become more easy, fast and safe. Such transaction services increases the reliability of the banks in the market. Better team work The firms noticed that they found a better team working in their firm. The ecommerce not only augment the banks overall operations but also increases the efficiency and effectiveness of the employees. Improve facility utility 95% of facility utility increased in investment banks is due to ecommerce and it is the main variable that is directly effecting on all the other variables plus on the firms over all services. The firm it self didn’t gain maximum facility utility rather the customers are also facilitate and their utility of these facilities increase with the application of ecommerce in the banks. Better relation ship Due to enhanced communication technology, the banks are able to augment their relations with the customers and with the intermediates. This better relationship enables the firms to expand their operations. Out of 10, 7 firms resulted that their relations with the customers are enhanced with time. Wider distribution channels The banks with the ecommerce applications are able to wider their distribution channels. One of the examples is the HSBC whose wider distribution channel is making the bank more operative and famous all over the world. Case study of Investment banking sector in United Kingdom In 2003, one of the investment banks, based in financial market of UK, paid the fine of 675,000 pounds due to their mortgage endowment complaints which were not handled properly by their service department. Similarly in 2004, the same Life Insurance Company paid the fine of 725,000 due to their bad handling of mortgage endowment complaints, which they were facing the last year. The only reason was that the company was unable to provide better services before and after the sale of their product and services. In 2005, High Street Bank paid the fine of 800,000 pounds due to their worst handling of customer complaints. In 2006, again the same investment bank paid the fine of 750,000. In 2007, IFA paid 330,000 of pounds as fine against worst compliant handling of their customers. These all fines which are paid by the companies mention above are the only reason of bad customer services they provide to the customers. These companies then need to take a deep look inside their customer relation services in order to know that what the root cause of the problem is. Later when the HSBC bank starts working, and many other new banks emerge their operations suddenly boost. The reason was that the banks were able to use the latest ecommerce applications that are enhancing their market level. That’s the reason of success for HSBC. Citibank, the bank of America and HSBC are the examples of the banking sector working in financial market of United Kingdom that uses the latest information and communication technologies that facilitate them to extend their business at global level. The MBNA bank was unable to succeed in the year 2005 and the reason was the lack of technology in the banking sector. Many other banks were closed in the capital market and the reason was the same. The financial service sector of UK based companies shoot up due to the use of the latest ecommerce applications in better form in the year 2007 and launches different strategies in order to fulfill the demand of their customers. The result of these was that these companies increase their sales from $753 billion to $1359 billion from 2004 to 2007. Premium income of the investment banks in UK increases to 16%, whereas the income of banking sector in UK increases to 16%, within 8 months in 2007. The total income of the banking sector increases to 7271 billion pounds, especially when the HSBC launches its services in UK. With growth in time, the needs and wants of the customers increase. They want more facilities in their life. This motivates them to invest in better bank that can save their future. Therefore, now the customers are investing in foreign markets where they are feeling to gain maximum returns. This all pushes the investment banks to work at global level, expanding their business in order to capture maximum market share. All this is only possible by the use of Electronic commerce (e-commerce) application. The right technology used in the right way will lead you towards the peak of success. Now the ecommerce applications are the essential need for the banks. Conclusion The over all paper concludes that the ecommerce has developed the investment banking sector in all the seven continents. The electronic media and internet together provides a new shape to the sector. The impact of the ecommerce is not even shown in the micro environment of the banks but also it enhances the market for the banks. Within the firms, other than the motivations many other variables affect such as environmental influences, competitive pressures, internal needs, support from top managers and top management, and exercised power from trading partners are examples of influences that have been shown by the banks adopting the Ecommerce in their banking sector. Banking sector should take proactive measures to create a change in the market place. The ecommerce provides that change but still much is left. With time, the competition is increasing and thus motivating the banking sector to develop more and reliable applications that can make the bank more augment and enhanced. The eCommerce applications could not take the banking sector at top by using the same applications rather other new advancements are required by the banks to remain in the market. The three main incentives of Ecommerce that is resulted from above all analysis are concluded as 1. Improved customer service, 2. Improved relationships and collaboration with brokers and the financial community, and 3. Increased return on stakeholder and owner investments. The analysis in the paper concluded that the major benefit of the ecommerce is that it increases the quality services to the customers. This quality service actually satisfies the individual needs. The electronic media use in the investment banking not only comfort the bank but also comfort the customers as they can easily invest in the global market with the help of ecommerce application. As we have already shown that the investment banking is split into three parts separately working for different purposes but the core purpose is the same. The ecommerce enhanced the communication level not only within these departments but also enhances the transformation steps processes. It develops a fastest communication level between the firm, customers and intermediates. The firms are able to collaborate with their brokers, with the community and with their different departments. As the ecommerce decreases the cost of the bank and enhances their return, thus the banks are able to launch the new rates that are providing maximum return to the customers and enhancing the overall efficiency of the banks. The ecommerce applications increase the investment level in the banks and also help the banks to increase the owner wealth. Such applications contributed together to stabilize the banks financial conditions and enables the firm to compete efficiently in the business world. Other than above mentioned incentives the banks are able maintains their pro-active management operations within different departments. This management enhancement is due to increase in the information and communication technology. Other than the management skills, the ability of the banks to know the exact demand of the customers increases. The ecommerce applications help the banks to demonstrate the clearer picture of the demand by the consumer market. This demand helps the firm toe adopt better strategies in order to meet with the competitive environment. On balancing these benefits there are some obstacles that are seen and these are Difference in regulatory systems The regulatory systems of different regions are different and thus this is the major obstacles for the investment banking to expand their businesses in other regions. This causes a huge transaction costs. Therefore, different huge banking sectors are now trying to achieve at regulatory system that will be uniform for all of the investment banks. But still much of the problems and hurdles are present. The bank has to fulfill all the obligations of the host government and has to achieve the regularity system and laws govern by the government body of that region. Other than this difference in taxation system, level of return and risk associated with each region differs that causes the problem for the investment banks to launch their activities. Lack of standardization The use of eCommerce reduces the level of standardization and thus more commercial banking is enhanced. The particular system of the bank does not remain homogeneous and that is the major obstacle of the Ecommerce. Human factor The ecommerce affects the human factor a lot. The unemployment rate increases as the information and communication technologies enables the firm to sue less human capital. The banks rely more on the technology and less on the human. This human factor is causing problem in the regions. And the ones working still needs more training an development with time as the technology grow so that they can be updated with time and technology. Decrease of reliability and increase in default As the advancement in ecommerce increases, it was seen that the more defaulters are their in the customer market. This decreases the reliability of the customers to the firms. This aspect first become a great obstacle for the firm but later different new strategies, techniques and applications enables the firm to reduces the default rates and thus the banks are launching latest security technologies that reduces the risk of default. `However, the ecommerce applications provide various benefits to the banking sector, affect on the over all operations of the bank, but still much of the work is left. Most of all, the success of any bank depends on the integration level of ecommerce technology within the business process of the bank [Kenichi Omaha (1892)]. The success lies on the understanding level of ecommerce application and its wide implementation on the business. But as with the time, more advancement in the information and communication technology is required. Understanding and implementing the applications of ecommerce is not the only step rather the banks are required to update this application and to maintain and manage all these technologies with time. Moreover, the result of the implementation did not elaborate at once rather it took time to enhance the operations and efficiency of the bank. As the above mentioned case discussed that the banks took time to enhance their services in financial market of the United Kingdom. References/Bibliography Allen. P. & Wootten. G., 1998. Selling. 5th ed. Pitman Publishing Broad Hurst. P., Williams. V. A. & Horsted. J., 1996. Law & Practice for Mortgage Lenders. Financial World Publishing. UK. Charles W.L. Hill, Gareth R, Jones (2003) “Strategic Management” 6th Edition Fred R, David (2005) “Strategic Management” Eleventh Edition Garth Saloner, Andrea Shepard (2001) “Strategic Management” Gregory G. Dess, G. T. Lumpkin (2003) “Strategic Management” Henry Mintzberg (2003) “Strategic Planning” Jobber. D., 1997. CIM Handbook of Selling & Sales Strategy. Butterworth Heinemann N. Gregory Mankiw (1998) “Principles of Microeconomics” 1st Edition Kenichi Omaha (1892) “The Mind of the Strategists” edition 1st Payne.A.,ed.1995. Relationship Marketing for Competitive Advantage. Butterworth Heinemann. Peck et al 1999. Relationship Marketing: Strategy and Implementation.  Oxford: CIM/Butterworth Heinemann Robert S. Pindyck, Daniel L. Rubinfeld (2004) “Microeconomics” 1st Edition Richard G. Lipsey, Alec Chrystal (2003) “Economics” 10th Edition Stella M. Nkomo, Myron D. Fottler, R. Bruce McAfee (2004) ‘Human Resource Management” Fifth Edition. Steffano Korper, Juanita Ellis, 2001 “The E-commerce Book” edition 1st http://www.oecd.org/dataoecd/49/3/2072939.pdf Read More