How the banking industry has been affected by online banking - Dissertation Example

Telecommunication systems and technologies help the bank to reach customers and provide them with not only general information but also the opportunity to perform interactive services of offline banking transactions like payment, receipts and transfer of funds (Aladwani, 2001). However Sullivan (2002) is critical of the technology and advises the banks that adopt internet banking to develop different methods of conducting business and speculates that internet will destroy old models and concepts of banking and will have profound influence on the banking industry.

Online banking though offers variety of services resulting in better customer satisfaction giving personal experience (Karjaluoto, et al, 2002), it is often accompanied by risk factors which is why there is a need to carry out a research to study how the online banking has affected the banking industry. Background Traditionally banks used the internet to provide general information about the banks, services offered and other information to the customers. The incredible growth of internet has changed the way banking was processed with the entry of virtual banks like Compubank and Net.

B@nk, providing customers with financial services over the internet and low cost or no fees as these banks do not have branches thus reducing the operating and fixed costs by replacing employees with technology (Jun and Cai, 2001). In order to sustain their competitiveness in the market, the traditional banks went online in order to provide better customer service, allow the customer access the services from the internet, make payment, receive and transfer funds online without standing in queue.

According to a June 2006 study by the Pew Internet and American Life Project, 43 percent of internet users or about 63 percent of American adults bank online (Patton, 2006). Online banking allows 24/7 customer service, borderless transactions, speedy service, effective banking transaction assisted with more sophisticated tools and services providing optimum security (Magoon and Vasisth, 2006). According to Plunkett (2008) companies that offer ATMs, physical branches and online services find the combination to be very effective as it costs a great deal less to service a customer who primarily relies on online services to manage accounts and ATMs to withdraw cash.

Consumers who use online services seem to be educated, have large bank balances, better credit ratings and create higher levels of profits than customers who opt for traditional banking, the view which is also agreed and found by Sullivan (2000) that bank can generate a large number of Internet transaction if it has sizeable customer base. However, Plunkett (2008) states that maintaining accounts security are the major challenge to online banking as they have often been subject to attacks by hackers, scam artists and virus writers.

It is further stated that success in online banking seems to be dependent on physical locations as consumers still wanted a branch to solve their queries. In a study carried out by Rose (cited in Jun and Cai, 2001), it was found that most of the banks, evaluated for service quality, showed an unsatisfactory level of service and argued that online banking has become complicated which may cause many problem than it can solve. Various studies