Benefits of Electronic Banking for Bank and Customers - Essay Example

?Topic: Discuss the view that electronic banking has more benefits for the bank than for the bank’s s Introduction With the arrival of e-commerce in banking sector, performance expectations have increased multi-fold both for the efficient and effective management of banking processes by the bank management and for the provision of heightened comfort level to the customers from e-banking. Bank management and customers, both are equal stakeholders availing the benefits of e-banking. A general perception over who is leveraging more from the electronic banking, the banks or the customers, cannot be made unless an analysis of the benefits to both the stakeholders is accomplished. Because customer satisfaction has gained much significance in all industry segments, and banking being a retail industry where rush of customers for their daily banking needs is huge, benefits of e-banking to the customers are being provided with extra vigour by the banking industry to attract more and more customers as banking market is very competitive. For banks, internet banking offers the strategic possibility of cutting costs, better customer service; attract more customers and add-on with the cross-selling opportunities. Banks view electronic banking a very positive feature of their services. E-banking has its own challenges and opportunities, challenges emerging from the serious ramifications of global e-banking. In the global context, it is stated that the transaction costs have reduced drastically making it feasible to realise cross-border banking transactions electronically. Such an opportunity provides to the banks the potential of economies of scale. Such electronic cross-border transactions need to be cleared by banks by taking additional safety measures (Nitsure, 2004). Benefits of e-banking to Banks Cost-effective According to Orr (1999) electronic banking cuts the cost of each transaction at once. Comparing the transaction cost of traditional banking with e-banking, on an average a full service bank transaction, according to DiDio (1998) comes nearer to $1.07 in traditional set up while it comes down to $0.27 through an ATM and further reduces a penny if it is done electronically on the website of that bank. Banks can offer bills as well to their customers electronically. It cuts down the cost of the bill if it is served to the customer electronically in comparison to when it is physically delivered in hard paper via post. Irvine (1999) remarks that banks leverage cost by saving 40% than in hard copy. Both the customers of the bank and the bank itself get the benefit from reduced cost without affecting the provision of effective and comprehensive services. Loyal Customers According to a research organised by Forrester Research, 61% of the participants were of the view that if banks come forward to deliver the services as desired by them they would gladly remain customers with such banks (Dixon, 1999). Knowing well what their customers want, banks are offering a “hub” of related services such as bill presentment and payment, financial planning, property planning, insurance, loans and brokerage services. The internet has facilitated this convergence of financial services, which was not possible otherwise from a centralised system. Banking web sites providing convergence of services to the customers deliver a more comprehensive experience to such customers who randomly visit the bank website to use the offered services. The objective of the banks behind such convergence of offered services is to hook the customers by creating loyalty, providing the opportunity of bundling of services, which can be realised in increased earning from such customers, using various services of the banks under the umbrella. Additional Services Banks are offering financial portal services to their customers wherein various financial services and products like stocks and mortgages are presented to the customers, which have opened up another earning stream for the banks. It has become possible because of Internet integration. Customers are also getting the leverage of comfort by doing stocks-related transactions but such offerings have capacitated banks to earn revenue through online transactions through their websites (Wah, 1999). Internet a Tool of Profit-making Banks accrue huge margins through e-commerce operations of their functions, leading to bulk profits due to cost reduction. Automated customer transactions materialise in cost effective banking, as happening through wire transfer of funds, payments and account balance inquiries. Banks are earning by entering into strategic partnerships with insurance companies, mortgage companies and stock brokerage companies, thus leveraging from new business possibilities that were not possible before the arrival of e-banking. Additionally, banks are becoming competent to cater to business and personal banking needs of customers, thus strengthening their customer base more efficiently. High-Profile Customers Online bank customers of various demographics are financially and from education perspective better and well-off to generate 50% more income to the banks than the average bank customer. Take for example the case of the Well Fargo customers who, according to Hoffman (1999a) were well beyond their counterparts of traditional brick and mortar bank customers in the matter of earnings and education, maintaining 20% higher balances, using 50% additional products and their attrition rate half of the total attrition rate. According to Timewell and Kung (1999), banks save 14% cost of their services to online customers in comparison to traditional offline customers. Thus, it is very much evident that e-banking benefits banks more than to their customers. Comparison of Benefits of e-Banking to consumers Likewise banks, their customers also get the benefit from e-banking as the banks transfer some percentage of their cost leverage to their customers. The internet medium offers such possibility. It can be elaborated via an online and brick and mortar branch of the same bank as the Wingspan.com (an e-bank) and its parent bank, the Bank One, a brick and mortar bank. The Wingspan used to offer an interest rate of 4.5% to the checking accounts relatively to Bank One’s 1%. Online banking comes with increased alternatives regarding mortgage and insurance, with 60 lending companies and 15 insurance vendors (Osterland, 1999). The electronic bill payment and third party transfers are the leading features of online banking, not offered by offline locations. These services are currently charged from the customers. It derives the conclusion that customers are also getting the benefit but by paying for that service and not in free, which was happening 10-12 years back. Then e-banking was at its nascent stage then; now it has matured enough to transfer the tangible benefits to the banks from their customers. Availability of Additional Services comes at a cost Provision of additional services through the bank websites such as reviewing of account balances, holdings and latest banking statements besides other online transactions like transferring funds between accounts or making payments come with extra charges to the customers, as these facilities are charged by the banks. Customers can avail various services from the banks, thus positioning these financial organisations to lead the markets (Hickman, 1999). It helps them to get a bigger share of customer transactions. Varied integration of banking services under the online roof can be stored in programs as Quicken, QuickBooks, or Microsoft Money on a home computer (Fysh, 1999), helping banks to retain their customers by capturing the attrition rate. Such intangible benefits are also accrued by the banks through e-banking. One can derive that customers are also benefitting but not at the same rate as banks are benefitting via tangible and intangible value additions and at an increased rate of earning margins. Convenient One-stop Shopping E-banking has enabled banks to process loan applications in real-time and offering the opportunity to trade stocks online via their websites. The focus of the banks is on providing “convergence banking” experience to the customers, which has become a reality of the present through e-banking (Engen, 2000). Customers are more satisfied but banking market has become highly competitive with a number of private and public banks jumping the online band wagon so that they are able to retain and attract new high profile customers. Brick and Mortar visit Customers cannot access all facilities online as they have to visit the bank or the ATM to withdraw money from it when they are in need of paper money. For depositing checks, they need to send them via mail, ATM or by visiting a bank branch (Fysh, 1999). It indicates that e-banking does not provide a complete solution of the customer needs. Usage of ATM machines is also not free of charge, as banks charge a certain amount over a decided number of ATM transactions. Banks view their online business as a strategic tool of operational significance because of the additional value of e-banking to both the banks and the customers. A decade back, e-banking was in the early stage but at present it has captured the attention of all customers who perform their banking tasks by logging into the bank web site. For banks amid high competition remaining in the market has become critical and e-banking is one such medium to survive from the fast winds of globalisation and ups and downs of the global market. Banks get a competitive edge from the provision of e-banking to their customers. E-banking is a strategic tool of the banks to strengthen their customer base. It hints that more than customers, banks are using this tool efficiently in their business interest. Customers are secondary users of the system that the technological advancement has presented to the banks. Actually, banks are working in collaboration with other financial organisations to provide such services that cannot be enabled via e-banking like customer service and cash withdrawal (Business weak, 2000). E-banking has enabled banks to realise its benefits through cost-cutting and with the popularity of e-commerce, banks have realised the potential of revenue generation, which is far higher than the costs involved. Banks need to adhere to relevant rules pertaining to disclosures for better performance in the services by sidelining regulatory arbitrage besides some unitisation in legal, accounting and taxation processes. Banks in any developing country may not be mature enough to handle cross-border e-banking efficiently (Nitsure, 2004). What academic scholars like Irvine, DiDio and Orr state on the benefits of e-banking for these important stakeholders, can not help in deriving the conclusion over relative benefit of one of them. Because the bank is the service provider to its customer, definitely stakes of bank are higher to benefit from e-banking. Customers are mere recipients of the services, they are more than ever in their comfort zones definitely, which the technological advancement has provided them. Banks are in a better position to earn huge profits from the electronic services because they are serving their customers to earn from them. There should not be any doubt over it that electronic banking offers more benefits to banks than to customers. References: Business Week, 1999. The mixed blessing of online banking. Business Week, 10 May, p. 114. Available from: http://www.businessweek.com/1999/99_19/b3628001.htm DiDio, L., 1998. Beta testers endorse e-checks. Computerworld (32), pp. 57-58. Dixon, M., 1999. 39 Experts predict the future. America’s Community Banker, p. 20–31. Engen, J., 2000. Financial funnel. Banking Strategies, 76 (6), pp. 64–72. Fysh, G., 1999. Customers Cash in on increased availability of internet banking. Knight Ridder/Tribune Business News. McClatchy-Tribune Information Services. Available at: http://www.highbeam.com Hickman, M. 1999. Internet banking: transaction to active selling. Bank Systems & Technology (36), p. 3–14. Hoffman, T., 1999. Are online banks profitable? Computerworld (34), p. 33. Nitsure, R.R., 2004.E-Banking: challenges and opportunities. Economic and Political Weekly, vol. 38 (51/52), pp. 5377-5381. Available from: http://www.jstor.org/stable/4414436 Orr, B., 1999. At last, internet banking takes off. ABA Banking Journal (91), p. 32–34. Osterland, A., 1999. Nothing but net; Bank One’s Wingspan leaves bricks and mortar behind. Business Week, 2 August, p. 72. Timewell, S. & Kung, Y., 1999. How the internet redefines banking. The Banker, 149, p. 27–31. Wah, L., 1999. Banking on the internet. Management Review (88), p. 44–48. Read More