The Impact of Internet Banking on Business-customer Relationships - Assignment Example

Impact of Internet on Competition in Banking Industry Answer Introduction The emergence of the internet in the banking industry has created both threats and opportunities for banks. With the emergence of the internet, the banking industry becomes more volatile and dynamic. Internet affects the competitive landscapes of banking in various ways such as changing the structure of the industry, creating competitive advantage for banks and developing new businesses. Impact of the internet on competitive landscape of banking industry Rules of competition: Through the internet, smaller banks and companies can gain advantage and set new standards of competition. There are the same rules of competition for all companies. It helps to reduce physical and high operating cost (Johns and Perrott, 2008). For example, Amazon.com use internet that reduces its operating costs, so, it provides books at low costs as compared to large conventional bookstores. Requirement of knowledge: For the banks, large capital is required, but in internet banking, no physical networks are required. Online banking deliver services more economically and speedily. Internet banking changes the rules of competition for small and large banks and minimizes the importance of physical distance and location (Siaw and Yu, 2004). Brand building: Brand building is necessary for products and banking services that are undifferentiated. The internet creates the high-level image of brand that helps to make more informed purchase decisions for customers because they found everything on the web. The internet is helpful to change the balance of power for the customer’s benefits. Customer segmentation: Financial institutions can increase profits through effective customer segmentation. Internet banking is an effective channel for reaching customers. With the help of this, banks can target same customers through internet services (Johns and Perrott, 2008). On the other hand, customers gain more profits from internet banking as compared to traditional banking. So, it is profitable for banks to develop the lucrative market segment, identify profitable internet banking customers and target them. Customer relationship management: In the banking industry, a firm develops new products and other banks copy them quickly, so, customers shift from one bank to another and internet makes it easy for customers. Thus, to differentiate, banks should manage the relationship with customers (Momparler, Climent and Ballester, 2012). Through the internet, bank can provide product information and other services to target customers and maintain relationships with them for long-term profitability. Global market: Internet has reduced regulatory and legal restrictions in the global market. It reduces boundaries in the international market. Through the internet, Citibank has entered in the Japanese market and The Royal Bank of Canada has entered in the US market by capturing all virtual banks. Along with this, the Canadian Imperial Bank of Commerce has entered into the US market through internet banking and supermarket based ATM. Distribution channels to customers: Before the advent of the internet, bank products and services could be brought to the branches of the banks and banks spent the large amount of money to set up their branch. With the invention of the internet, it is easy and more comfortable for customers to deposit and debit money from their account directly through internet banking. It changes the distribution channel structure of the banking industry (Siaw and Yu, 2004). Along with this, the internet increases the ability of banks and customers to interact directly with each other. So, internet banking customers are increasing and branch banking customers are decreasing. Remove switching costs: In the past, organizations have established a set of proprietary standards to maintain their customers and prevent them from effecting to other competitors and suppliers. It includes high switching costs for the banks. At the same time, the internet provides the open system that is contrast for proprietary standards (Johns and Perrott, 2008). Banks invested huge amount in the development of proprietary software to manage their customers that change into a liability from an asset through universal channels from the internet. It provides easy access of information at anywhere anytime. Conclusion It can be concluded that the emergence of the internet affects the competitive landscape of banking industry in terms of economies of scale, requirement of capital and knowledge, government regulations, global competition, brand building, customer segmentation, distribution channels, eliminating switching cost and customer relationship management. At the same time, the internet represents as a threat and opportunity for the banking industry that depends on the understandings and effective strategies to manage these changes. References Johns, R. and Perrott, B. (2008) The impact of internet banking on business-customer relationships (are you being self-served?). The International Journal of Bank Marketing, 26(7), p. 465-482. Momparler, A., Climent, F. J. and Ballester, J. M. (2012) The impact of scale effects on the prevailing internet-based banking model in the US. Service Business, 6(2), p. 177-195. Siaw, I. and Yu, A. (2004) An Analysis of the Impact of the Internet on Competition in the Banking Industry, using Porter’s Five Forces Model. International Journal of Management, 21(4), p. 514-523. Answer 2 Introduction In the 21st century, computers, communications, information technology and internet change the working procedure and lifestyle of people. The internet and online banking change the scenario of banking industry and management of banks (Shroff, 2007). At the same time, all over the world, typical banks are struggling to get appropriate resources and capabilities that help to compete in the internet dominant environment. Resources and capabilities Computerization: Typical banks need full computerization in their branches to provide effective products and services to customers. In the present, high speed networks reduce the cost of computing power and make possible to transfer voice, data, video and image in micro seconds around the world (Sarlak and Hastiani, 2010). So, it is necessary to change the banking services from paper to networked banking services. Information technology: Typical banks should use information technology in their banks to compete with the internet and online banking. The new technologies provide banking products and services to customers more conveniently and effectively. Along with this, with information technology, banks can gain a competitive advantage through direct marketing and effective customer services (Khosrow-Pour, 2006). Apart from this, decision support systems and effective management provide competitive edge for banks to compete with internet banking. Through the effective information technology system, banks can provide various services to customers that help to compete with internet banking industry. These are as follow: Self-inquiry services: Banks can provide logging facility for customers in self-inquiry terminals to make inquiries and view the status of balance and transactions in their account (Shroff, 2007). Remote banking: In this, remote terminals of the customers are inter-linked with the bank’s terminals through a modem (Sarlak and Hastiani, 2010). So, customers enable to enquire about their accounts through online without move to branch. Tele-banking: It provides a full day and full night service for customers to make inquiry about their balances and transactions of the account through a call. Electronic banking: Through this, banks provide inquiry facilities for corporate or high value customers with the help of Graphical User Interface (GUI) software in a computer (Shroff, 2007). Corporate customers can inquire about their financial transactions, balances, cash transfers, interest rate and cheque book issue without coming to branch. This service is called Electronic data interchange (EDI). Capabilities: Typical banks required capabilities and skills among employees to provide better services to customers and manage a relationship with them that help to compete with internet banking industry. Along with this, banks required strategic capability, global capabilities and human resource capability to create a competitive advantage (Stalk, Evans and Shulman, 1992). For example, Citicorp is the largest US bank for the asset but Banc One has highest return on assets and great market capitalization due to its management capability. Conclusion It is concluded that typical banks required advanced technology, networking, information technology and advanced software to provide effective services for customers and compete in internet and online dominated environment. Along with this, various capabilities related to management, employees, strategic and resources are required to compete with internet banking environment. References Khosrow-Pour, M. (2006) Emerging Trends and Challenges in Information Technology Management. USA: Idea Group Inc (IGI). Sarlak, M. A. and Hastiani, A. A. (2010) E-Banking and Emerging Multidisciplinary Processes: Social, Economical and Organizational Models. USA: Idea Group Inc (IGI). Shroff, F. T. (2007) Modern Banking Technology. China: Northern Book Centre. Stalk, G., Evans, P. and Shulman, L. E. (1992) Competing on Capabilities: The New Rules of Corporate Strategy. Harvard Business Review, p.1-13. Answer 3 Introduction In the present era, traditional branch banking has attracted for internet usage. Banks started internet use for payment and customer convenience. It helps to reduce costs and increase profits for banks. The internet has changed the concepts and theories of competitive advantage for banks (Finne and Sivonen, 2008). Through this, small banks and traditional banks can sell their products through websites and reach new customers with differentiated products and services. Traditional concepts of competitive advantage In the new internet dominant environment, classical theories and concepts of competitive advantage are no longer important due to the changing business pattern, products and services, distribution channel, required resources and competition (Rodrigues, 2010). There are various concepts which are not important and valuable in internet dominant environment such as: Distribution channels: Traditional businesses focused on location and sites of outlets in the market to reach maximum customers and gain competitive advantage of suitable location. Banks spent a huge amount of money to establish their branch and purchasing best system in their branches (Finne and Sivonen, 2008). So, big companies and banks can gain advantage of center location and the proper distribution channel to deliver products for the customers. In the internet dominant environment, location and distribution channels are less important because customers can purchase products and services through online at anywhere with easy convenience without moving to stores and banks. Thus, it may be no longer important for companies to gain competitive advantage. Economies of scale: In the traditional business environment, larger banks and companies can gain competitive advantage with economies of scale because physical size and organizational structure required high operating cost and gives limited flexibility. But the internet is helpful for small companies and banks to gain competitive advantage (Keltner, 1995). In the virtual environment, the internet changes the physical process, so, economies of scale are less relevant. For example, Security First Network Bank (SFNB) launched the first transactional website in 1995 with own web-based outlets. Capital: In traditional environment, banks required large capital to establish a new branch. Traditional banks focused on personal contact with customers that need a specific hierarchical structure to provide personal contacts for customers (Omari and Bataineh, 2012). At the same time, in the internet banking, physical process and networks are not important in long-term to attain competitive advantage. Through internet and online, it is more economically and easy to deliver products and services to customers. Proprietary standards: In the past, organizations have adopted a strategy to sustain their competitive advantage. Under this strategy, they established a set of proprietary standards that helps to sustain customers from competitors (Siaw and Yu, 2004). These standards impose high switching cost, but the internet provides open system and universal channel for information to customers. Conclusion So, the internet changes the rules of competitive advantage and decreases the importance of physical networks and location. In the present internet dominant environment, large physical branch networks are no longer important to gain competitive advantage and no importance for customers to select a bank. With the internet, small banks emerge and compete with the large scale and multinational banks. References Finne, S. and Sivonen, H. (2008) The Retail Value Chain: How to Gain Competitive Advantage through Efficient Consumer Response (ECR) Strategies. UK: Kogan Page Publishers. Keltner, B. (1995). Relationship banking and competitive advantage: Evidence from U.S. and germany. California Management Review, 37(4), 45-45. Omari, H. and Bataineh, T. (2012) The impact of e-banking on achieving competitive advantage for banks in jordan. Interdisciplinary Journal of Contemporary Research in Business, 4(7), p. 271-285. Rodrigues, S. (2010) Proceeding of the 2nd European Conference on Intellectual Capital. UK: Academic Conferences Limited. Siaw, I. and Yu, A. (2004) An Analysis of the Impact of the Internet on Competition in the Banking Industry, using Porter’s Five Forces Model. International Journal of Management, 21(4), p. 514-523. Answer 4 Introduction Bank Muscat is the financial institution, based in Oman and has assets worth of USD 18 billion. It provides various banking services including corporate banking, investment banking, private banking, retail banking and asset management. It has wide network including 134 branches, 141 CDMs, 409 ATMs, and 4500 PoS terminals (Bank Muscat, 2013). In international operations, it established branches in Riyadh, Kuwait, Dubai and Singapore. In this, the competitive environment of Bank Muscat will be analyzed through porter’s five forces. Along with this, the impact of the internet on competitive position and its actions and strategies to preserve its competitive position will be discussed. Porter’s five forces Threat of entry: This bank faces threats from new entry of foreign-owned banks and an increasing number of local banks in Oman. In 1992, there were 21 banks in comparison with 3 in 1972 (Hill and Jones, 2009). Along with this, there is a threat of leaks in new services before launching for Bank Muscat. Threat of substitutes: The major threat for Bank Muscat is to increasing use of internet-banking and other channels of banking that become more popular (Ahlstrom and Bruton, 2009). Along with this, the government of Oman motivates this type of banking under E-government. Competitive rivalry: HSBC and NBO banks are two major competitors for Bank Muscat. HSBC is an international and popular bank while NBO is a local and successful bank in Oman. Both are ready to adopt new technology and give tough competition to Bank Muscat. Bargaining power of buyers: In the banking industry of Oman, buyers have moderate bargaining power due to less number of banks (Hill and Jones, 2009). Banks provide different banking services to customers that will increase their bargaining power and switching costs. Bargaining power of suppliers: There is a limited number of suppliers due to few banks, so bargaining power of suppliers is high (Ahlstrom and Bruton, 2009). Suppliers offer utility payments to Bank Muscat because it deals with the large number of customers. Impact of internet on competitive position The internet makes able to small banks for competing with large-scale and multinational banks because it reduces high operating cost, physical networks and huge capital requirement. Along with this, the physical size and location of banks are no important for competitive position through internet banking (Pock, 2007). The internet enables existing banks and new banks to do business with the same rules of competition that increases a volatile and dynamic business environment and tough competition among banks. The internet reduces the barriers of entry that increases the number of competitors. Through this, banks have low switching costs with substitute providers. Along with this, the internet changes the rules of competition that influence the competitive position of Bank Muscat in Oman. With this, economies of scale are no longer important for the bank that was helpful to gain competitive advantage. Additionally, distribution channels are less important because the internet provides direct communication with customers (Oxford Business Group, 2009). In the banking sector of Oman, use of internet banking, payment of utilities and money transfer through EFT (electronic fund transfer) system are increased that affect the strategies, business process, networking and competitive position of Bank Muscat. Preserve the competitive position In order to preserve its competitive position in the banking industry of Oman, Bank Muscat uses advanced technology and offer effective and customized products to customers. These services are helpful to ensure the receiving of payments, manage liquidity, reduce exchange rate risk and save money and time. Following are these services: Bank Muscat e-Trade: The online e-trade system allows corporate customers to get correct and update information of regular transactions. Along with this, it provides the facility of two-way communication between bank and customer, information about previous transactions, update status information for all transactions and enquiry and message facility (Global Trade Services, 2013). It is a 24hours service that reduces manual mistakes, offers tracking facility, increase productivity, decrease costs and time and permits accessibility for customers at anytime from anywhere. Internet banking: Along with this service, this bank provides internet banking services to their customers. Through this service, customers can maintain their accounts in convenient manner with easy access. In this, banking services are available for customers 24*7* 365 and anywhere in the world (Internet banking, 2013). Online banking provides facilities of fund transfer, pay electricity, water and telephone bills, make credit payments, and create term deposits and demand draft. So, through this, this bank has continued to preserve its competitive position in the market. Conclusion Bank Muscat is leading bank in Oman but it faces tough competition from HSBC and NBO bank and new entrance of foreign banks. The emergence of the internet influences the competitive position of this bank due to encourage small banks and reduce the importance of physical location, networks and economies of scale. At the same time, this bank has preserved its competitive position by understanding the importance of the internet and adopting internet banking, mobile banking, online e-trade systems and other effective services. References Ahlstrom, D. and Bruton, G. D. (2009) International Management: Strategy and Culture in the Emerging World. USA: Cengage Learning. Bank Muscat (2013) [Online]. Available at: http://www.bankmuscat.com/en-us/AboutUs/Pages/Default.aspx Global Trade Services (2013) [Online]. Available at: http://www.bankmuscat.com/en-us/CorporateBanking/FinancialSolutions/GlobalTradeServices/Pages/default.aspx Hill, C. and Jones, G. R. (2009) Strategic Management Theory: An Integrated Approach. USA: Cengage Learning. Internet banking (2013) [Online]. Available at: http://www.bankmuscat.com/en-us/ConsumerBanking/BankingChannels/InternetBanking/Pages/Default.aspx Oxford Business Group (2009) The Report: Oman 2009. UK: Oxford Business Group. Pock, A. (2007) Strategic Management in Islamic Finance. Germany: Springer. Read More