The Impact of Electronic Banking to Small Credit Unions - Case Study Example

The Impact of Electronic Banking to Small Credit Unions al Affiliation The Impact of Electronic Banking to Small Credit Unions Statement of Issues Being Addressed and Description of the Affected Organization(s) Technological advances necessitate application of changes to keep abreast with the transformed needs and demands of the discerning clientele. One of the most remarkable transformations that affected various facets of contemporary organizations’ operations is the emergence of the Internet and the online medium. Credit unions, for instance, have recognized the need to offer electronic banking to meet the needs of their consumers. As emphasized by Tatlock (2014), “credit unions often worry they must jump on the electronic services bandwagon or be left behind” (par. 1). The current discourse hereby aims to evaluate the impact of electronic banking to small credit unions. Offering services online required a closer evaluation of additional products and services that could be made available through this medium (PR Newswire, 2014). The CU Wallet, in particular, has posted positive patronage since its launching date in 2013 (Wireless News, 2014). Although there are evident benefits of electronic banking, other effects are hereby explored and presented from the perspectives of credit unions. These urgent concerns include addressing and mitigating risks related to electronic banking. From the points that are to be raised, recommendations would be proposed to resolve the issues that were presented, as required. Brief Review of Historical Context Relevant to the Issues From the history of online banking, the Stanford Credit Union was reported to have created the first online banking site (The Financial Brand, 2012). In recent times, the proliferation of smartphones and tablets, in addition to the traditional digital tools, have allegedly contributed to new consumer online banking contracts (Rapport, 2014). Accordingly, “about 1,000 financial institutions, including hundreds of credit unions, will be converting online banking platforms in the coming years, adding personal financial management and other baseline tools while ramping up their ability to satisfy users of tablets and smartphones” (Rapport, 2014, par. 2). Impact of Changes in Information Technology and the Financial Impact on the Structure of Firms Changes in information technology, particularly in the application of technological advancement offered in the online medium, has benefitted various organizations since its unprecedented growth. The Internet was revealed to have generated advantages to organizations through enticing consumers to purchase products and services online (Rios, Dominguez, & Ortega, 2014). In fact, the statistics on the average amount of checking account balances through the years have reportedly exhibited the apex in 2013 at $4,436 from 25 years of monitoring (Yerak, 2014). At hindsight, one could deduce that the easy access to electronic banking through various online medium could have contributed to the consumers’ increased ability to manage their funds and maintain required cash or current account balances. As emphasized, when consumers tend to fail maintaining the required balances, banks charge fees and penalties which pump the banks’ profits. Thus, electronic banking helps consumers monitor and maintain required balances to prevent incurring fees from overdrawn accounts, as well as “failing to keep balances above minimums, and for transferring money between accounts” (Yerak, Consumers are stockpiling cash, study shows, 2014, par. 4). In addition, consumers have relayed challenges experienced in traditional financial service providers, including credit unions; particularly in terms of loan applications (Investment Weekly News, 2014). Electronic banking is deemed a revolutionary medium which could facilitate the management of the loan application process through provision of duly completed loan application forms online (Investment Weekly News, 2014). Doing away with the need for consumers to be physically present would assist in avoiding costs related to travel, time to go the the bank (as such, time could be spend doing other urgent errands or endeavors), and waiting time to receive updates regarding results of the loan applied. Concurrently, from the part of credit unions and other financial providers, the electronic medium assists in cost minimization efforts through doing away with paper documentation and in facilitating solicitation of additional information from the loan applications online. The response time is shorter and thus, the overall customer satisfaction is higher. Another benefit for credit unions of electronic banking is the addition of products and services which could better address clients’ financial needs. The launching of CU Wallet was a perfect example of a product and service which aimed to improve financial offerings to the clients through the online medium. As revealed, “credit unions also can tie in mobile payments with mobile banking, cardless access to ATMs, and other technologies for additional member convenience. Each channel can reinforce the others because mobile is the cross-channel enabler—it is present in every other channel” (CU Wallet LLC, 2014, p. 1). The developer, Paul Fiore, was noted to aver that “the credit union industry is once again on the cusp of a seismic event, driven by the inevitable adoption of mobile wallets. The advent of mobile payments/mobile wallets will once again shift and change the way your credit union conducts business and presents services to members. We live in an increasingly mobile society, and I believe the mobile wallet is the most important emerging technology facing credit unions today” (Fiore, 2014, par. 5). Statistics indicated that as many as 65 credit unions governing more than seven million members have already adopted the use for CU Wallets (Wireless News, 2014). On the negative side, electronic banking was revealed to expose clients to different types of risks, specifically endangering exposure of personal identification (Tatlock, 2014). On the part of credit unions, joining the bandwagon necessitate addressing reputaion and compliance risks, particularly in adhering to four categories: regulatory requirements, forging contracts with clients and following disclosure regulations, retention of records, and in mitigating risks related to electronic banking (Tatlock, 2014). Some of the most important regulatory requirements that credit unions must be aware of in venturing to electronic banking are as follows: Truth in Savings, Truth in Lending, Equal Credit Opportunity Act, Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act (RESPA), Customer/member identification requirements, Privacy, and Unfair, Deceptive, and Abusive Acts and Practices (UDAAP) (Tatlock, 2014). Likewise, consistency in paper and online requirements were also revealed to be paramount for credit unions to avoid regulatory violations. Concurrently, since electronic bankings eliminates paper-based documentation, credit unions are warned in terms of designing record retention policies and procedures which are aligned with both, the paper-based documentation process which still exists, and the forms available through the online medium. Finally, as disclosed, reputation risks are tied closely to compliance risks in terms of designing policies and procedures which could expose personal identification of consumers and increase propensities for data breaches and identity theft. Similar to other contemporary organizations that offer products and services using the electronic medium, security breaches and increased protection to guard the personal identity of clients remain to be an urgent concern. Evaluation of the Position(s) Taken in the Article The review of literatures on the subject of electronic banking for small credit unions have provided immense wealth of information on its impact to the organizations and its clients. There have been immense benefits accorded to contemporary clientele in terms of the ability of using the online medium to undertake various financial transactions, including managing and monitoring account balances, loan applications, updating consumer profile information, and viewing other bank-related products and services which could also be availed online. On the other hand, the disadvantages of reliance to electronic banking remains exposure to security breaches, including propensities for identity theft and reputation risks. Are there particular strengths or weaknesses in the accompanying arguments? The strengths that were presented in various articles included the updated statistics and trends for online and mobile banking which was manifested in various contemporary organizations, including credit unions. The information apprised readers and customers on the latest products and services offered by financial providers to facilitate banking transactions at the convenience of the users’ preferred geographic locations. The articles also illumined readers on the challenges currently faced by credit unions, especially in adhering to regulatory requirements, as well as in ensuring that reputation and compliance risks are effectively addressed. Some areas of improvement could still be made in the areas of problems and concerns faced by credit unions in training current human resources to transition from paper-based applications to electronic banking. In fact, in the article published in the Sunday Business Post, it was revealed that an organization in Dundrum, The Lab, is currently training clients on the use of smartphones and mobile devices, to wit: “the Lab has an array of tablets and smartphones near the entrance for customers to familiarise themselves with banking apps. Staff at the facility also help customers with using mortgage and loan functions through AIBs online services. Video call booths are also used for face to face advice with specialists” (Sunday Business Post, 2014, par. 5). The strategy emphasizes that there could be clients who could be apprehensive to transition in electronic banking due to the lack of orientation and training to its proper use. Thus, aside from this point, other articles could include studies or surveys made with current clientele to determine reasons for intending to use electronic banking or signifying apprehensions to convert. Likewise, there are news in other geographic locations involving identity theft through the ATMs allegedly perpetuated by members of a notorious gang of skimmers, manipulators, or cyberthiefs. As such, no information has been disclosed regarding the preparedness of credit unions to address these emerging and continuing threat which could ward-off clients on the viability of depending and relying on the electronic medium. What is your assessment, given the views in the article and other research conducted? One’s personal assessment on the views which were presented in the article and other research is that clients and other stakeholders of the financial services provider industry, including credit unions, must be vigilant in weighing the benefits and costs of electronic banking. In view of continued dissemination of information regarding security breaches, identify theft, and exposure to risks through using the online medium to undertake various transactions, credit unions must design strategies that would address the risks, threats, and vulnerabilities which were relayed. Clients put their hard-earned financial resources to financial institutions to ensure their safety and security. If the online medium would provide greater costs and disadvantages to these clients in the long run, then, no amount of advertisement or promotional efforts would entice them to transition to online banking. One also affirms that technological advancement and applications should provide people with greater benefits in the long term. Since technology is continuously evolving, contemporary organizations are warned to assume a proactive stance in anticipating future challenges that would jeopardize the resources, reputation, and loyalty gained from customers. While it is true that electronic banking provides convenience and easy access to products and services from financial services providers, including small credit unions, still, contemporary clients are more discerning and evaluative in weighing benefits against costs. As such, technological applications should be used to advance the welfare and resources of clients which have been entrusted to financial institutions. Jeopardizing their investments would terminate the trust, loyalty, and value earnestly guarded by contemporary organizations who could exhibit laxity in securing the organizations’ assets, as well as those painstakingly saved by the clientele. Conclusion The benefits of technology and its applications could not be overemphasized. The move for financial services providers to electronic banking should be pursued not based on bandwagon effect alone, but in comprehensively evaluating the internal resources of the organization, as well as the opportunities and threats in the external environment. Credit unions could gain greater numbers of members through electronic banking, as the statistics revealed. However, the challenges and issues of security breaches and identity theft, as well as mitigating reputation and compliance risks should be in the forefront of their organizations’ agenda. References CU Wallet LLC. (2014). Clearing the Technological Hurdles. Retrieved from cuwallet.com: http://www.cuwallet.com/AboutUs/Navigating-Mobile-Complexity Fiore, P. (2014, July 28). Mobile Wallet Poses Seismic Threat to Credit Union Industry: Heed Warnings or Risk Failure. Retrieved from CUNA Technology Council: http://www.cunatechnologycouncil.org/news/6014.html Investment Weekly News. (2014, August 9). Investment Companies; Researchers Submit Patent Application, "Systems and Methods for Managing a Loan Application", for Approval. Retrieved from ABI/INFORM: http://search.proquest.com.library2.csumb.edu:2048/abicomplete/docview/1549459293/368A6DBB28D04E2DPQ/4?accountid=10355# PR Newswire. (2014, August). Online and Mobile Banking Ranked as the Most Important Lever in Credit Union Member Satisfaction, Reports CFI Group: Credit unions are responding to members desire for convenience and their need to conduct transactions on demand. Retrieved from ABI/INFORM: http://search.proquest.com.library2.csumb.edu:2048/abicomplete/docview/1554270418/fulltext/6E9F97095F64930PQ/7?accountid=10355# Rapport, M. (2014). Online Banking Conversion Surge on the Horizon. Retrieved from Credit Union Times: https://www.cutimes.com/2014/06/27/online-banking-conversion-surge-on-the-horizon Rios, M., Dominguez, M., & Ortega, M. (2014). Information Technology Expansion and Communication Betweeen Small Firms. Retrieved from ABI/INFORM: http://search.proquest.com.library2.csumb.edu:2048/abicomplete/docview/1551715858/fulltextPDF/86D6B74A0BF042DCPQ/12?accountid=10355# Sunday Business Post. (2014, July 27). Mobile banking: Smart banking at the Lab in Dundrum. Retrieved from ABI/INFORM: http://search.proquest.com.library2.csumb.edu:2048/abicomplete/docview/1548517853/fulltext/368A6DBB28D04E2DPQ/1?accountid=10355# Tatlock, K. (2014, August). Mitigate Electronic Banking Compliance Risks. Retrieved from ABI/INFORM: http://search.proquest.com.library2.csumb.edu:2048/abicomplete/docview/1553305206/fulltext/6E9F97095F64930PQ/12?accountid=10355# The Financial Brand. (2012, October 2). Infographic: The History Of Internet Banking (1983 – 2012). Retrieved from thefinancialbrand.com: http://thefinancialbrand.com/25380/yodlee-history-of-internet-banking/ Wireless News. (2014, July). CU Wallet Signs 65 New Credit Unions to Mobile Wallet Movement. Retrieved from ABI/INFORM: http://search.proquest.com.library2.csumb.edu:2048/abicomplete/docview/1549439476/368A6DBB28D04E2DPQ/5?accountid=10355# Yerak, B. (2014, July 17). Checking balances at 25-year high, study shows. Retrieved from ABI/INFORM: http://search.proquest.com.library2.csumb.edu:2048/abicomplete/docview/1545680066/368A6DBB28D04E2DPQ/2?accountid=10355# Yerak, B. (2014, July 18). Consumers are stockpiling cash, study shows. Retrieved from ABI/INFORM: http://search.proquest.com.library2.csumb.edu:2048/abicomplete/docview/1545818923/368A6DBB28D04E2DPQ/3?accountid=10355## Read More