E-Banking on the Banking Industry Term Paper

Pages: 35 (14760 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Economics

¶ … E-Banking on the Banking Industry

To understand the relationship that can develop between the Internet and banks, one has to first understand the nature of both these items. The first to be understood is the banks. So far as banks are concerned, at the beginning of the twenty-first century, central banking which is the source of all banking activity would appear to be at a crossroads in their future. Earlier it was the lender of last resort, active participant in stabilizing economic fluctuations, and now the present main function is being the guardian of price stability. As it is still the monetary authority, much is expected from them. At one stage, fiscal policy was considered to be the main instrument of economic policy, the situation changed to an ascendancy of monetary policy and that was noted by the late 1980s in most parts of the industrialized world. This had a lot of implications for the role of the central bank.

However, change does not stop, and today, financial innovations threaten the position of central banks as they are the major influencing force responsible for bringing about financial stability as well as that of economic outcomes. This is due to changes in feelings and over the past several decades, central banking has been at the mercy of whims or at the influence of fashion. "At a time when the price level is rising and employment is relatively full, price stability takes precedence over full employment as a policy objective. At a time when prices are stable and unemployment is rising, on the other hand, employment becomes the prime objective." There are also questions as to the necessity of central banks, but since this study is not on central banks, this question will not be dealt with.

Let us now get down to the question of individual commercial banks and how they service their customers. The quality of banking services that a customer gets and how the services are provided to the customer will depend, to a great amount, on how the banking is done. There are three main channels for banking today, through branches, through the internet and on telephone. At the same time, they are not mutually exclusive. Some users need one, others use all three. The traditional way of banking was to process all transactions through the local branch. This service was available at all high-street banks and also in some smaller banks which had arrangements with a high street bank to use their counter. This is most suited for customers who need to visit the bank every day to pay in cash or to make withdrawals, as it is the most convenient.

Online bank accounts are now becoming increasingly popular as those banks are improving their service and availability. All the high street banks now certainly offer this service, as well as some of the former building societies and smaller banks. The advantages of Internet banking are obvious. With internet banking the customer can access the account, check the balance and make transactions 24 hours a day, or throughout entire weeks. This is all done from the comfort of their own home or office. What is needed is a reasonable internet connection to take advantage of the service. There is often a set up fee or monthly charge for having an internet account. It is best to ask for a trial period to determine that the Internet account works efficiently. It is important to find out whether there is a technical support line and the data security measures that are in place.

Chapter I

How internet banking has grown in the last decades, especially regarding new product being offered

Information technology has now changed the old definition of the banking industry worldwide, along with markets and customer bases. Internet banking has had a great effect on reduction of barriers to enter the industry, and simplify the entire process of financial disintermediation. Competitive influences of e-- banking are seen more clearly in the U.S., as in this country non-bank financial service providers have cut into banks traditional operating area and taken shares for themselves. Yet, U.S. banks are not taking any offensive action, and have themselves embraced online banking as their defensive strategy. In other countries, the situation is not the same and online banking in Japan is basically directed to the domestic customer base. European banks are using Internet banking for cross-border expansion as there are many countries within Europe, as also for their consolidation and countering competition. However, e-banking in the European Union with the present single currency is important from the regulatory and technical issues.

About around 10% of the world's population being online, and more are attaining access every day, the Internet tries to become the most powerful vehicle for exchange of information. But this great progress is being stopped by the authoritarian governments that are aggressively trying to block and censor the Internet. In those countries individuals face torture and imprisonment for trying to access such subversive material as news from that of the CNN, BBC, Washington Post, and the Voice of America. It is seen that non-democratic regimes throughout the world are denying to their citizens unrestricted accessibility to the Internet. Cuba, Laos, North Korea, the People's Republic of China, Saudi Arabia, Syria, Tunisia, and Vietnam are considered to be the most notorious as the violators of Internet freedom. It is in these countries that Internet banking will not develop.

Some banks have collected more than one million customers during 2004 -05. One of these banks is the U.S. Bank Internet Banking at usbank.com in the last year. U.S. Bank says that the success is due to the popularity of its free Internet bill payment service, as also growth in customer confidence in Internet banking and recent enhancements in service at usbank.com. The total number of customers with service facilities in Internet banking at U.S. Bank now is over three million. This makes it clear that the growth is more than 30% in a year. The reasons for this growth given by Steve SaLoutos, senior vice president of consumer products and services at U.S. Bank is that "The growth that we are experiencing in Internet banking at U.S. Bank illustrates a trend that we have seen for some time. Consumers want to stay close to their accounts and to access their bank through multiple channels. They see the value in services like Internet banking and bill pay because of the peace of mind that comes with our risk free Internet banking guarantee." In addition to all this, U.S. Bank Internet Banking provides a risk free guarantee protects users from unauthorized transactions made during a secure Internet banking session at usbank.com. This probably leads to greater confidence in Internet banking, the company also credits free bill pay for the spurt in online banking.

The main success of U.S. Bank was when it made its Internet bill pay service free in December 2003 and from then onwards the amount of active bill pay customers enhanced by more than 250%. There are further enhancements that have been made could continue to increase Internet banking volume. In April of this year, U.S. Bank introduced a new feature that permitted customers to directly log onto Internet banking from the home page at usbank.com. U.S. Bank also changed its home page so that it opens to the page that the customer chooses, and this may be for personal banking, small business, commercial and government or the Spanish language page. The internet services of U.S. Bank have been credited for being one of the most convenient Internet banking sites and which can be used easily. Improvements were made available in the year 2004 to enable the customers to easily view images of canceled checks, deposit slips and statements online and get customized alerts that notified customers of important transactions on their account, and increased transfer capabilities on the account which permitted customers to bring about a transfer in the future.

U.S. Bank also made it easy to apply for an account online in English or Spanish as per the desire of the user. U.S. Bank is a subsidiary of the U.S. Bancorp and it has $195 billion in assets, and that makes U.S. Bancorp the 6th largest financial holding company in the country. The company has 2,370 banking offices and 4,620 ATMs in 24 states, and provides customers with a complete line of banking, brokerage, insurance, investment, mortgage, trust and payment services products. Thus there are some services that help the growth of Internet banking and these can be listed as being credit free bill payment, confident checking of operations that have been made on their account, and move around their money easily. There is also the question of language that becomes important in certain areas. At the same time, there are risks in the business and one has to be careful on that account.

Evolution of Internet banking

To a large extent, the growth of internet banking… [END OF PREVIEW]

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