Bankers fight for profits online while consumers win.
Ray Van Eng (03/24/97)
They were partially right. Transaction costs went down from more than $1 with a human teller to about $0.25 to $0.40 with telephone, and with Internet banking, the cost could be as low as $0.01 (Arthur D. Little/Giga Information Group). So for the last few years, bankers were spending a great deal of effort touting the virtues of electronic banking or e-banking services whether it is through the telephone, with an online service or the latest trend via the Internet. But then the consumers got smart too. They can see that banks are saving a good bundle of money by taking the virtual route and they demanded that e-banking services be free or at very low cost (a few bucks a month). In the face of stiff competition, many bankers have complied. Now that e-banking has become such a hot commodity that bankers are struggling to just keep up with the demand. It is estimated in the U.S., 2 million people do part of their banking electronically while the figure will rise to 3.3 million by the end of this year (Jupiter Communications). Then the bad news begins to sink in, bankers are not making much money in e-banking services. When the customers pay their bills online, banks still have to manually clear the check at night, althought both Checkfree Inc. and the National Automated Clearing House Association (NACHA) are vigorously improving and promoting their electronic payment and clearing system for the financial institutions. Also, banks are realizing that real bank branches are still needed to handle cash deposits, withdrawals and other real-time face-to- face transactions. Bankers felt like stepping into a vacuum. Not only e-banking is not a lucrative business, but the old ways of doing things are not going away fast enough. Fortunately for the bankers, things are changing for the better. With the advancement of Internet technologies and the consumer's eagerness to use them, new markets are opening up. In fact, the future looks pretty bright for those bankers who are quick to adapt. There are big opportunities in smart cards for stored value, credit/debit and other applications. Furthermore, Internet commerce is forecaster to grow from a few billion dollars this year to well over a hundred billion dollars in a few years time. Some experts even predicted that the online banking market will really take off once consumers are able to download money from their bank accounts to smart cards via the Internet thereby overcoming one of the last obstacles in e-banking i.e. obtaining cash for spending. Standards are falling into place. The recent unification of the Intuit, Checkfree and Microsoft's Open Financial Exchange (OFX) specification will further stimulate the development of more online banking options as greater flexibility and convenience now enable online financial data to move freely from one software application to the next. The Secure Electronic Transactions (SET) protocol devised by Visa, Mastercard and their partners is moving from theory to tests and pilots. Purchasing goods over the Internet will finally be safe and fully authenticated with credit card fraud much reduced as the transaction will strictly be a private affair between the consumer and the financial institution. For bankers to make money with their online ventures, they would have to provide more high margin products such as car loans, stock quotes, investment brokerage and even innovative retail services. CIBC in Canada is working on a new generation of ABMs that will offer theater ticketing, merchant gift certificates and other consumer-oriented services. Also, a bank's Internet web site is increasingly being seen as a strategic tool for targeting different consumer groups and offering each group unique and personalized services to enhance their online experience that they will have with that particular financial institution. |
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