04-05-2013, 04:55 PM
INTERNET BANKING: DISRUPTIVE OR SUSTAINING TECHNOLOGY?
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INTRODUCTION
The rise of the Internet has fueled the question across many industries of whether it is a
disruptive technology or just another distribution channel. With the rise of Internet
banking, the local, regional and global banking industries now face this question, too.
The Internet does seem to have some characteristics of a disruptive technology in the
banking industry; it has the ability to create major new growth in the industry [it]
penetrate[s], by allowing less-skilled and less affluent people to do things done only by
expensive specialists in centralized, inconvenient locations,and it offers consumers
products that are cheaper, better, and more convenient than ever before.2 However,
other people see the Internet as just another sustaining technology in banking, providing a
new, more convenient distribution channel, like ATM did when first introduced.
First, this paper will try to shed light on the concept of Internet Banking. It will then
analyze the rise of the Internet banking in Latin America. Next, it will offer and analysis
of global Internet banking. Finally it will arrive (hopefully) at a answer to this critical
question facing todays banking industry.
Definition
The terms PC banking, online banking, Internet banking, and mobile banking
refer to a number of ways in which customers can access their banks without having to be
physically present at a bank branch.3 PC Banking relates to every banking business
transacted from a customers PC. This can be done through online banking, in which
bank transactions are conducted within a closed network, or via Internet banking,
which permits the customer to perform transactions from any terminal with access to the
Internet. Mobile banking is the implementation of banking and trading transactions
using an Internet-enabled wireless device (mobile phones, PDAs, handheld computers,
etc.).4 Thus mobile banking (m-banking) is a subset of Internet banking (I-banking).
Segmentation
Internet banking is thus a remote delivery channel for banking services. These services
can be as simple as opening a deposit account or transferring funds, but can also include
more complex transactions like electronic bill presentments and payments, and the sale of
financial products, like insurance and brokerage.
INTERNET BANKING IN LATIN AMERICA
Most of Latin American banking is still done under the mattress. While high among
the wealthy, bank penetration is at less than 20 percent of the general population. While
90 percent of regional banks have an online presence, only 40 percent have the
technology required to offer online transactions, but increased domestic and international
is necessitating technology usage to build a more customer-focused marketing
structure.37 Studies project an 8.1% CAGR in technology spending by Latin American
banks, though, with expenditures in 2002 reaching U.S. $8.3 billion.38 Commensurate
with the increased Internet usage posited above, online private banking services have
room for tremendous growth.
Many banks in Latin America have already begun leveraging the Internet and are offering
a variety of online services. As the bulk of bill payment in Latin America is done via
long queues, because of public mistrust of postal system integrity,39 banks offering online
services to customers provide value via timesaving.
How does it work?
As soon as the customer enters the mlhsbc.com site, s/he has to choose his country of
residence from those listed (presently only the UK, Canada and Australia). Residents of
other countries cannot open an account. The residency requirement is one of the many
banking regulations that industry regulators are extrapolating from common commerce
and banking laws, and applying to e-commerce. As soon as the customer opens an
account and is logged on, they may access their deposit account to invest in a wide range
of products, such as stocks and mutual funds. They also have access to a wide range of
market information. S/he can choose to do her/his investment in several world stock
exchanges. For example, if s/he is a customer in Canada, s/he can choose to invest in the
NASDAQ or in Honk Kong. On the private banking side, the customer also receives a
high rate of return on their deposit, and can also open multi-currency accounts.
CONCLUSION
In the preceding section of this report, we analyzed the attempts of two kinds of Internet
banks to go global: the merger of the two pure Internet banks, first-e and Uno-e, and
merger of two multi-channel Internet banks, HSBC and Merrill Lynch. Though it would
be imprudent to draw absolute conclusions, from just these two examples, coupled with
the information presented in sections I and II, it is possible to assert that multi-channel
Internet banking models are more viable than their pure cousins. Furthermore, multichannel
banks, in general, have established reputations and global physical presences
(which means they have already successfully managed the respective regulatory
challenges), and thus have a competitive advantage over pure Internet banks.