The New Era: E-Banking Technology

The purpose of this chapter is to discuss various aspects of e-banking including the sequence of evolution of e-banking as well as other issues which this has brought with it. The chapter starts with the general model of e- commerce to set the scene for subsequent sections, including a brief overview of how e-banking evolved and where it is heading in near future.

ELECTRONIC SERVICES DELIVERY

E-commerce is about buying and selling information, products and services via computer networks such as the internet and Electronic Data Interchange (EDI). e–banking is one form of e-commerce. The term commerce is viewed rather narrowly by some as transactions conducted e-commerce.

The term commerce is viewed rather narrowly by some as transactions conducted between business partners.
However, for the purpose of this research, a broad definition by Kalakota and Whinston (1997)48 will be used. They define e-commerce from the following perspective.

• Communications: e-commerce is the delivery of information, products/ services, or payments over telephone lines, computer networks, or any other electronic means.
• Business process: e-commerce is the application of technology towards the automation of business transaction and workflow.
• Service: e-commerce is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of goods and increasing the speed of service delivery.
• Online: e- commerce provides the capability of buying and selling products and information on the internet and other electronic channels such as Electronic Data Interchange (EDI).

For firms e-commerce brings

• Different and arguably lower barriers to entry;
• Opportunities for significant cost reduction

For consumers the potential benefits are:

• More Choice;
• Better value for money obtained through greater competition;
• More information;
• Better tools to manage and compare information;
• Faster service.

The revolutionary growth of network technologies and especially the internet has enabled us to conduct business electronically at a global level. For this reason, most of the literature in this field refers to technological issues and is mostly application driven. There is a significant stress on the technical infrastructure that supports e-commerce applications such as networks, multimedia contents, messaging and payments.

E – Commerce allows new products to be created and/or for existing products to be customized in innovative ways. In the long term, competitive advantages may only be achieved by providing innovative services, or services that are uniquely bundled using web capabilities. Banks should look beyond their own industry in benchmarking other facets of operations and examine other technologically advanced industries for innovative ideas.

Successful web-based companies, such as eBay and Priceline.com, have established profitable business models that may include features that banks could adapt, such as mortagage applications and transactional processes.

Such changes may redefine organizations’ missions and the manners in which they operate.

E–commerce also allows suppliers to gather personalized data on customers. Building customers profiles, as well as data collection on certain groups of people can be used as a source of information of customizing existing products or designing new ones (Wind, 2001)49. Mass customization enables manufacturers to create a specific product for each customer, based on his or her exact needs.

For example, Motorola gathers customer needs for a pager or cellular phone, transmits them electronically to the manufacturing plant where they are manufactured, according to the customers’ specification. i.e, colours, features, and then sends the product to the customer within a day (Turban et.al., 2000)50.

Similarly, Dell computers and Levi use this approach. Using online tools, customers can design or configure products for themselves. For example, customers can configure a PC to their exact needs (in case of Dell) or design their t – shirts, furniture, cars and even a Swatch watch.

In the service sector, e –commerce is playing major role and has changed organizations as varied as the travel industry and the banking industry. This covers some of the sectors, which have considerably changed as a result of the emergence of e-commerce, and helps our understanding of e-banking from these difference perspectives.

FROM E-COMMERCE TO E- BANKING

In its very basic form, e –banking can mean the provision of information about a bank and its services via a home page on the World Wide Web (www). A more sophisticated internet based service provides the customer with access to their accounts, the ability to move money between different accounts, make payment or apply for loans and other financial products.

The term e – banking will be used in this book to describe the all types of provision of financial service by an organization to its customers. Such customer may be an individual or another business firm.

To understand the electronic distribution of goods and services, the work of Rayport and Sviokla (1995)51 is a good starting point. They highlight the differences between the physical market place and the virtual market place, which they describe as an information defined arena. In the context of e – banking, electronic delivery of services means a customer conducting his transactions from a remote location (e.g. home) rather than visiting a local branch.

Automated Teller Machines (ATMs) were the first means of providing electronic access to retail customers, made possible through the introduction of customer networks. Telephone banking arrived next, which was a revolutionary concept since it made banking possible from anywhere as long as telephones were available.

In the mid eighties, online banking arrived. In its early form, ‘online banking services’ requires a computer, modem and software provided by the financial services vendors. Generally, these services failed to get widespread acceptance due to high call costs and unfairly system interfaces, and were discontinued by most providers.

With the arrival and widespread adoption of The World Wide Web, banks renewed their interest in this area and started developing a web presence. The goal was for a bank’s website to provide many, if not all, of the services offered at a branch. This may include transactions as well as information, advice, administration, and even cross – selling.

However, the interactive nature of the web not only allows banks to enhance these core services, but also enables banks to communicate more effectively and expand customer related relationships. When combined with the improving analytical capabilities of data mining and technologies, the potential for enriching the relationship with customers is unlimited.

Most banks and other financial institutions in the developed world have established an internet presence with various objectives. Some banks are there because their competitors have done it. Others prefer a ‘wait and see’ practice. Some are using it as a banking channel being part of their distribution /delivery management.

E–banking largely came into being as a result of technological developments in the field of computing and communications but there have been a number of other factors or challenges which played an important part in its development. According to Jayawardhena and Foley (2000) 52 the challenges for banks are fourfold. First, they need to satisfy customer requirements that are complex and ever changing. Second, they need to deal with increased competition from old as well as new entrants coming into the market.

Third, they need to address the pressures on the supply chain to deliver their services quickly. Finally, they must continually develop new and innovative services to differentiate themselves from the competition, as having a large branch network is no longer seen as a main source of competitive advantage. E – banking is seen by many banks as a key tool to address these challenges.