Online Banking and the Banking Sector - Essay Example

?ONLINE BANKING AND THE BANKING SECTOR Content list 0 INTRODUCTION 1 Background information 2.0 DISCUSSION 2.1 Evaluation 2.2 Advantages 2.3 Shortcomings 3.0 Conclusion 1.0 INTRODUCTION 1.1 Background information Banking experience, just as is the case with all other aspects of business, has had great evolution in the past. Great changes has been noted specifically in the advent of internet and technology use for depositing, withdrawing as well as transferring of money from an account to another through the internet and mobile phone wireless services (Gbadeyan and Akinyosoye, 2011, p.118). On a broad analysis, the effect of e-commerce in people’s life has not been only in one dimension but through a wide spectrum of use, internet has been widely adopted for use in matters of shopping and transacting almost all bank procedures. Online shopping for various goods as well as services have not left consumer goods and services unattended to and according to the ‘Nielsen Global Consumer Report June 2010’ shopping for goods and services have had great evolution in the onset of online shopping (The Nielsen Company, 2010, p. 2). The advent of online stores through which sellers displays their goods and services and through which consumers shop for their consumer goods characterizes today’s commerce industry. Debates have however shaped the discussions about the topic of e banking; why the modern day banking institutions are adopting the e-commerce practices through adoption of such technologies as the internet for performing the transactions as against the traditional physical banking practices. Supporters of the practice of physical/manual banking procedures (who often are the older generation (Madden, 2010, p. 2), and who are opposed to the electronic banking practices, reasons that banking physically is easy and entails little logistics. It only gives one opportunities to conduct the banking procedures physically/manually where one-one interactions are preferred to the electronic practices. On the other hand, the supporters of the online banking practices affirm that the practice is more convenient than the physical banking in that one would have access to banking services such as withdrawals, transfers as well as transacting other complex banking transactions without physically visiting a banking facility (Hazel and Raphael, 2001, p. 4). The decisions to offer the online banking services by banking institutions may therefore stem from various reasons such as the convenience to customers, the good returns in use of internet for the procedures (which reduces the human labor costs incurred) and the general advancement of technology as is widely acknowledged in the current era. However, the evaluation of the advantages as well as associated factors that influence the adoption of online banking methods by different banking institutions takes to cognition that these services adopted vary from one region to another and from one country to another (Diniz, Porto and Adachi, 2004, p. 41-42). Institutional frameworks and culture within countries and the governments may have influence on the choice of methods of banking practices such as the internet banking. For instance, among some cultures, technological advancement is not appreciated and hence the effect to adoption of online practices such as banking would be unfavorable (Tan and Teo, 2000, p. 1-4). 2.0 DISCUSSION There has been noted evolution within the practice as necessitated by the advancement of technology in the world. Technological revolution has shown that new platforms of utilizing internet such as through mobile phone platforms and the computer applications has had effect on the perception of internet use for daily purposes such as purchasing of consumer goods and services as well as in banking services. The recent past has witnessed the adoption of internet banking practices by many financial institutions. This has been necessitated by the strategic increase in change of lifestyles towards web-based practices in the modern era. Banks and other institutions have therefore evaluated and acknowledged the potential benefits that would be accrued by the adoption of web based banking practices. Businesses have therefore noted the potential of increased gains that would be realized through adoption of the online/internet banking procedures despite conforming to the modern lifestyles. Among other impacts of adopting, the online banking practices are the reduction of banking costs incurred by the banks and other financial institutions and hence the potential to increase the profits realized as has been confirmed by empirical studies conducted under the subject. Globalization of banking services has also experienced great revolution through the adoption of the online banking practices, which are equally credited over the increased speed through which the transactions are carried out (Chang and Dutta, 2012, p. 181). This paper therefore intends to carry out an analysis of the adoption of ‘internet banking technology’ by banks and other financial institutions across the globe with special acknowledgement to the SFCU (Stanford Federal Credit Union) in the US (Business wire, 2013, p. 1-2). The financial institution has been seen to be the first of its kind to offer banking information through the internet where the customers are privileged to withdraw and transfer money, pay loans as well as well as access one’s own transaction history dating back to a year’s period. Besides, through the technology, the customers to the institution have the capacity to conduct all other banking transactions through the online technology, which is slowly gaining popularity and acceptance across the globe (Padachi, et al, 2008, p. 99). We take to consideration that such factors as literacy levels, government policies, cultural values as well as awareness campaigns would have played major role in the past in dictating the level of acknowledging online banking practices. Moreover, the experience in bank transactions through online methods may have great effects in determining the attitudes and preferences of the people concerning adoption of online banking methods for general financial transactions as earlier outlined. Banking management practices have also experienced a revolution through the adoption of internet technology in banking practices (Shah and Clerke, 2009, p. 1-3). Technological management practices have therefore been adopted due to the reason that many of the transactions that are taking place are through the internet. The banks and other institutions dealing with financial services are therefore adopting tools that would enhance the interaction and communication through the online systems. This is such an example to the modern day management practices that are taking shape of the banking sector where using internet, communication and other levels of interactions between the banking institutions as well as the clients can be actualized (Sakal et al, 2011, p. 87; Dinesh, 2011, p. 2-3). Moreover, the other management practices that takes great cognizance to the use of internet for banking are the practices regarding security. With the rise in use of technology, greater threat ensues with the likelihood and potential of banking systems to incur great losses through frauds and other related fraud activities by the internet hackers. The managements of the institutions are therefore facing rising challenges in adopting favorable practices to address the potential threat through such activities as constant up-grade of the financial institutions systems with improved and better systems of security. 2.1 Evaluation There is a notable increase in the preference of using the internet with a 2012 report by the American bankers association revealing that internet has gained popularity and preference among the customers over other banking services such as the physical banking, mobile banking as well as the use of ATM for banking transactions among others (Kaplan, 2013, p. 103). Convenience has been portrayed as the major incentive that has driven the adoption of the online banking practices in many parts of the globe. Evaluation practices and procedure that are adopted to evaluate the practices of internet banking and other development programs have evolved continuously. Impact evaluation and expanding research practices have influenced the evaluation of the evaluation programs adapted from one country to another and from one industry to another. It is a common occurrence where such technological programs appear to be very promising before the actual implementation by the institutions responsible only to fail to produce the anticipated outcomes. In our analysis, adoption of online business procedures appears to result to great benefits as compared to the traditional methods of banking. However, evaluation of the technology and the effects of using the technology within the banking sector is necessary in order to evaluate the actual outcome as against the theoretical perceptions. The evaluation tool to be adopted for the internet banking should be in a position to establish the perceived effects on the side of the banking institutions as well as the customers. Both the qualitative as well as the quantitative evaluation methods are necessary to ascertain the authenticity of the findings. Due to the increased cases of identification forgery and general fraud cases within the financial institutions which have adopted the internet banking practices, it is becoming increasingly necessary that the institutions adopt appropriate and most effective authentication procedures in order to curb the vices. Authentication system is therefore one of the tools that the banks are adopting to the internet service programs (Federal Financial Institutions Examination Council, nd, p. 1; Suffolk federal credit union, 2013, p. 1-2). Better and improved services offered to the customers are instrumental in adding to the satisfaction of the customers besides raising the profit margins of the respective banking institutions. Nevertheless, the associated risks in adopting the technology for business transactions by banks and other financial institutions influence the decisions made towards the practices (Sainath et al, 2012.p. 454-455.). 2.2 Advantages Among the highlighted benefits realized by management in the financial institutions is the ease of communication and interaction with the customers, low operational costs, efficiency in time management and reduced cases of fraudulent practices from internal systems. On the other hand, customers enjoy ease of bill payments, ticket booking for travelers, online account openings as well as deposits and easy fund transfer through the internet banking service. Other advantages are noted through money savings by providing paper-free transactions as well as transactions which are up-to-date and complete at any time (Gan et al, 2006, p. 1-2). Increased profit margins: Banks and other financial institutions that have adopted the internet banking technology enjoy higher profits because of reduction in the labor costs. Relatively few workers are employed within these institutions, as many of the transactions are easily transacted through online systems. The reduction in labor costs therefore implies direct lower costs for the wages and salaries and as a result, the institution enjoys higher revenues being realized. Moreover, banking institutions, which adopt the technology, has higher efficiency in managing and overcoming the errors that result from the transactions by individual workers and as such contribute to the increased profitability of the institutions. Finally, the banking services advanced through the internet are not limited on time and are thus accessible any time; for 24 hours and thus increase the business hours compared to the traditional banking procedures which are often subject to the time of the day. Through the unlimited business hours, the banks are therefore able to realize the higher margins of profits as noted (“Online banking & bill payment agreement "terms and conditions", nd, p. 1-7). Management and communication: management teams from banking institutions adopting the internet technology have equally advanced in matters of communication to the customers through the online systems. The online business transactions occur through specialized website interphase, which offers prompt services such as consultation whenever required. The advent of technological advancement has enabled the management of the banks to interact easily with the clients being attended to and thus improve the service delivery. Moreover, through the improved interaction levels, decision making by the banks is revolutionized through involving the customers’ opinions. Transaction security The banking sector in the past has been facing challenges in ascertaining the security of the transactions as offered by human beings who are prone to making errors in transactions, which would result to great losses. Moreover, fraud activities from the internal management would be blamed in most instances to cause the security threat to the banks. Transferring money through the manual methods from a business enterprise to and from the banks posed a security challenge where robbery would be easily schemed. However, through adoption of internet technology, depositing as well as transfer of funds has been made easy to the customers. This is therefore one of the advantages that the banking sector enjoys through the adoption of internet for transacting banking transactions. Moreover, the banks have adopted improved security measures to ensure that security and secrecy of the customers’ information is ascertained. Through improved security measures, the banks that are adopted to the internet technology would therefore command higher customer satisfaction and approval, which is beneficial to the operations of the banks. Paper free banking This is another advantage that is enjoyed through the adoption of the internet technology for banking procedures. Besides being advantageous to the customers using the services, the banking institutions save a lot through the use of paperless banking system while transacting all the business transaction s which otherwise use lots of papers. Complete and updated records The management practices in banks just as is the case with any other business rely much on the records for transactions. Some complex transactions take long to be recorded and for the records to be accessed through the traditional banking procedures. However, the internet banking offers the banking institutions improved ease in access and completion of the records. Banks management team therefore enjoys the increased efficiency in developing and accessing records of transactions, which are transacted online due to the ease, and aid of the technology. The technology promptly updates the transactions performed and as such saves on time and labor that would be used in updating the transactions and records that are necessary for management practices. 2.3 Shortcomings However, despite the above outlined benefits that accrue to banking sector through adoption of the internet banking, there are associated shortcomings that result from the use of internet for banking services. Among these disadvantages is the risk of theft through internet fraud and hacking, the risk of too much exposure of customers’ information as well as the costs associated with maintenance of the system of online banking (Federal Financial Institutions Examination Council, 2003, p.13-17). Hacking Cyber crime is one such shortcoming that the banks adopting the use of internet for business must be cautious of. The hackers get access to the banking system of such a bank and through malicious software through which they can commit fraud activities thus exposing the banking institution to adverse circumstances. Over the last years, malware has become a dominant feature within the computer systems and is not designated to particular places but on the contrary, it is spread all over the globe (Reavis, 2012, p3-6). Malicious software in general refer to a variety of software which are intrusive or even hostile and includes such software as rogue security software, spyware, worms, adware, dialers, Trojan, computer virus and key loggers among others which normally appear in the form of active contents, codes as well as scripts (Klaus, 2013, p. 3; “Online banking security”, 2007, p. 6). However, it is worth noting that malwares are different from defective software in the regard that defective software may be legitimate software which would have had defective bugs before release and which were not corrected. Ill intentions by hackers or malware developers lead to the design and programming of the harmful software in order to access sensitive information from organizations or even private system. These software programs are used to steal sensitive financial, personal or even business information, which is targeted by the hackers. Besides the use of malware to gather or ‘steal’ important information from corporate systems, the malicious software is used to disrupt the operations of computer systems and as a result bring about much suffering to organizations or corporate. The software has been used in many instances to target government operations, bank systems as well as corporate and private security systems for profit gains by the hackers (Reavis, 2012, p.3). The working of the different malicious software differs from one type to another. Worms and virus are known to target executable software installed within computer systems and when the programs are run, the software spread to other software within the system of computers. This therefore imply that the spread and multiplication of the harmful software depend on the type where some do self replication while others depend on the running systems in order to spread. Furthermore, viruses spread through exchange of emails and Microsoft word documents, which are infected, and thus, upon opening of these documents, the virus gets access to the computer system. Others also gain access into a system of computer through concealing their characteristics until they are from within the systems. Through this conciliation, they are able to carry out intended purposes in an undetected manner (Reavis, 2012, p. 1). In sum, it is worth noting that no computer is immune absolutely to the malware attacks. There however, anti-malware software which offer protection against these attacks with the most known among them being the ant-viruses that are installed to computers to detect and disable intrusion by the malware. Therefore, the banking sector always runs the risk of such intrusion by hackers who would gain access to sensitive information and which would cause great losses to the bank and financial institution. Too much exposure of customers’ information In order to add capacity or improve capabilities of functionality of banks which invest in internet banking having not to invest in personnel training, licensing new software as well as investing in new infrastructure, the emerging trend is in adopting such services as the cloud computing. However, the emerging concern with the current trend is that how safe the environment is as more and more personal as well as organizations’ information are continuing to be placed in the cloud (Badger et al, 2012, p. 1). Subashini and Kavitha (2011, p. 1-11) sought to analyze the issues in security within the models of service. Among other findings, that the study found was that despite cloud technology being a beneficial technological advancement, it is equally a disruptive technology having extreme unfavorable implications onto internet users as well as the IT field as a whole. Many potential users to the internet and IT systems get scared away over the rising concerns of security. If integrated system in the system would be designed, then the concerns that are risks to consumers and potential investors would be addressed and ascertain their security. Moreover, a new business niche would be created in offering security as a service, which would specialize in single, as well as multi-tier security provision and which would effective in being unpredictable to the hackers. Clients to the banks service providers are hesitant to adopt the dynamic system of data storage because they feel that the system does not fully guarantee the security to their data. However, with suggested mechanisms, the system of cloud computing is definitely going to take a lead in the field of IT and banking sector. Costs associated with maintenance of the system of online banking The infrastructure necessary for successfully serving for internet banking system is relatively expensive when compared to the other traditional technology that has been in use. Moreover, the maintenance cost for the system attracts high costs due to the constant dynamic noted in the field and which necessitates regular improvement. Strategic problems such as discussed above necessitate the constant upgrading of the banking system to ensure security for the institutions as well as the clients served. The banks therefore invest heavily in security measures around the internet system frameworks. Risks Other challenges that the banking institutions, which have adopted the internet banking technology, has been the availability of associated risks. The banking risks identified to emanate from the adoption and use of internet for banking transactions include strategic risks, operation risks, business risks, as well as risks on reputation (Xie, nd, p. 1). The risks revolve around the above-discussed shortfalls of the technology as analyzed holistically. The strategic risks revolve around the management and decision making risks associated by adopting the technology. The operation risks facing banks that adopt the technology revolve around the costs implications that are brought on board through adopting this technology. Business risks stem from the likelihood of positive adopting of the technology by the already existing customers as well as the incentives that would bring more customers on board through introduction of the technology. It also revolves around the profitability of the technology for the respective bank as compared to the traditional technologies. On the other hand, the reputation risks arise with the consideration of the perceptions with which the customers and potential customers would develop regarding a particular banking institution, which adopts the technology. In the extreme possibilities, the adoption of the technology may have positive reception and hence good reputation for the institutions or a negative reception, which implies that the bank would have an unfavorable reputation. On the other hand, this study takes cognizance of the issues that influence the advent in which countries and regions across the globe. In much of the current phenomena, internet banking has taken shape within the developed economies as against the third world countries. Slow adoption to the technology has been recorded within the developing countries as explained largely by the customers’ perceptions and attitudes. The banking system adopts any technology focusing on the clients to be served. Where the perceptions of the customers towards the internet banking is not favorable, the banking sector would not invest more in the technology while where the perception on the technology is positive, the banks and other financial institutions invest heavily in the technology due to the benefits as earlier discussed. Banks rely on the customers in adopting the technology through the evaluation of customers trust, perceived friability, perceived relative advantage, perceptions in ease of use as well as the perceived compatibility (Al-Ajam and Nor, 2013, p. 39; Lichtenstein and Williamson, 2006, p. 50). However, unlike was the case in the past, internet banking has evolved to occupy the privilege of a necessity to all banking institution unlike it used to be a competitive advantage in the past. 3.0 Conclusion Interactive channels of communication through electronic means form the basic feature that explain the business transactions through the electronic means. The information age in which we live in today necessitates that business institutions adopts technology in order to remain relevant as well as to have a competitive edge in the business world. Banks have increasingly adopted the use of internet for communication and transacting business operations as noted from the literature (Zimucha et al, 2012, p. 3-4). Despite the relative manner in which the technology has gained popularity across the globe, it is at most sure that the technology has gained acceptance in the recent past due to the technological advancement notable in the modern day era. Banks adopt the use of internet for the day-to-day transactions due to the perceived benefits that are gained through online transactions. Besides, relevance drive the banks and other financial institutions to adopt the technology due to the pace at which the technology is taking shape in modern day living. Among the outlined benefits that the banking institutions derive from the use of internet for banking transactions are the reduction in operation costs, higher revenues being realized, speedy transactions as well as higher efficiency in managing and overcoming the errors that result from the transactions by individual workers. Moreover, the banking services advanced through the internet are not limited on time and are thus accessible any time; for 24 hours and thus increase the business hours compared to the traditional banking procedures, which are often subject to the time of the day. Through the unlimited business hours, the banks are therefore able to realize the higher margins of profits as noted. On the other hand, customers enjoy ease of bill payments, ticket booking for travelers, online account openings as well as deposits and easy fund transfer through the internet banking service. Other advantages are noted through money savings by providing paper-free transactions as well as transactions, which are up-to-date and complete at any time (Ndlovu and Sigola, 2013, p. 34). The limitations of adopting the internet technology for banking services include risk of theft through internet fraud and hacking, the risk of too much exposure of customers’ information as well as the costs associated with maintenance of the system of online banking. Other risks include strategic risks, operation risks, business risks as well as risks on reputation (Akbari, 2012, p. 123). 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