E-Banking Management--An Introduction
Information technology has provide a new channel for economic activity, but the nature of the medium has also had an impact on the nature of economic behavior, and this "digital economy": has unique characteristics, such that business practices cannot be merely ported to the channel, but must be adapted to it, and even invented for it. This chapter is meant to introduce some of these concepts to the reader.
WHAT IS E-BANKING?
E-banking refers to financial services that are delivered via electronic channels - chiefly, but not limited to, the Internet.
Banks and other organizations have adopted this medium primarily due to customer demand (or more aptly, for fear of losing customers to more innovative competitors who accommodate demand), but have found that there have been precipitating benefits to their business operations, such as lower delivery cost, lower overhead costs, etc. While there are significant start-up costs to move an operation online, the decrease in overhead and variable costs is significant.
The author sees e-banking as an evolution, rather than something entirely new. Customers went from cash to checks to cards, and now electronic transfers. They went from making a visit to a central office to banking at a branch to banking via ATM to banking by mail/phone to banking via personal computer. At the fundamental level, it has not changed (moving money about), though its qualities (speed, tangibility are much different.
EVOLUTION OF E-BANKING
Until deregulation in the 1980's, retail banking was a fragmented industry, with many small banks serving customers in specific geographic areas. Deregulation itself created greater centralization, more intense competition, and a faster rate of innovation and change as a result.
The Internet, which went commercial in 1993, almost immediately became a venue for retail transactions with online transactions (payments), which banks were expected by consumers and merchants to support (credit cards). Eventually, banks moved more of their services online, enabling customers to access and service their accounts, and even open new accounts via the internet.
Behind the scenes, banks have long used electronic communications to pass information from branches to a central office, and to communicate and transact among banks. The emergence of common carriers, and eventually the internet, merely facilitated these business operations.
WHY IS E-BANKING IMPORTANT?
The author goes into some detail to explain the obvious: that electronic medium has become the norm for the banking industry, and clearly is not a sideshow or passing fad.
Primarily, it is a channel of choice for consumers, who value the convenience and speed of being able to conduct transactions, obtain services, and manage their accounts via electronic means. Customers will migrate away from banks who do not support their demand.
It's also noted that the electronic medium is used by high value customers. The kind of customer who prefers the electronic medium tends to have higher income and wealth than those who do not (even though the numbers are skewed by the wealth of technology-timid pensioners).
There is also increased revenue from doing business online. Customers who manage their financial affairs online tend to be more fluid, both in the terms of the number of transactions they create. It's also noted that online customers tend to use more banking products than traditional customers (explained by the ease of cross-selling and managing accounts)
Many overhead costs are significantly reduced (or eliminated) by electronic banking: the expense of brick-and-mortar facilities and service employees. This means being able to expand without building branch offices, needing less staff at existing branches, and possibly the ability to reduce the number of branches.
Electronic banking also eliminates the need to store and process physical artifacts (cash, checks, receipts, etc.), decreasing the variable cost of transaction processing.
Whether business risk is decreased or increased is debatable. There are new threats (credit card fraud, identity theft, computer-aided embezzlement) that are offset by reductions in old threats (the vulnerability of hard currency and physical artifacts, human error by employees).
E-banking also creates organizational efficiency - enabling central management to more quickly implement or change business practices across the organization without the need to retrain the personnel responsible for implementing them
E-MARKETING
The way in which banking services are marketed has been changed drastically by the electronic medium. Previously, a "bank" was a utility (used because fo geographic convenience) and little effort or concern was spent on marketing. With deregulation and the breadth of audience, banks are now able to compete for customers in any location, but must contend with those who are encroaching on their "territory."
Aside of acquiring new customers, electronic banking has increased the frequency of contact with existing customers, facilitating (and even necessitating) a higher level of customer service, the ability to use quality of service as a competitive factor, and the ability to cross-sell customers.
Beyond product promotion, banks are now able to more closely monitor and analyze consumer behavior - to observe the minute details of their use of banking products (to the level of the individual transaction) to discover ways in which their service to customers can be improved.
A handful fo examples are provided on some of the dramatic increases banks have had in customer acquisition, revenue per customer, and share of wallet.