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V. Recommendations on Internet Banking - Hong Kong Baptist

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V. Recommendations on Internet Banking - Hong Kong Baptist Powered By Docstoc
					           ISM 3620
         Seminar in ISM
       E-banking in Hong Kong


Date: October 25, 2001


Prepared for: Mr. Tony Wong


Prepared by:
Group 3
99000830 Brenda Lee
99007401 Moon Chan
99007630 Lee Ka Yi
99007649 Emily Lee
99007681 Wallace Lo
99007789 Sammi Tsang
99007835 Gloria Wong
                                                        Content
Summary ........................................................................................................................ 3

I.     Introduction ............................................................................................................ 4

II.    Services of E-banking ............................................................................................ 6

III. Advantages of E-banking ....................................................................................... 9

IV. Possible Risks on Internet Banking ..................................................................... 11

V.     Recommendations on Internet Banking ............................................................... 14

VI. Future Trend on Internet Banking ........................................................................ 24

VII. Conclusion ........................................................................................................... 28

Reference ..................................................................................................................... 29




                                                                                                                                2
Summary

In this paper, we are going to investigate the E-banking in Hong Kong. We will

explain what is e-banking and how it evolves from the banking industry. We will

introduce the bank that first laughs internet banking services in Hong Kong. Then, we

will discuss the services provided by the bank to see the advantages for adopting

e-banking both for customer and banking industry. Afterward, we will concern about

the risk of adopting e-banking in Hong Kong. Finally we will suggest some

recommendations and predict the future trend of e-banking in Hong Kong.




                                                                                     3
I.   Introduction

     The range of bank services which can be delivered to a customer’s office or

     home by electronic technology has expanded extensively since the first tentative

     steps since 30 years ago. E-banking in Hong Kong is also start in the early of

     80’s. However, over these 2 years, Internet banking in Hong Kong are now being

     a hot topic among the banking industry follow the suddenly booming of the

     Information Technology (IT) at 1999. Many banks in Hong Kong have now

     provided Internet banking services to their customer in order to gain the

     competitive advantage in the marketplace. The scope of this paper will be

     focused on the new type of e-banking channel which is though internet to

     provide financial services in Hong Kong and investigate how it can provide the

     benefit for both the customers and the industry.



     1.   What is E-banking

          Generally, E-banking refers to the provision of banking services through

          electronic channels. Customer can access the data no matter to worry about

          the time and the geographical factors. Actually it can divide into 3 distinct

          levels. They are Automatic Teller Machine (ATM), Phone banking and

          Internet Banking. Customer can use computer keyboard to make a

          transaction, for example withdraw or transfer money. Phone banking is

          much more like to other distribution channel that can earns little for bank in

          the way of additional fees or sales. However, Internet banking got much

          more different than those that mentioned before. It can let bank’s web site

          becomes a sales window. Customer can check their account and can also

          find other services such as applying for a home mortgage, buying insurance



                                                                                          4
                                                   1
          policy or investing in a mutual fund.



     2.   How E-banking evolved from the banking industry?

          The early stage of the electronic banking is used only internally in the

          banking industry. In 1920, Federal Reserve Communication System first

          used to transfer reserve account balances institution to another which makes

          it a very specialist electronic banking services in US. In 1969, Barclays

          Bank introduced the first ATMs in the world to the public in UK. In 1971,

          Bankers’ Automated Clearing System in US used electronic data processing

          to offer two-day clearance to participating banks and their customers. In

          1973, Society for Worldwide Interbank Funds began operations for
                                   2
          international payment.



          The later stage of the electronic banking is used not only for internal

          purpose but also for the public. In UK, the introduction of cheap personal

          computers and the improvement in the information technology encouraged
                                       3
          the progress of e-banking.       In 1980, Banks were offering their customers

          access to their accounts with their computer but not over the Internet.

          Customer needed software which is designed to communicate only with that

          bank’s system by dial up line. In 1995, Wells Fargo became the first bank in

          the world to begin offering customers access to their accounts over the

          Internet. It only allowed customers to see, not access, their accounts. After


1
   Tangled in the Web: The rush into Internet banking may not be justified by the
  number of online customers in Asia By Alkman Granitsas 4/5/2000
  www.feer.com/2000/0005_04/p48nmoney.html
2
   Electron banking and treasury security Welch NatWest 1999 (p5-9)
3
   Electron banking and treasury security Welch NatWest 1999 (p5-9)


                                                                                          5
           October 1995, Security First Network Bank provides a fully transactional

           Internet Bank to the public which allow customers to view their accounts,

           access them, and move money around.4



           Nowadays, the banks through Internet can now provide the variety of

           services to customers such as buying and selling stock, bill payment and

           mortgage payment.



      3.   First Bank launched E-banking in Hong Kong

           In Hong Kong, Internet banking has first launched by Bank of East Asia. It

           provides comprehensive banking services with five electronic channels:

           Internet, Mobile Phone, PowerPhone, Phone and Kiosk Since launching its

           Cyberbanking service in September 1999 and more than 100,000 customers

           have opened on-line accounts. At the beginning the Web site offers

           mortgage applications, personal loans and stock trading as well as basic

           banking functions such as the ability to check account balances and transfer

           funds. It now also starts offering insurance policies and mutual funds.5



II. Services of E-banking

      E-banking includes phone banking, ATM and internet banking. However, the

      focus and the services provided by these three are not all the same.



4
    E-banking Managing Your Money and Transactins Online, Brial Nixon Mary Dixon
     2000 by Sams Publishing (P. 11-13)
5
    http://www.hkbea-cyberbanking.com/index.htm
    East Asia Cyberbanking Services




                                                                                        6
1.   ATM

     ATM is the first electronic channel introduced to Hong Kong. It locates in

     various location and provides service 24 hours a day and 7 days a week. The

     main purpose of it is to make people more convenient to withdraw money

     especially after the bank office hour. As time goes by, more and more

     services have been add on to the ATM, such as deposit money, bill payment,

     fund transfer, cheque book requisite, etc. However, the key function of ATM,

     withdrawal money, is still unchanged.



     Indeed, ATM can make people more convenient in handling their account,

     there have some disadvantage. The time people spend on ATM service for

     each session is quite short, normally a few minutes. People are not willing

     to stand on the street for a long time. Besides, the long queue behind do not

     allow you to do so. Therefore, product promotion or information enquiry

     cannot be performed.



2.   Phone Banking

     Phone Banking is the second kind of banking service by electronic means.

     The purpose of introducing it is to fill up the hole of ATM, that is, to

     provide information to public, at all time and all places without location

     boundary.



     The service provided by phone banking is not limit by the duration of time

     served, people can feel free to get the information they want.

     Such as enquiry on foreign currency deposit and exchange rates, stock price.



                                                                                     7
     They can also get some brief information on some kinds of product.

     Moreover, they can manage their account same at by ATM plus other kinds

     of account like credit card, fixed deposit and foreign currency.



     Yet, phone banking provides a channel to information enquiry. It is a bit

     inconvenient, because some unwanted message must be listened each time

     when people make a call. Besides, the instruction is little confuse since only

     voice message is received rather than a graphical user interface to guide

     what to do. Also, it dose not support on line application since character is

     hard to transmit by phone. Moreover, it cannot withdraw money.



3.   Internet Banking

     Internet banking is to access banking service through Internet. As long as

     you have a computer that can dial up to Internet, this service can be used.

     Internet banking allows banks to put a lot of information on web. People

     can get a thorough understanding for what they want to know by simply

     click the item they want without receiving any annoying messages like the

     phone banking. It also provides an effective means for people to manage the

     bank portfolio. Not only the account that can be handled by ATM and phone

     banking, Internet banking can also operate the following accounts:

     mortgage loans, consumer loans, Mandatory Provident Fund (MPF), stock

     trading, etc. Moreover, internet banking support online application of many

     kind of service like credit card and loan that cannot be executed by ATM

     and phone banking either. By the use of graphical user interface, people can

     easily perform a task.



                                                                                    8
        The service provided by Internet banking indeed is the most comprehensive

        among all, the rate of using it is quite low in Hong Kong. The reason will be

        explained at the later part of this report.



III. Advantages of E-banking

   Why the banks adopt the concept in E-banking? Because there are so many

   advantages for customers, also it is beneficial to the bank. Now, we would like to

   analyze those advantages in depth.



   1.   The advantages for the customers

        There are two kinds of customers using in retail banking industry, 1) People

        who are computer literate, they may possess a credit card and very seldom

        do they need complex and time consuming counseling or advices regarding

        to their bank activities. And they are relatively price-conscious, affluent and

        well-educated. Therefore, E-banking provides a new channel to them to

        handle their personal finance. They can spend less time to visit a bank and

        enjoy e-banking services provided. For instance, they can transfer funds in

        internet banking. 2) For those computer illiterate people, they can still enjoy

        the branch services provided by banks, and have the advices on their

        financial needs.



        As we mentioned in this passage before, E-banking includes ATM services,

        phone banking and internet banking. Therefore, people can use banking

        services every time and every where because of high degree of convenience

        and accessibility.



                                                                                      9
     Furthermore, as a new wave of E-banking services spreading, more banks

     and financial institutions may provide different kinds of services. Therefore

     competitions will be fiercer. Therefore, the banking industry will be more

     transparent and give more choices to customers. Customers are able to

     gather more information. The switching costs for them will be low.



2.   The advantages for the bank

     Apart from the benefits given to customers, there are also several

     advantages for banks adopt E-banking services to public. Firstly, customer

     coverage will be larger after adopting Internet banking because customers

     can use e-banking services anywhere and anytime. The new distribution

     channel for the bank will reduce the time for marketing their products and

     services. Apart from Internet, ATM and phone banking, nowadays people

     can access their bank accounts by so many electronic channels, for example,

     mobile phone, Wireless Application Protocol (WAP), Personal Digital

     Assistants (PDA).



     Secondly, Internet banking can also reduce the costs of operations, because

     internet is a much cheaper distribution channel than the traditional branch

     network. For instance, number of physical branches and number of staff will

     be reduced.



     Thirdly, because of Internet banking, banks are now able to promote their

     services and products internationally. Internet is capable of promoting the

     business without the traditional branches.



                                                                                   10
            Fourthly, E-banking services increase the customer satisfaction and provide

            a personalized relationship with customers. Not only can customers use the

            E-banking services anytime and anywhere, but also provide comprehensive

            services to customers. Some of Internet banking websites allows the users to

            key in their specific requirement, and then the design and contents of the

            websites will be changed according to customers' preference. Also, some of

            banks also allow customers to create their own websites, create email

            accounts and personal calendars for customers to deal with their financial

            matters.



IV. Possible Risks on Internet Banking

       Internet banking poses risks that are different from those that bank supervisors

       customarily dealt with in assessing credit, market, or interest rate risk.



       1.   Unprecedented speed of technological change

            Because of rapid changes in information technology, no list of risks can be

            exhaustive6. In order to provide consistently high-quality customer service,

            managing the risks associated with new technologies and new delivery

            systems, is crucial.7 The unprecedented speed of technological change

            relates to the technology investments and their ability, the company may

            have to invest in order to catch up with the most up date technology to

            ensure quality of customer services as well as security.


6
    “Risk Management For Electronic Banking And Electronic Money Activities”
     Basle Committee on Banking Supervision—March 1998
7
    Borderless Banking: Risk and Regulation on the Internet—Price Water House Coopers
     http://www.pwcglobal.com/extweb/newcoweb.nsf/docid/0053CDF3A125721785256A8B0
     0541AE1?OpenDocument


                                                                                          11
    2.   Security Risk

         Information technology is playing an ever-increasing role in the business of

         banking; the new measures to attack existing technologies are also being

         developed at a similar rate. Controlling access to bank systems has become

         increasingly complex due to expanded computer capabilities, geographical

         dispersal of access points, and the use of various communications paths,

         including public networks such as Internet8. A variety of specific access and

         authentication problems could occur. For example, inadequate controls

         could result in a successful attack by hackers operating via the Internet, who

         could access, retrieve, and use confidential customer information. An

         outside third party could access a bank’s computer system and inject a virus

         into it. Banks have found little evidence of material success for hackers.

         While banks tend to have reasonable perimeter security, we have sometimes

         found insufficient segregation between internal systems, and poor internal

         security. As ever, the greatest threat so far has been from the enemy within.
         9




    3.   Reputation Risk

         Reputation risk is the risk of significant negative public opinion that results

         in a critical loss of funding or customers. Reputation risk may arise when

         systems or products do not work as expected and cause widespread negative

         public reaction. A significant breach of security as a result of external or

         internal attacks on a bank system; mistakes malfeasance and fraud by third
8
  Borderless Banking: Risk and Regulation on the Internet—Price Water House Coopers
   http://www.pwcglobal.com/extweb/newcoweb.nsf/docid/0053CDF3A125721785256A8B0
   0541AE1?OpenDocument
9
  Financial Services Authority--19 June 2000
http://www.fsa.gov.uk/pubs/press/2000/079.html


                                                                                        12
     parties may also expose a bank to reputation risk. It may not only be

     significant for a single bank but also for the banking system as a whole



4.   Strategic and Business Risk

     Senior management needs to be firmly in charge of the direct effects of their

     Internet strategies, and of the potential indirect effects on the underlying

     profitability of their business. There is a risk that people with strong

     technological, but weak banking skills can end up driving e-initiatives. One

     consequence may be that these initiatives do not attract the types of

     customers that banks want or expect, and may have unexpected implications

     for existing business lines. Banks may face new competition too. E-banks

     are easy to set up, so lots of new entrants are arriving on the scene. And

     old-world systems, cultures and structures do not encumber these new

     entrants. This was closely linked to business risk such as the ability to

     assess credit and liquidity risk, present themselves in new guises in an

     e-banking world.



5.   Legal Risk

     By its very nature, Internet banking ignores geographic boundaries; it is

     built upon an open network accessible from anywhere in the world. Banks

     in one national jurisdiction can transact banking business with customers in

     other countries, without necessarily establishing a physical presence there.

     Given the relatively new nature of electronic banking, rights and obligations

     of parties to such transactions are, in some cases, uncertain. For example,

     application of some consumer protection rules to electronic banking



                                                                                    13
            activities in some countries may not be cleared. Because electronic banking

            can be conducted remotely, banks may face increased difficulties in

            applying traditional methods to prevent and detect criminal activity. Banks

            choosing to enhance customer service by linking their Internet sites to other

            sites also can face legal risks. A hacker may use the linked site to defraud a

            bank customer, and the bank could face litigation from the customer.10



       6.   Outsourcing

            Banks are increasingly dependent on third parties to provide the necessary

            information technology11. It is absolutely vital that outsourcing may involve

            loss of control over the quality and performance of the function.



V. Recommendations on Internet Banking

       E-banking is beneficial to both banks and customers, however, as mentioned in

       the previous section, several types of risks generated from it as well. In order to

       take the advantages of E-banking and reduce the risks to the lowest, the

       following points about management were recommended.



       1.   Internal Communication Management

            In order to reduce the operational risks, management level should consider

            the internal communication management. First of all, the management level

            should clearly communicate with the technical staff on how systems are

10
     “Risk Management For Electronic Banking And Electronic Money Activities”
     Basle Committee on Banking Supervision—March 1998
11
     Borderless Banking: Risk and Regulation on the Internet—Price Water House Coopers
     http://www.pwcglobal.com/extweb/newcoweb.nsf/docid/0053CDF3A125721785256A8B0
     0541AE1?OpenDocument


                                                                                         14
            designed to work, as well as the strengths and weaknesses. Such procedures

            can reduce operational risks of poor systems design, including

            incompatibility of different systems within a banking organization; data

            integrity problems12 etc.



            Also, the management level should have a good communication with

            operating staff about the policies and procedures of operating the e-banking

            services. To ensure this, all policies and procedures should be provided in

            writing13, so all staff can follow it as a guideline. This can ensure the

            consistency of service as well.



            In addition, management should adopt continue training to upgrade their

            staff’s skills and knowledge to ensure their staff’s ability and services

            quality.



       2.   Web Development Management

            As web page is the main channel of distributing the e-banking services to

            customers, the selling point of e-banking is to provide fast, easy and

            convenient banking services to customers, so the web development

            management is essential to e-banking providers.



            Firstly is about the web content. The interface should keep simple, different


12
     Risk Management for Electronic Banking and Electronic Money Activities,
     Committees at the Bank of International Settlement, P.13
13
     Risk Management for Electronic Banking and Electronic Money Activities,
     Committees at the Bank of International Settlement, P.13



                                                                                          15
     information should be categorized so customers can easily know which

     button they should click to get things that they want. Also, the interface

     should not be too colorful and filled with animations, this will border

     customers a lot due to hard for eye to take and slow loading time.



     Also, the Internet banking procedures should be simple to customers,

     demonstration should be provided to let customers know how to do the

     transactions. If customers need to deal with complicated procedures, then

     it’s no point for e-banking to survive because customers only need

     convenient services.



     Last point concerning the web development management is the failure

     recovery planning. As we know, computer systems and networks may have

     down time, this will terminate the Internet banking services. In the

     customers’ viewpoint, some transactions are so important that cannot afford

     delays. If banks don’t plan for the failure of any technical components, they

     would lose their reputation. In order to reduce the reputation risk, banks

     should try to bring the system back up. A standby computer and duplicated

     networks are also helpful in maintaining the Internet banking services when

     the main system not functions.



3.   Customer Relation Management

     For the service industry, customer relation is a critical factor that affects

     how successful an organization is, this could apply to the Internet Banking

     services as well. In order to maintain a good relationship with customers,



                                                                                     16
            banks should keep evaluating and upgrading their services or products

            periodically, e.g. collect customers’ feedback, or collect front-end staff’s

            opinions, so that management team can improve the services and products

            to enhance customers’ satisfaction.



            Also, banks can learn from the problems that experienced by another

            institution offering the same or similar Internet Banking services and

            products, they can establish procedures to address customer problems

            during system disruption14, so that good customer relation can be

            maintained, reputation risk therefore reduced.



       4.   Security

            There are different types of technology available to address the security

            problems. It is recognized that absolute security is not possible, therefore

            the aim should be to achieve similar levels of security to those that currently

            exist in conventional banking transactions. And the following are the

            recommendations:



            i.   Cryptographic techniques

                 Cryptographic techniques fall into two major categories: the first one is

                 the symmetric key encryption and the second one is public key

                 encryption. All cryptographic techniques require the use of “keys” or a

                 set of numbers used in combination with a formula to encode and

                 decode a message into and out of an unreadable form.

14
     Risk Management for Electronic Banking and Electronic Money Activities, Committees at
     the Bank of International Settlement, P.15


                                                                                           17
                   Symmetric key cryptography

                   In symmetric key cryptography15, the party encrypting the data and the

                   party decrypting the data share the same key. This has been compared

                   to a safe where one party using the combination puts valuables inside

                   the safe, and another party knows the same combination to open the

                   safe and retrieve the valuables. One important aspect of symmetric key

                   encryption is that encoding and decoding can be performed very

                   quickly. It also works well in a one to one situation and where the

                   duration of the key is expected to be short. A summary of various

                   symmetric key lengths and the estimated time to break is shown at

                   Table 1.




16




15
     A Beginner's Guide to PKI by Justin Townsend (http://www.well.com/~xiitone/papers/beg-pki.html)
16
      The Hong Kong Monetary Authority (http://www.info.gov.hk/hkma/eng/hkma/index.htm)


                                                                                                  18
                  Public key cryptography

                  This technique (also called asymmetric key cryptography17) where

                  every party has two keys, a private and a public key. The private key is

                  kept secret and not distributed to anyone but its owner, while the public

                  key is freely distributed. If user A wants to encrypt data for user B, A

                  will acquire B's public key (Figure 1), encrypt the data with it and

                  transfer the encrypted data. User B will then decrypt the data with his

                  private key (Figure 2). The algorithm is also designed such that it is not

                  practicable, provided that the keys are of sufficient length, to derive the

                  private key from the public key or vice versa. The technique is

                  basically a mathematical function that is easy to do one-way and very

                  hard to do in reverse.



                  Since there is no need to exchange the private key between the two

                  parties, the problem of having to transmit the private key is omitted.

                  There is also a need to ensure that a particular public key belongs to

                  the rightful owner and this is achieved through certification of the

                  public key by a trusted party with the use of digital certificates.
                  18




17
     A Beginner's Guide to PKI by Justin Townsend
     (http://www.well.com/~xiitone/papers/beg-pki.html)
18
     The Hong Kong Monetary Authority (http://www.info.gov.hk/hkma/eng/hkma/index.htm)


                                                                                             19
                  19



                  Another important feature of public key cryptography is that it enables

                  parties to a transaction to authenticate each other through the use of

                  digital signatures. Digital signatures can be considered to be the

                  equivalent of paper signatures. They allow the recipient of a message

                  to check that the message was indeed sent by the rightful party and that


19
     The Hong Kong Monetary Authority (http://www.info.gov.hk/hkma/eng/hkma/index.htm)


                                                                                           20
                  the contents of the message have not been modified in any manner.

                  This is of course based on the fundamental assumption that the private

                  key was kept secret by the sender. Therefore, digital signatures also

                  enable non-repudiation, that is, the person that digitally signed the

                  message cannot later deny having done so.



            ii.   Firewalls

                  A firewall20 is a set of related programs that protects the resources of a

                  private network from users from other networks. An enterprise with an

                  intranet that allows its workers access to the wider Internet installs a

                  firewall to prevent outsiders from accessing its own private data

                  resources and for controlling what outside resources its own users have

                  access to. A firewall may include or work with a proxy server that

                  makes network requests on behalf of workstation users. A firewall is

                  often installed in a designated computer separate from the rest of the

                  network so that no incoming request can get directly at private network

                  resources. There are three main types of firewalls, packet filtering

                  routers, proxy servers and stateful inspection firewalls.



                  Packet filtering routers

                  Packet filtering21 routers are the simplest form of firewalls. They are

                  connected between the host computer of an internal network and the

                  Internet gateway. Their function is to route data out of a network and to

20
     Glossary of Auburn University Technology Terminology
     (http://www.auburn.edu/helpdesk/glossary/firewall.html)
21
     The Hong Kong Monetary Authority
     (http://www.info.gov.hk/hkma/eng/guide/guide_no/guide_1511xb.htm)


                                                                                             21
                     allow only certain types of data into the network by checking the type

                     of data and its source and destination (internet) address. If the router

                     determines that the data is sourced from an Internet address, which is

                     not on its list of acceptable or “trusted” sources, the connection would

                     simply be refused. The advantage of packet filtering routers is that they

                     are generally very simple and cheap to implement. They are also fast

                     and transparent to the users, as this type of firewall requires no

                     additional screens or log-ins.



                     Proxy servers
                     22
                          Working at the Application Layer of the OSI stack, a Proxy Server

                     firewall acts as an intermediary for user requests, setting up a second

                     connection to the desired resource either at the application layer (an

                     application level gateway) or at the session or transport layer (a circuit

                     level gateway). Proxy code actually “stands in” for both client and

                     server operations, relaying valid requests between the trusted and

                     untrusted networks via the proxies. A direct connection is never

                     allowed between the two networks.



                     The advantage of a proxy server is that it ensures that no direct

                     connection exists between an internal network and the Internet. This

                     approach allows for a high level of control and in-depth monitoring

                     using logging and auditing tools.




22 Firewalls by Bob Walder (http://www.nss.co.uk/Articles/firewalls01.htm)




                                                                                                22
                 Stateful inspection firewalls
                 23
                      A newer method that doesn't examine the contents of each packet but

                 instead compares certain key parts of the packet to a database of

                 trusted information. Information traveling from inside the firewall to

                 the outside is monitored for specific defining characteristics, and then

                 incoming information is compared to these characteristics. If the

                 comparison yields a reasonable match, the information is allowed

                 through. Otherwise it is discarded. Most of these firewalls include a

                 real-time security alert and logs are generated for auditing purposes.



            iii. Other security measures

                 There are a large number of institutions that currently use the Unix

                 operating system24. It is very suitable for the large amount of

                 processing occurs in a bank's daily operations. However, one drawback

                 is the concept of a superuser account, which controls all aspects of the

                 operating system.



                 To address this problem with Unix and other similar operating systems,

                 “Trusted Operating Systems”25 separating elements from each other

                 and making access between areas more difficult. It’s like having a

                 firewall and access list to each application and process.


23
     Protecting Confidential Data and System Integrity while Allowing Reasonable
     Functionality to the Internet – A Families Point of View Timothy Seigler June 3,
     2001 (http://www.sans.org/infosecFAQ/homeoffice/family.htm)
24
     The Hong Kong Monetary Authority
     (http://www.info.gov.hk/hkma/eng/guide/guide_no/guide_1511xb.htm)
25
     Trusted Operating Systems Charles Jacobs May 14, 2001
     http://www.sans.org/infosecFAQ/securitybasics/trusted_OS.htm


                                                                                          23
VI. Future Trend on Internet Banking

   Internet banking is putting the banks into a new stage. This service brings the

   customers and the banks a lot of advantages. The customers can save more time

   and feel convenience. Life becomes easier. In addition to, the banks have a closer

   relationship with the customers, so that the banks can provide more favorable

   services to satisfy the customers’ needs. However, Internet banking has its

   drawbacks. Security risk and operational risk are the major obstacles to impede

   the Internet banking succeed. Consequently, the future of Internet banking will

   become an interesting issue to the banks and the customers.



   1.   Tending towards globalization

        First of all, Internet banking will bring overseas banks and local banks

        together in the future, and their relationship will be getting closer. The local

        customers can do transactions in foreign countries, without any

        geographical barrier. At the same time, the local branch in Hong Kong can

        obtain the transactions’ information of the customers done overseas through

        the Internet system, and hence, the operation of banks will become more

        efficiently. Also, the banks can promote their businesses and services

        through the Internet banking web site globally. Thus, the banks may have an

        opportunity to expand their business and Internet banking overseas or forge

        an alliance with the overseas banks.



   2.   Escalating Competition among banks

        Relatively, Internet banking is being an innovative service to Hong Kong

        customers. As new technology advances so rapidly, Internet banking is



                                                                                     24
             being a norm rather than the exception,26 the bank will gradually take this

             Internet banking service as their own competitive advantage. Internet

             banking is particularly favorable to the small-and-medium-sized banks

             because it will provide more room for them to acquire new clients. 27

             Undoubtedly, being more banks to develop this Internet banking service in

             Hong Kong. On the occasion, an intense competition will be took place

             among the banks in Hong Kong in the coming years.



       3.    Changing the role of branches

             Furthermore, many analysts surmise whether Internet banking will lead the

             banks to close the branches or not. Alkman Granitsas is an analyst, who

             thinks that the old bricks-and-mortar presence will matter much less.28 On

             the other hand, another analyst, Mark Condon believes that no one will

             expect the traditional bricks-and-mortar branch to go away, it will still

             remain the cornerstone of delivery channels.29 For instance, Hong Kong

             Bank of East Asia is the first bank to launch Internet banking, which will

             not close any branch as well as launch another 23 branches in the future.30

             Basically, whether to close down branches or not is not a serious matter to

             pay attention to. On the contrary, the important notice to the banks or the

             customers is that the role of branch will be changed. Due to the

             development of new technologies, many customer transactions that are

26
     Alkman Granitsas, “Tangled in the Web: The rush into Internet banking may not be justified
     by the number of on-line customers in Asia” 2000
27
     Alkman Granitsas, “Tangled in the Web: The rush into Internet banking may not be justified
     by the number of on-line customers in Asia” 2000
28
     Alkman Granitsas, “Tangled in the Web: The rush into Internet banking may not be justified
     by the number of on-line customers in Asia” 2000
29
     Mark Condon, “The Shape of Things to Come Online.” Credit Union Magazine, January
     2001
30
     http://www.hkbea.com/whp_pdf/whp_currnews/PR-E4.pdf


                                                                                            25
          performed in branches can be performed using electronic delivery channel,

          such as Internet banking. Although branches will still be required in the

          future, their relevance to certain type of transactions may decrease.31 And

          thus, customer dependency on branches and branch personnel will decrease

          in the future.32



     4.   Providing Integrated services

          Fourthly, although the banks have already provided a lot of Internet banking

          services to the customers, they do have a lot of room to improve.33 Since

          the customers are to be better educated and more affluent, therefore, they

          will ask for better services. What the customers need is the integrated

          services, which means put insurance, broking, investment advice and

          banking together.34 Unfortunately, only 20% of the banks in Hong Kong

          offers online broking, compare to 40% in Korea’s financial institutions.35

          Generally, the banks will provide this kind of integrated Internet services

          very soon to satisfy the needs of the customers. For instance, Hong Kong’s

          Bank of East Asia will soon start offering insurance policies and mutual

          funds.36 Therefore, the customers can then enjoy this outstanding service.


31
   KPMG and Barents Group LLC, “Hong Kong Banking into the New Millennium – Hong
   Kong banking Consultancy Study – Executive Summary.”
http://www.info.gov.hk/hkma/eng/public/index.htm December 1998
32
   Mark Condon, “The Shape of Things to Come Online.” Credit Union Magazine, January
   2001
33
   Tim Culpan, “Asian e-banking still has much room to improve.” South China Morning Post,
   14 June 2001
34
   Tim Culpan, “Asian e-banking still has much room to improve.” South China Morning Post,
   14 June 2001
35
   Tim Culpan, “Asian e-banking still has much room to improve.” South China Morning Post,
   14 June 2001

36 Alkman Granitsas, “Tangled in the Web: The rush into Internet banking may not be justified
  by the number of on-line customers in Asia” 2000


                                                                                          26
       5.    Focusing more on business-to-business Internet banking

             In Hong Kong, most businessperson’s philosophy is that “Time is money”,

             so Internet banking is their hope, which lead them to save time by not

             queuing in the branch. According to the statistic, more than one consulting

             group predicts that business-to-business Internet transactions will exceed $1

             trillion in the next two to three years, while the current transactions are

             nearly 200 billion. New Economy prophets say most of the World’s

             commercial transactions will some day take place on-line37 Asian banks are

             too late to realize this business-to-business Internet banking, nevertheless,

             the banks will launch this service in the future.



       6.    Moving Internet banking to mobile banking

             Generally, as technology advances so rapidly, WAP mobile phone provides

             Internet services to the users, therefore, moving Internet banking to mobile

             banking will be the trend in the future. Now, the banks provide the mobile

             phone services to the customers are limited, only bill payment, funds

             transfer and account enquiry, compare to the services provided on phone

             banking or Internet banking,38 mobile banking services are too narrow. As

             the numbers of people, who use mobile phone, are increasing, so the banks

             will provide more mobile phone banking services, such as mortgage loan

             and time deposit, for the mobile users in order to provide more convenience

             to them.




37
     Alkman Granitsas, “Tangled in the Web: The rush into Internet banking may not be justified
     by the number of on-line customers in Asia” 2000
38
     http://www.hkbea-cyberbanking.com/index.html



                                                                                            27
   7.   Having Potential to propagate Internet banking widely

        Finally, growing in Internet usage will increase the potential of people to

        approach the Internet banking. The probability for these Internet users to

        use the Internet banking service will be higher. Also, the banks start

        demanding the service charge from the customers who do transactions in the

        branch, however, Internet banking is free of charge, and hence, the

        customers may choose using Internet banking or other electronic banking in

        order to get away from the service charge.



VII.    Conclusion

        To conclude, Internet banking has been developed for only two years in

        Hong Kong, therefore, it is difficult to criticize whether Internet banking is

        successful or not. Therefore, the banks may be better off waiting for the

        actual results. Moreover, electronic banking becomes more important to the

        banks and customers, consequently, the banks should continue to provide

        more outstanding services through electrical medium, which can gain more

        profits and attract more customers.




                                                                                   28
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                                                                                 29
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                                                                                     30
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35. Banking and Investing Online Resource Group,
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                                                                            31

				
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