Advantages of Internet Banking - PowerPoint

Document Sample
Advantages of Internet Banking - PowerPoint Powered By Docstoc
					                  E-FINANCE

                  CHAPTER 5

ADVANTAGES AND DISADVANTAGES


     Internet Banking and Its potential in TRNC,
 Zakaria Jado Zakario, Assoc. Prof. Dr. Hatice Jenkins


                                                         1
ADVANTAGES & DISADVANTAGES of E-FINANCE
 Finance on internet-mostly internet banking- benefits
  consumer in terms of convenience and the provider in
  terms of cost reduction and greater reach.
 As mentioned earlier, there are four groups that
  participate in the development of e-finance.
 Their role of developing E-finance will depend on the
  benefits and risks they may realize from the presence of
  E-finance.
 Advantages and disadvantages of E-finance will be
  discussed in terms of Internet Banking which is the most
  popular and used E-finance transaction.

                                                       2
1-BANKS PERSPECTIVE
ADVANTAGES:
A. ADDITIONAL REVENUES
 Internet banks were allowed to generate additional
   revenues from being allowed to offer new fee based
   services and magnify the usage of existing products
   and services offered.
 Additional revenues can be classified into two groups:
1. Home Banking Offerings
2. Cash Management Offerings


                                                     3
1. Home Banking Offerings, include the basic internet
   banking services such as bill payment and
   presentment, shopping online, viewing balances etc.

2. Cash management offerings exceeds home banking
   by allowing commercial users to manage their
   businesses as well as their personal finances such as
   handling many account at once, transfer funds between
   accounts, handling foreign exchanges between
   different currencies, viewing monthly account billing
   statement and scheduling different payments.


                                                     4
B. OPERATING COST REDUCTION
 Internet based banks were allowed to reduce costs of their
  operations. Cost saving can be realized through less reliance on
  manual operations and calling centers.

 Internet banking allows banks reduce costs and provide the
  following scenarios:
 Internet banking will allow banks to reduce customer service
  staff,
 Electronic payment will replace checks and costs of processing
  these checks will decrease.
 E-mails will replace mails, and electronic applications will replace
  paper ones.
 Consumers can open new account online, in addition they can
  apply for financial services from their homes and the result will be
  less data entry by the bank’s personnel.

                                                                   5
C. EXPANSION COST REDUCTION
 In addition to the reduced costs of operations, banks
  seeking expansion will fill expanding through the
  internet extremely cheaper than building a new physical
  branch.
D. CUSTOMER RETENTION
 Customer retention is a prime advantage of internet
  banking under the condition of offering a wide range of
  services on a bank’s web site, existing customers will be
  more likely to stay and new customers can be attracted
  to join when they are informed.


                                                        6
DISADVANTAGES:
Transaction Risk:
 Transaction risk is the current and prospective risk to
  earnings and capital arising from fraud, error, and the
  inability to deliver products or services, maintain a
  competitive position, and manage information.
 A high level of transaction risk may exist with Internet
  banking products, particularly if those lines of business
  are not adequately planned, implemented, and
  monitored.



                                                        7
Reputation Risk:

 Reputation risk is the current and prospective impact on
  earnings and capital arising from negative public
  opinion.
 A bank’s reputation can be damaged by Internet banking
  services that are poorly executed or otherwise alienate
  customers and the public.
 Well designed marketing, including disclosures, is one
  way to educate potential customers and help limit
  reputation risk.


                                                       8
Strategic Risk:

 Strategic risk is the current and prospective impact on
  earnings or capital arising from adverse business
  decisions, improper implementation of decisions, or lack
  of responsiveness to industry changes.
 Management must understand the risks associated with
  Internet banking before they make a decision to develop
  a particular class of business.




                                                       9
Credit Risk:
 Credit risk is the risk to earnings or capital arising from
  an obligor’s failure to meet the terms of any contract
  with the bank.
 Internet Banking provides the opportunity for banks to
  expand their geographic range.
 In dealing with customers over the internet, it is difficult
  to understand the willingness of the customer to pay the
  debt when there is an absent of any personal contact.




                                                           10
Liquidity Risk:

 Liquidity risk is the risk to earnings or capital arising
  from a bank’s inability to meet its obligations when they
  come due, without incurring unacceptable losses.
 Liquidity risk includes the inability to manage
  unplanned changes in funding sources.
 Internet banking can increase deposit volatility from
  customers.
 Increased monitoring of liquidity and changes in
  deposits and loans may be warranted depending on the
  volume of Internet account activities.

                                                        11
Foreign Exchange Risk:

 Foreign exchange risk is present when a loan or
  portfolio of loans is denominated in a foreign currency
  or is funded by borrowings in another currency.
 Banks may be exposed to foreign exchange risk if they
  accept deposits from non-U.S. residents or create
  accounts denominated in currencies other than U.S.
  dollars.
 Appropriate systems should be developed if banks
  engage in these activities



                                                      12
Price Risk:
 Price risk is the risk to earnings or capital arising from
  changes in the value of traded portfolios of financial
  instruments.
 Banks may be exposed to price risk if they create or
  expand deposit brokering, loan sales, or securitization
  programs as a result of Internet banking activities.
 Appropriate management systems should be maintained
  to monitor, measure,and manage price risk if assets are
  actively traded.




                                                         13
Interest Rate Risk:

 It is the risk to earnings and capital arised from the
  fluctuating interest rates.
 Internet banking can attract deposits, loans and other
  relationships from a larger pool of customers.
 Greater access to customers forces managers to maintain
  appropriate asset liability management systems,
  including the ability to react quickly to changing market
  conditions.



                                                        14
2- CONSUMER PERSPECTIVE
ADVANTAGES:
A. BANKING ANY TIME
 Banks who offers internet banking services open 24
  hours a day, no weekends and no vacations. For that,
  clients can access, modify and conduct their banking
  activities any time they want with no delays.
B-BANKING FROM ANYWHERE
 The presence of large number of PCs connected to the
  internet has allowed customers to conduct their banking
  activities from their home, office or even public places.

                                                        15
C. BETTER PRICES and INTEREST RATES
 On average it was found that internet banking transactions costs
  are much lower than conducting the same transaction
  traditionally.
D. SAVING TRANSACTIONAL COST
 Internet banking allows users to conduct their banking activities
  almost from any place where a computer is available; therefore
  users are allowed to save their travelling costs. In addition they
  can save money by cutting down postage and government
  charges.
E. DIRECT AND CONTINUOUS CONTROL TO ACCOUNTS
 In traditional banking activities, the procedure is to ask
  the bank to conduct transactions and then the bank will
  act on behalf of the customer.
                                                                16
F. CUSTOMIZATION
 Customers are able to customize their banking site in the
  format they want. If available, they can customize their
  site to provide the information they want, they control
  how those information are shown, display particular
  product of their interest.

G. FASTER SERVICE and NO WAITING in LINE
 As they learn how to bank online, consumers can
  conduct their banking activities in a relatively shorter
  time compared to that needed to visit their physical
  branch.

                                                        17
H. EXTRAORDINARY BENEFITS
 Consumers can benefit from the other services offered
  that are not provided by banking off-line such as:
 Bill presentment and bill payment service by which they
  can receive their bills via the bank e-mail and schedule
  future payment automatically.
 Funds management services by which they can
  download their history of different accounts and conduct
  a sensitivity analysis before even starting to make any
  transaction.
 Financial tools can be used by corporate users such as
  financial calculators, loan calculators and other tools that
  help users to make their financial decision.

                                                           18
DISADVANTAGES:
A. EXTRA REQUIREMENTS
 Although it might seem like that in some countries
  where the majority of households and businesses have
  PCs that are connected to internet, it is hardly believed
  that it is so in other countries where computer and
  internet penetration are relatively low or moderate.
B. KNOW-HOW IS REQUIRED
 Clients should know how to use computer and they
  should be familiar with using different internet
  applications. They should also be updated with
  instructions by their banking service providers and
  regulatory authority to know how to protect their
  accounts.
                                                        19
C. NO FACE to FACE CONTACT:
 There is no opportunity for direct interaction between
  customers and their bank. Face to face contact is
  essential for dealing with complex products such as
  pensions and certain types of investment that require
  careful explanation and discussion.
D. SECURITY CONCERNS
 Transacting funds via the internet means that
  confidential data might be viewed and further used
  without the permission of the original owners. While
  security is provided mainly by bank, users should be
  kept to update knowledge and latest updates of antivirus
  programs and protection tools.
                                                       20
E. BANK’S SYSTEM and BANK RELIABILITY
 Conducting internet banking services is based on a large
  number of computer networks that starts with user’s PC
  and ends with the bank’s server. Thus, any mistake
  between the two extremes may prevent users from
  conducting their banking activities; if one is down users
  can not access their accounts.




                                                        21
3- REGULATORY AUTHORITY
 Internet itself is not a secure medium, and thus, it poses
  a number of concerns to regulators and supervisors of
  banks and financial institutions. These concerns are:
A. CROSS BORDER ISSUES
 The emerging of internet banking has removed
  geographical barriers and has allowed banks and
  customers to meet although they operate in different
  countries.



                                                         22
B. CUSTOMER PROTECTION AND CONFIDENTIAL ISSUES
 Security of internet banking is one of the most important
  areas of concern to regulatory authority, transacting
  business across the internet exposes data transmitted to
  be viewed by unauthorized agents who may then use it
  without the user approval.

C. COMPETITIVENESS AND PROFITABILITY ISSUES
 For the benefits delivered by internet to banks, many
  will rush to adopt and for banks that lack enough funds,
  they will abandon or at least delay in their adoption.



                                                        23
4. INTERNET SERVICE PROVIDERS
 As customers realize the importance of internet banking
  services, with each new internet banking customer,
  internet service providers (ISPs) will gain a new
  customer. On the other hand, it is expected for internet
  usability to increase in term of time spent surfing the
  internet, and this will increase ISPs revenues.

 ISPs will have to provide higher quantity and quality of
  internet services and this will require additional
  investments in hardware, software and marketing.



                                                       24

				
DOCUMENT INFO
Description: Advantages of Internet Banking document sample