Advantages Of Online Banking To Customers example essay topic

Online Banking: How Technology has Affected the Bank Industry Aluscine Kabir Diana Mickle Jennifer Ross Betty Tek este University of Phoenix COM 525: Managerial Communication and Ethics Edward L. Dempsey March 14, 2005 Modern technology has set the stage for today's industries to adopt faster, more effective and efficient tools to improve their business and productivity. A vast majority of organizations within various industries are using new technology to introduce changes to their business operations. Simply stated, these changes are manifested in what they do, with whom they do it, how they do it, and the tools they use to get it done. However, it is worthwhile to note that, while technology can offer beneficial changes to organizations, change usually comes with both positive and negative consequences. In any business, if technology serves as a catalyst for improvement without significant drawbacks, adopting the changes that it brings will be more beneficial than harmful. Online banking is a technological advancement that has brought about such a change.

The banking industry has adopted virtual banking to improve business process, infrastructure, and customer relationships. These changes have had a major impact on the banking business, but more transparently on the customers of online banking. The matrix measures for the improvements added by online banking can be evaluated on comparable levels of service, efficiency and cost satisfaction, for both the provider and consumer of this technology. Throughout this document, we will discuss the advantages and disadvantages of online banking in hopes of formulating a better understanding of why banks of today are moving towards online business.

While virtual banking has considerable concerns, the advantages it generates, far outweighs the disadvantages because the value added through this technology benefits both the banks, and the customers. E-banking has had a considerable impact on today's banking business, affecting both customers and banks in multiple ways. Banking activities such as; account inquiries, depositing or transferring funds and ordering checks, can now be done remotely, 24 hours a day and seven days a week. From a business organizational point of view, this technology is changing the employee structure of the average bank. The U. S Department of labor noted in 2004 that "banking employment is projected to grow more slowly than average as consolidation and automation make banks more efficient". Changes in how banks are providing their service has affected, and will continue to affect hiring practices, as more online services become available, demanding the need to employ computer specialists.

Online banking is also changing the way banks market their products. Customers are not just seeing the new interest rate offer for opening a one-year CD or money market account, on an easel as they walk into their local branch. Today's banker sees the ad on a flashing banner as they launch their bank's website. Banks also advertise various types of loans, investment accounts and insurance products that are easy to purchase or open with an online application. The growing use of new credit scoring software allows banks to advertise a guaranteed answer or 24 hour approval on such applications. E-tools for conducting such services have completely changed old banking processes, and provide new, more convenient ways of banking, that Banks are using to lure customers into their business.

The customer's of online banking reap many benefits from the added convenience of online banking, but the nature of banking has completely changed and requires new skills. For instance, basic personal computer skills are a must for bankers wanting to enter the online banking world. Bankers will now need to be able to maneuver through the numerous tabs, buttons and icons on their computers, to be able to access their accounts, and complete transactions. Officials of the Internet-only bank, Bank Direct, acknowledge that banking online "is a service best suited to computer-savvy clientele" (Yip, 2000, p 22). Another change for customers is the number of staff members that are now available to offer them assistance. According to the Department of Labor in 2004, "fewer employees will be hired to staff new branches than in the past".

This is a considerable change for traditional bankers who continue to conduct branch and telephone banking. One notable change for this group is the higher fees they now have to pay for using the service of tellers whether in the branch offices or over the phone. Major banks such as Bank of America advertise free online banking on their website, but charge anywhere from six to twenty dollar service fees for checking accounts that offer unlimited teller access. Whilst such changes affect customer-bank interaction, the advantages brought as a result of the change are beneficial to both entities.

With online banking, banks have a considerable marketing advantage in that the internet makes well-directed sales pitches easier by allowing them to interact directly with potential customers by online advertising (The Virtual Threat, 2000). Banking institutions have effectively utilized the internet's ability to provide for customers the same economical advantages of automated services that they have benefited from for years through network banking (Bankrate, 2003). In this case, the "value added" to the banking business through the automation process of millions of transactions is offered to customers through online banking tools. Online banking also helps eliminate potential human error associated with paper handling and incorrect data input. This automation also eliminates the customer's dependency on receiving live assistance from tellers for simple transactions and printing out statements (Wolfe, 2004).

From a cost perspective, online banking offers ways for banks to save money and market their products more efficiently (The Virtual Threat, 2000). Banks are able to cut operational costs associated with rent for the buildings that house their business and the tellers that are hired to operate transactions. As a result, online banking allows banks to offer better deals to their customers by cutting service fees and increasing interest rates (Online Banking, 2005). The cost savings therefore has a two-fold effect as it benefits both the customers and the banking institutions. Despite the business advantages of online banking, there are still some notable drawbacks to this type of service. One hassle for banks is potential downtime and service interruptions that could take place at any time, disconnecting thousands of online bankers from transactions, and costing banks a lot of money to fix errors of transacting and recording data.

Internet-based industries are also prone to competitive marketing from competitors who are just a click away from their customers (The Virtual Threat, 2000). While, marketing to a large community base is simplified through the use of the internet, virtual industries may lose potential customers who are not internet users and as such have no contact with these enterprises. To bankers, the advantages of online banking are phenomenal. As early as 1994, Bill Gates made the statement that "banking is necessary, but banks are not" (The Virtual Threat, 2000). Online banking provides customers with a variety of services that are either free or have a minimal fee (Bankrate, 2003). The advantages of online banking to customers can be summed up with five words; convenience, ubiquity, transaction speed, efficiency, and effectiveness (Bankrate, 2003).

Online banking is more convenient and ubiquitous for consumers because the internet is open 24 hours, and can be accessed from anywhere in the world. Transactions are in most cases as fast as clicking buttons on one's computer screen, and often faster than ATM processing. Banking online is more efficient because bankers can access and manage multiple accounts through one online bank account. Online customers are able to take advantage of simple features that enable them to check balances, transfer funds between multiple accounts, pay bills through the automated process of direct billing, and use direct deposit for faster processing of paychecks.

Banking online also offers new sophisticated tools to manage assets, read stock quotes and rate alerts, apply for loans and to change or update account information through the use of online forms (Bankrate, 2003). Still, some traditional bankers are weary of online services despite its notable rewards. For instance, security worries of identity theft keep many from banking online. Recent studies have revealed that security concerns are among the top reason why people choose not to take advantage of online banking and bill payments (Raghu nathan, 2003). A considerable portion of bankers have concerns with hackers having access to their accounts and personal identity information, regardless of secure banking features offered by most banks.

Firewalls and encryption techniques are two examples of the multi-layered security architecture that banks put into place to protect their customers from fraud and identity theft (Mishra, 2005). However, the level of encryption is still of great concern because of the high possibility that hackers can get around most levels of encryption (Online Banking Pages, 2005). As previously noted the automated process makes features like electronic bill payment easier for customers of online banking. However, the fees and setup process of these features produce some concerns. Besides the fees assessed by some banks for the use of such services, the initial time it takes for customers to enter billing information and addresses from paper bills into computer based forms can be "a big hassle to set up" (Higgins, 2004). Problems encountered by bankers while transacting or setting up information have to be reported online or by contacting a representative on the phone.

This is another drawback for customers who prefer human face-to-face interaction. While online banking provides the convenience of never leaving home to conduct banking, it also eliminates the human element of customer service. Regardless of the various advantages and disadvantages associated with new banking processes, the banking industry is definitely moving fast into virtual business. Use of the internet is growing the ways in which multiple industries are conducting their every day business, and the banking industry is no exception.

Some companies like Bank Direct have done this by running their business completely online. Others are addressing the few disadvantages of e-banking by adding more security features to alleviate concerns and introducing new features like co-browsing, and online kiosks at their branches to promote the use of electronic transactions and provide customers with internet access at their local branch. A look into the future of the banking industry shows that banks are not moving away from virtual banking, but are instead promoting new uses of online service, and improving the existing features. Banks world wide are implementing the use of online services to better their business efficiency, and bankers all over the world are looking for these efficient services to become available to them. As online banking attracts more and more customers through industrial innovations and improvements, it is a clear sign that the internet is the future place for banking business.

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