Banking and the Internet: Past, Present, and Possibilities.

by Charisse Brogdon

Banking: Introduction and History


Electronic banking is an activity that is not new to banks or their customers.  Banks having been providing their services to customers electronically for years through software programs.  These software programs allowed the user's personal computer to dial up the bank directly.  In the past however, banks have been very reluctant to provide their customers with banking via the Internet due to security concerns.  Today, banks seem to be jumping on the bandwagon of internet banking.  Out 100 of the largest financial institutions in the U.S. about half offer Internet financial services in some form.  There are about 30 million Internet users and this rate is growing at about 10 percent a month.  If the bank doesn't currently offer Internet access you can be sure that their are plans in the work too. Why is their a sudden increase of bank interests in the Internet?  The first major reason is because of the improved security and encryption methods developed on the Internet.  The second reason is that banks did not want to lose a potential market share to banks who were quick to offer their services on the Internet (i.e. banks completely on the Internet).
 

On this page we want to cover four main areas with Internet banking:

 Benefits of Internet Banking: for Banks


Price-
That the first benefit of Internet banking.  In the long run a bank can save on money by not paying for tellers or for managing branches.  Plus, it's cheaper to make transactions over the Internet than to make those same transactions at a bank branch. Their are already banks that exist completely on the internet.  They are able to offer better interests rates on CD's and savings account because they don't have to deal with operating bank branches.

Customer Base- 
The Internet allows banks to reach a whole new market- and a well off one too.  A recent survey has shown that a large segment of the Internet user population makes more than $45,000 a year.  Because their are no geographic boundaries with the Internet, banks are able to reach segments of the population that they were never able to reach before.  The Internet is also a great lever.  It provides a level playing field for small banks who want to add to their customer base.

Efficiency-
Banks can become more efficient than they already are by providing Internet access for their customers.  The Internet provides the bank with an almost papers system.  No lengthy paperwork to fill out by the customer or the bank.

Customer Service and Satisfaction-
The bank is able to offer a multitude of services to the customer.  By working directly with a bank a person does not have to go to a branch where that service may or may not be offer.  Banking on the Internet not only allows the customer to have a full range of services available to them but it also allows them some services not offered at any of the branches.  A person can have the ability to print of information, forms, and applications via the Internet and be able to search for information efficiently instead of waiting in line and asking a teller.  With more better and faster options a bank will surly be able to create better customer relations and satisfaction.  Customers are also more comfortable dealing with computers than actual people. Surprisingly older people seem to like working with electronic tellers who explain various bank functions, rather than working with an actual teller.  People don't feel uncomfortable by asking a computer to repeat information or by cutting it off when they  have heard enough.

Image-
A bank seems more state of the art to a customer if they offer Internet access.  A person may not want to use Internet banking but having the service available gives a person the feeling that their bank is on the cutting image.  By revamping it's image by offering it's services via the Internet, NationsBank was able to go from #2 in Europe to #2.

Benefits of Internet Banking: for Customers 

People are often confused with the deference between Internet banking at home banking with software.  With PC banking banks send out financial software on a disk , the user fills out the information needed a sends it back over the banks private network system.  While Phone banking offers a limited number of services PC banking can offer a whole range. What are the types of activities that a customer can do with Internet banking? They can:
  The best be benefit of Internet banking is the fact the it is free.  Most banks allow customers to make the transactions without cost to the user.  At many banks the customer doesn't have to maintain a required minimum balance.  The second big benefit is better interest rates for the customer as well.  Electronic banks are also more likely to change in response to customers demands because they don't want to lose them.
        

Problems/Concerns with Internet Banking

As with any new technology new problems are faced.  One of the first problems that banks have to worry about is customer support.  Banks will have to create a whole new customer relations department to help customers.  Banks have to make sure that the customers receive assistance quickly if they need help. Any major problems or disastrous  can destroy the banks reputation quickly an easily.  The bank has to make sure that the Internet transactions are extremely reliable and will not crash.  By showing the customer that the Internet is reliable you are able to get the customer to trust online banking more and more.

Another major issue in banking is the software that will be used in order to support the network.  The first major concern is with laws.  While Internet banking my have no national or state boundaries, the law does. Companies will have to make sure that they have software in place that can detect when an interstate law is being violated.  A new currency like Digicash (see possibilities chapter) is not under the Federal Reserve's System rules.  This could prove dangerous because there is not central authority in control of this currency.

Another concern with software is over the company that manufactures it. Two alliances have been recently formed in this battle over software and banking.  Microsoft and Visa have formed an alliance while Netscape and Master Card have done the same.  These alliances allow the Internet service provider to  to establish secure online transactions.  Since Microsoft has an 80% market share on the software used by PC's it can possibly dominate the bank software market, creating a monopoly.

Security of course is a huge issue with banks.  While banking is for the most part extremely secure and safe there have been bank break in's via the internet.  A recent New York Times article reported that " a 30-year-old computer wiz from St. Petersburg, Russia, was sentenced Tuesday to 36 months in prison for orchestrating the first  publicly-known bank robbery over the Internet. [He] had pled guilty last month to stealing millions of dollars from Citibank in 1994."A bank not only has to worry about break in's but the user has to worry about security issues as well.  How good are the encryption programs today? In June, a group of computer programmers announced that they  had succeeded in cracking the full 56-bit version of the government's Data Encryption Standard, or DES, using distributed computing.

Along with security, encryption, and managerial issues a bank also has to worry about becoming too cold a distant to the customer.  Some feel that banks  who offer Internet banking our becoming more and more cold and impersonal with respect to the customer.

Why should a customer want to go online with these potential problems?

Well actually, the problems aren't as bad as one thinks.  The breaking that happened with Citibank happened years ago and encryption and security technology has improved in leaps since then.  Also even though the 56-bit was broken banks and financial institutions are allowed to use 128-bit code which is seen as theoretically impossible to break.  As in the response to banking becoming more impersonal, surprisingly older people seem to like  working with electronic tellers who explain various bank functions, rather than working with an actual teller.  People don't feel uncomfortable by asking a computer to repeat information or by cutting it off when they  have heard enough.  So maybe Internet banking is not that bad after all?  

Future Possibilities of Internet Banking

Currently, there are two banks which offer services on the  Internet, Security First Network Bank and Atlanta Internet Bank.  They have higher return rates on deposits and provide higher overall interest rates since they don't have to deal with tellers, branches, etc.  who knows whether in the future banking will be dominated by actual or virtual banks.

Microsoftbank Inc.? Sounds scary but could companies like Microsoft get into the banking industry?  "A popular program like Microsoft Money or Intuit's Quicken could easily absorb much of the responsibilities of a bank and even put it out of business. "  We need to make sure that there ar e responsible people behind the software. WAYNER

CyberCash and Digicash will allow us to think of a transfer money in a whole new way.  CyberCash acts as an account for the user.  The put a certain amount of money in and if the use a services which charges a fee, the amount is deducted from their account.  Digicash actually has nothing to do with cash.  The cash in Digicash is actually bits.  A person could earn bits from a company and then spend those bits.  This a totally new form of currency.

The Internet is the "unpredictable certainty".  We aren't sure of where it's going to go or what it's going to do.  The only thing that we are actually sure about is that it's going to change.  We have to make sure that while allowing the Internet and the banking industry to grow, we must also make sure that it does not get out of control.