Pros And Cons Of Internet Banking Information Technology Essay

Pros And Cons Of profit Banking Information Technology Es supposeThe rise of the Internet has fueled an important question across the fixing industry of whether it is magazine to renounce to the leges and provide banking products services solely over the Internet or combine perforates n bricks.The objective of the paper is to comp be two contrast models the click and mortar model that complements both classical branch banking and online facilities with the atomic number 53 that aims using exclusively cutting-edge Internet technology, the so called subtile Internet banking.Keywords Internet banking, performance, invitee orientationIntroductionThe current global economic situation de boundined banks to focus on performance and on increasing the revenue brought by the breathing customers. Given the context, banks tend to reorient towards the cost effective distribution channels, in order to minimize distribution costs.Probably the most important cost effective distribution cha nnel for the banking sector is the Internet. That is why, since the rise of Internet, bankers had to decide whether it is time to renounce to the branches and provide banking products services solely over the Internet or combine clicks n bricks.Both alternatives grow strengths and weaknesses, advantages and disadvantages.The set of advantages that the use of Internet might put down for banks is quite consistent. Among them (see fig. 1), we mention the almost unlimited mobility that such channel offers to the banks clients the multiple possibilities that comprise in call of interconnecting the Internet-based financial platforms with other systems the reduced costs that such a distribution channel implies etc.On the other hand, the complexity and vigour of the Internet besides implies considerable chances.Internet banking products bring a high level of transactional risks, particularly if such a line of business is non adequately planned, implemented and monitored. 2 traffic al risks are mainly arising from fraud, error and the inability to properly superintend confidential information.Fig 1. Internet Banking s main advantages 1Nowa eld, all Internet banking applications must(prenominal) meet a minimum set of security requirements, such ascommunications confidentiality and integritydatas integrity and confidentialityauthenticity for all parties leadd in proceedingsprotection of personal dataprotection against identity substitution and informations transmission under false identityprotection against interception of information transferred between the client and the banktraceability of transactionsbusiness continuity for all services offered to customersprevention, detection and monitoring all unauthorized access in the systemrestoration of the systems information in case of natural calamities or unpredictable events etc 3In considering the merits of branch banking, we cannot do better than remember the advice given to bankers by Mr. Rae in his excel lent work, The land Banker. He remarks that no bank ought to open a branch unless possibly for the following reasons1st. It should be advantageous for the customers of that bank.2nd. There should be a possibility of new-made business being obtained.3rd. That the branch whitethorn act as a connecting link to other branches.Possibly the greatest use of branches is that they find an outlet for surplus capital. hence if property cannot be employed to advantage at one branch, yet there might exist a pick up for capital at another, and so none of the resources of the bank remain unemployed. If the surplus coin of a bank can always be utilised at a profit, it follows that a high rate of interest can be given for deposits.4For small towns a branch is more(prenominal) advantageous than every other method of gaining market share, because a limited customer environment can be better served by a focused and personalized approach. Also, there is no doubt that the establishment of branc hes by the existing banks can be a method of preventing competition from opening branches in the same area.Above all, security issues can make customers consider that branch banking is superior to Internet banking, because there is better trust in the traditional transactional system.Body of PaperPros and Cons of Internet bankingProsLowered transaction costs Internet is in all wishlihood the most important cost effective distribution channel for the banking sector, primarily due to two factors widespread Internet access and its low costs, which minimizes transaction treat costs, and the reduction of the number of brick and mortars branches required to service an equivalent number of customers, which dramatically lowers overhead costs 5.Convenience Unlike a banks branch, Internet banking sites never clam up theyre available 24 hours a day, seven days a week, and theyre only a mouse click away.Ubiquity If a money problem arises term clients are out of their residence state or out of the country, they can log on instantly to the Internet banking application and take care of business-24/7.Transaction speed Internet banking sites generally execute and confirm transactions at or quicker than ATM processing speeds.Efficiency Clients can access and manage all of their write ups, including Individual Retirement Accounts, CDs, even securities, from one secure site.Effectiveness Many Internet banking sites offer sophisticated tools, including depend aggregation, stock quotes, rate alerts and portfolio managing programs to befriend clients manage all of their assets more effectively. Most are also compatible with money managing programs.6Higher loyalty rates Pure Internet bankers show somewhat higher loyalty rates than their multi-channel counterparts. According to a study conducted in 2000 in the USA, 84 percent of Internet bankers had only one banking relationship, while 79 percent of multi-channel bankers had one relationship.5Younger public Pure Internet bank ers are more youthful than the multi-channel bankers. In accordance with the above mentioned study, forty-four percent of pure Internet bankers were 35 and younger, compared to 30% of the multi-channel bankers.5ConsTrust Trusting an Internet banking system is an issue for two main reasons identity theft and operator error. If clients use a non-secure wireless Internet connection, it might not be a good idea to use online banking. Its quite easy for a savvy ID thief to contemp slow the personal information of the clients. In regards to operator error, some users worry that they might contrive pushed the transfer button too much, or not enough.6Risks Internet banking sites bring a high level of risks, such as operational, legal, reputational or systemic risks and even strategic risks. Internet banking does not necessary open up new risk categories, but rather accentuates the risks that any bank faces.Security controls Security controls need special attention because of the open natu re of the Internet and the pace of proficient change. Specific focus areas includeAuthentication-This means ensuring customers are verified and their identities established before conducting business over the Internet. Passwords, biometric methods, challenge-response systems, public key infrastructure are some of the ways of strengthening authentication. There is a growing trend towards single-sign-on applications, where the customer needs only a single ID to access his entire relationship. These increase the risk of compromise.Nonrepudiation-Banks should make certain that customers who transact on the Internet cannot later deny having originated the transactions. Using techniques like PKI (digital certificates), strong nonrepudiation can be achieved. However, legal enforceability in many countries is still suspect.Segregation of duties-As in any traditional process, segregation of duties is vital to prevent perpetration of fraud by any one individual.7Delays in account activation Customers may need to face a waiting period between signing up for Internet banking and receipt of the ID and password necessary for account activation and also make other arrangements in case their access is temporarily denied because of various reasons. Also, the clients might need some time to get given over with the banks website and set up account information.Delays in processing the payments Even if the Internet banking platforms can be accessed 24 hours / day, the majority of the payments are processed only at bottom the working hours of the banks. That is why, if clients choose to pay bills online, they have to make sure that recipients are capable of processing electronic payments in time. Otherwise, it may take several days for the payments to be credited to the right accounts, which could result in accumulated late charges.Lack of official proof of payment If something goes wrong with the online money transactions (errors, late charges etc), clients might need official proofs of the payments they did. The fastest way to obtain such a proof is by printing out a hard likeness of the payment order directly from the system. Unfortunately, in most of the cases, the printings are not considered official proofs so in order to get some clients will have to visit the nearest banks branch.Technical problems Any system that comprises complex technology needs maintenance and it is prone to occasional technical problems. chthonic such circumstances, Internet banking applications might be temporarily unusable, which means that the clients cannot access their accounts.Rapid obsolescence of the sites layout Internet banking sites change very fast. Even the largest banks, periodically upgrade their online programs, tack oning new features in unfamiliar places. In some cases, clients can be perplexed by such changes.Lack of kind-hearted touch There are many devotees to community banking to say that such ways to interact with a bank are not successful because pe ople are dependent to face-to-face banking services. In their opinion, the lack of human contact is frustrating to customers.1Pros and Cons of branch bankingProsSecurity The branch banking is less risky than Internet banking and has greater capacity to handle risks. The losses incurred by some branches may be offset by the profits earned by other branches.9Diversification A branch banking organization can easily diversify its sources and uses of funds among various users. It can direct funds into a market requiring financing. Deposits are received from the areas where lots of savings and loans are extended in those areas where funds are scarce and interest rates are high.9Large-scale operations Under branch banking system, a bank with a considerable number of branches usually processes extensive financial resources and enjoys the benefits of large-scale operations. Over the Internet, clients tend to operate only with smaller amounts of money.Low degree of customers specializatio n customal banking implies less-skilled and less affluent clients than Internet banking. It is a fact that in order to be able to use Internet banking applications clients need the right technical facilities and minimal Internet and computer knowledge.Legislative perceptual constancy State laws governing the organizational structure of branch banking are stable and clear compared with the legislative modelling that governs the virtual environment. In impairment of the internets legislative framework things can be radically different from one country to another.Specialized consultancy Community banking implies the presence of highly trained and experienced staff in the branches. This effect is appointed to certain categories of clients and contributes directly to an increased efficiency of the bank client relationship.Cash transactions are possible Even perpetual declines in the demand for cash transactions are a reality, such phenomenon pose no real threat to the traditiona l methods that involve paper money. Those kinds of transactions (cash based) continue to be an important part of each and every economy.Higher rates of deposit attraction Based on the lack of liquidity that occurs at the international level, one of the highest priority items right now for bankers is the deposit attraction. It is much efficient to attract deposits through carnal branches than it is by using remote deposit capture (RDC1) systems.Tradition The classical branch banking is hard to compare with the Internet banking in the field of establishing close personal relationship with the customers, owing to considerations such as the short term experience and tradition that Internet banking has the differences in the cultural backgrounds of the clients etc.ConsCosts bank branches are not cheap to set up. Depending on thebanks development goals and the legal power the bank chooses, new branches may need to be started. Setting up a new branch may mean steep legal fees, bodied or account registration fees and in some cases banks are even required to own property (immobile) in the country in which they intend to operate. poor parking spaces extensive urbanization is largely responsible for one of the most common todays problem insufficient parking spaces in downtown and suburban areas of cities. If we add traffic congestions to it, we might find a good reason for customers to renounce visiting a banks branch.Personnel risks The vast majority of staff in any bank is trustworthy and honest. However, banks are now beginning to realize and understand the scale of the threat posed by the small proportion of staff who act dishonestly and defraud their employer 10. Following recent complaints, Brasov Police (Romania) applied to Credit Europe Bank a penalty of 50,000 lei and ordered to repay the stolen money to the injured clients within 15 days. It has been determined that the local director of operations, three operators and a cashier made fraudulent banking tran sactions on behalf of the banks clients, diverting more than 2 mil Euros in the past 7 years.11Insufficient specialized personnel Sometimes, the expansion of banks in certain new locations exceeds the possibilities that the local labor markets have in terms of specialized staff. Under such circumstances banks have to headhunt local specialists, relocate internal employees or train new ones. All those solutions involve considerable costs.ConclusionsThe choice of whether or not to renounce to the click and mortar model of banking in favor of banking online, depends on many variables. Although the benefits of online banking are undeniable, there are some inconveniences and concerns of which bankers should be aware before making such an important strategic move.A comparative study conducted by the Research Institute of utilise Economics in 2008, over four important European countries (Finland, Spain, Italy and the UK) shows that the performance of different online banking models over t he period 1995-2004 are not worse in terms of average returns to assets (or equity) than the ones obtained by the branch banking models. The study also reveals the fact that Internet banks are hard to distinguish from banks that adopt both click and mortar strategies. Country specific features appear to be more important in explaining differences across banks. That is why the researchers explain the performance of banks by a group of selected bank-specific features, but also add country-specific macroeconomic indicators and information technology related ratios.The strategic initiative of banking groups to incorporate internet banks seems to reflect some competitive edge that these banks have in their business models. The management of these banks is generally more capable of handling personnel and other costs. Personnel expenses are comparatively low, but the costs for IT are disproportionately high.12Others studies show that multi-channel banks draw highest traffic rates on their Internet banking platforms than the pure Internet banks, due to their off-line channels, brand awareness and existing customer base.5 Under the same current of opinion there is a thesis according to which clients interested in value added products still prefer interaction with a physical branch. It is a fact that Internet banks need to reach a minimum dimension in order to become profitable. That is why good client toleration rate is a must for the Internet banks. Unfortunately this rate does not depend solely on the skills of the initiators but also on some outer factors to the banking industry (egg the percentage of households with access to internet at home, mass access to the specific technology, a higher broadband penetration rate etc).In terms of client adoption rates, trust is also very important. Even if the clients can see the benefits of Internet banking, they may be unwilling to subscribe if they do not trust or have much experience with the Internet. On the other hand, people may only sign up for limited services like account viewing. This will save them from safety concerns but will still give them daily access to account activity.13Under the circumstances, we should expect that the impact of Internet banks may not be strong enough to affect the branch banking system as a whole. However, Internet banks certainly contribute to increase transparency on specific products, like current accounts, allowing for comparisons among banks that were previously more difficult. 12