Electronic Banking Services To Their Customers example essay topic

Introduction Information technology has had as much impact on our society as the industrial revolution. In the information age, companies are finding that success or failure is increasingly dependent on their management and use of information. Therefore, companies need a good information system that enabled an efficient and effective use of information to give them more competitive advantage (Moscove, Simkin, & Bagranoff, 1999). An information system is a set of interrelated subsystems that work together to collect, process, store, transform, and distribute information for planning, decisions making, and control.

An information system need not be a computerized system, but the use of computer in information systems can improve the efficiency of information collection, processing, storing, transformation and distribution. An accounting information system (AIS) is the information subsystem within an organisation that accumulates information from the entity's various subsystems and communicates it to the organisation's information processing subsystem. The information processing subsystem is likely to be a separate department in the organisational entity that is responsible for computer hardware and software (Moscove, Simkin, & Bagranoff, 1999). The AIS has traditionally focused on collecting, processing, and communicating financial-oriented information to a company's external parties (such as investors, creditors, and tax agencies) and internal parties (principally management). Today, however, the AIS is concerned with non-financial as well as financial data and information.

In general, a bank's AIS has the same role as in other companies that is to provide financial and non-financial information to the company's external parties (such as investors, creditors, and tax agencies) and internal parties (principally management). However, due to the characteristics of banking business, banks' AIS have specific important features related to their liquidity management and the management of their customers' accounts information. A bank has to manage its liquidity efficiently in order to maximize profit and to fulfil regulation requirements (minimum reserve requirement). To perform such duties, the treasury manager needs information of consolidated balance of customers' deposits, loans and other placements of bank funds. Those information are needed on a daily basis so that the treasury manager can determine how much reserve is needed and how much money should be placed in or borrowed from the money market to conform with the regulations and to maximize the usefulness of available funds.

The use of computer network has made it possible for the treasury managers to get the information needed almost at anytime if all of the bank's branches are online. Therefore, the bank's liquidity management could be performed more timely and efficiently based on accurate information (Deakin, Goddard & Welch, 1999). Among reasons why people use a bank's services are to obtain convenient access to cash and to obtain interest payments and other return on investment. The banks serve the needs of the customers by providing a system that enables the customers to check their account balance, to deposit and to withdraw cash, and to make payment in a convenient way. The system must also provide up to date and accurate information of customers' account. The introduction of information technology had improved the quality of banks services to the customers.

Various new banks's ervices, which are made possible by the use of information technology in their AIS, are usually called electronic banking. History of Electronic Banking Banking technology appears to have been applied first at the centre of the United States banking system. One of the earliest uses of electronic technology was the Federal Reserve Communication System (Fed Wire), which recorded over 700,000 transfers in 1920. Fed wire is used to transfer reserve account balances from one institution to another, which makes it a very specialist electronic banking service. However it sits at the centre of US bank clearing systems.

Electronic technology spreads from this central point through the whole process of bank funds transmissions, finally reaching outside the banks direct to retail customers and corporate treasuries. Electronic banking started in the United States because the clearing arrangements between the large numbers of geographically dispersed US banks was extremely inefficient. Corporate customer pressure for improvements was becoming irresistible. In addition, the early availability of cheap computing power encouraged pioneering work in the United States to achieve savings from more efficient use of the banking system. The creative use of the emerging technology, which had been developed for other purposes, and paid for by other industries' research budgets, was fundamental to the progress of electronic banking and the significant savings achieved thereby. The American banks did not have it all their own way.

The first ATMs in the world were introduced to the public in the United Kingdom by Barclays Bank in 1969. Once customers became familiar with them, they spread rapidly. By 1985,160,000 units were run by banks worldwide, with about 9,000 in the United Kingdom (Deakin, Goddard & Welch, 1999). By 1990, the pace of change had started to accelerate - electronic banking had become the norm in corporate treasuries with electronic links between balance reporting systems and second-generation treasury management system or spreadsheets and from treasury systems to payment systems. The banks had invested in improved security and extended services to corporate, at the same time as presenting a rapidly changing electronic face to retail customers.

The move to telephone based everyday retail services, such as First Direct (from Midland) and Nat West's telephone payment system Action Line in the UK, meant that the use of technology in banking was now an accepted part of many people's experience. In consequence, corporate treasuries' confidence in electronic systems increased rapidly. At the same time their requirements were becoming more sophisticated in line with the increasingly international nature of business. The 1990s' generation of electronic banking systems delivers an array of automated services including (Deakin, Goddard & Welch, 1999): 1. Cross border and cross currency bank accounts reporting and cash management.

2. On-line access to many banking services including payments, currency dealing, trade finance and account reconciliation. Banking Services: Past and Present In an effort to operate within an increasingly large and complex society, most industries have adopted innovative forms of technology. Like many major industries, banks have experimented with advanced computer and communication technology, which has produced convenient service delivery systems for the banking industry, consumers, and corporations. From the financial institution perspective, it has been touted as a way to help reduce the cost of retail service delivery (the branch network), decrease the number of costly labour-intensive paper-based transactions, create new sources of revenue from fee income, extend market reach to other parts of the state or nation, and remain more competitive in a deregulated environment by offering innovative services. Corporation and consumers benefit from increased convenience and, in many cases, greater accuracy and timeliness of payment by using electronic banking services, often at a lower cost (Lipis, Marschall & Linker, 1985).

Banks may currently use information technology in a variety of ways and for a variety of purposes. Cash may be dispensed and deposited, accounts debited and credited automatically. Administration may be assisted by information technology based management information system. Inter bank and international money transfers may be affected by use of secure utilities such as Society for Worldwide Interbank Transfer (SWIFT). However the central historical problem and still the central technological issue for retail banks concerns the capture and organisation of account data through branches.

The large retail banks have thousands of branches. In each, a variety of account transactions are performed involving cash deposits and withdrawals, transfers, cheque's and standing orders. Although many transactions must still be verified by signature, the main use of information technology in banking has been to generate and control a database of account information and to effect the transmission of money, which transactions in the account base require. In the past, when customers want to withdraw money from their saving accounts, they have to come to the bank's branch where they opened their account. They filled into certain form and sign on it and present some identification for verification.

Nowadays, the use of online computerized system for customers' account has enabled the customers to check balance, deposit, withdraw, and transfer money at any branch of the bank. The invention of Automated Teller Machines (ATMs) add more convenience to the customers since it enables them to do many usual transactions, such as cash withdrawals, transfer between accounts and pay bills 24-hours a day. Furthermore, the introduction of Internet banking enables the customers to do transaction without leaving their home or office. Before the use of online computer system, when a customer transfer money from his / her bank to an account in other bank or in other branch of the same bank, it usually takes one to two days for the fund to be effective in the receiving account. This is because transfers were processed manually through a clearinghouse, which is still using paper-based system. Nowadays, Every transaction done by customers can be directly settled (debited / credited ) into their accounts no matter in which branch or ATMs they do it.

Transfer of funds are debited from paying accounts and credited into receiving accounts almost simultaneously. This is made possible by the existence of automated clearing houses (ACH) that connected online with member banks computer and using the real time gross settlement (RTGS) system. Therefore, the customers' accounts are always up to date. On the banks's ide, the advancement of banking computer technology has improved the ability of banks to perform their liquidity management more efficiently and profitably. In the past, since there is no online connection between head office and branches, the bank reserve must be maintained in each branch individually.

Therefore, it is possible that in certain branches there is liquidity shortage while in other branches there is excess liquidity. Nowadays, with the online banking system, the bank reserve can be maintained at consolidated level in the head office. Liquidity shortage in certain branches can be compensated with excess liquidity in other branches. Therefore the amount of unproductive funds that should be kept in reserve can be minimized to the required level, which in turn will reduced the bank's cost of capital. In about 30 years ago, when banks had excess liquidity, they can only placed their funds in the paper-based local money market or capital market instruments. Nowadays, with the existence of treasury stations and the ACH with or without RTGS, banks can place their excess liquidity in interbank call money market.

In fact, many banks choose the interbank money market as the main outlet of their funds placement. Additionally, with the existence of international dealing system, such as Reuters Dealing System, banks can placed their funds in any other correspondent banks in the world and denominated them in various currencies. This international dealing system is equipped with security features so that only registered dealers of members bank can login to the system. Usually a user name and password are required for login. The international funds transfer settlement is also made easy by the international electronic funds transfer system such as SWIFT.

In brief, the development of computerized globally online banking system had provided bank with many new opportunities of placement. Banks can maximize their profit and minimizing risk through diversification of funds placement around the world. Electronic Banking Products The range of bank services, which can be delivered to a customer's office or home by electronic technology, has expanded extensively. Banks now use technology to transmit information, receive instructions and to transact and settle business. The quality, range and price of electronic services are an important part of a bank's competitive positioning in its approach to the corporate customer.

The reason behind the spread of electronic services becomes clearer if we consider the following basic banking transaction and the parties they involve (Deakin, Goddard & Welch, 1999): 1. A customer deposits cash in a bank account. Two parties are involved, the customer and the bank. However, if the customer deposits another bank's cheque into his or her bank, the situation will be like in point 3 below. 2. A customer withdraws cash from a bank account.

Again, two parties are involved. 3. A customer pays a third party. Within national border there will be at least four parties involved - the paying customer, the paying bank, a receiving bank (payee) and a recipient, who is the customer of the payee bank. A fifth party maybe a clearinghouse, which is coordinating the movement of funds between the two banks.

4. A customer pays a third party overseas. At least one additional party may be involved, the paying bank's correspondent bank overseas. Electronic technology has been applied to each link between the parties involved Automated teller machines (ATMs), electronic funds transfer at point of sale (EFTPoS) credit cards, treasury work stations that permits corporate to initiate payments, to inquire on balances and, in some countries, to access other services, such as making transactions between accounts, and funds transfer system (or payment system) that pass transaction between banks to complete the payment cycle, whether initiated by paper cheque or by electronic instruction.

To most people, electronic banking means 24-hour access to cash through an automated teller machine (ATM) or paychecks deposited directly into checking or savings accounts. Electronic banking uses computer and electronic technology as a substitute for cheque's and other paper-based transactions. Electronic banking initiated through devices such as cards or codes that customers use to gain access to their account. Many financial institutions use an automated teller machine (ATM) card and a personal identification number (PIN) for this purpose. Electronic banking offers several services that consumers may find practical. Automated Teller Machine (ATM) Atms one of the most visible and dominant electronic banking services.

ATMs are unmanned, automated teller devices, located either on or off bank premises, which are capable of dispensing cash and handling routine financial transactions. ATMs can provide 24-hour access to routine banking transaction such as deposits, cash withdrawals, transfer between accounts, and loan repayments. ATMs can be located in the lobby of an institution, on the outside wall of a depository institution, or in an apartment complex, shopping centre, or factory. The use of ATMs for such routine transaction frees the teller for more specialized services and should, over the long run, reduce the costs of delivering financial services to the consumer. ATMs are the fastest-growing electronic banking service.

Bank Credit Cards In the simplest terms a bank credit card is a plastic card for charging purchases to an individual or corporate account that is paid at some later date. Bank credit card services are widely used to extend credit outside the bank premises based on pre-established credit lines. They have established the banks as a party to the exchange of value at the point of sale. Such services offer merchants who cannot afford their own credit extension systems, the ability to provide credit to customers through the banks. The merchants receive their funds quickly no matter when the customer pays for the purchase. Debit Cards Although similar in appearance to a credit card, the debit card function is very dissimilar.

Debit cards represent a potential electronic fund transfer (EFT) alternative for cash, cheque's, and credit cards at the point of sale. A debit card, in theory, functions much like credit card in that it provides rapid availability of funds to merchants. Unlike credit cards, however, there is a simultaneous debit (for withdrawal) in the customer's account. Point of Sale (POS) Service Points of sale services include debit cards, credit cards, and check authorization transactions via a terminal.

POS devices enable banks to serve their customers at a number of convenient locations. The principal benefits a POS network creates for the retailer are drawing more customers into their stores more frequently, increasing the amount of cash and credit to which customers have access, and reducing check losses through more timely and direct verification procedures. As additional benefits, retailers will be able to reduce the amount of money currently held in stores because customers will pay by direct transfer to retailer's accounts, and their operating cost will be reduced by accelerating checkout procedures. Automated Clearing Houses (ACH) Many of the early electronic banking services were offered through ACH.

An ACH is an organisation formed by commercial banks to support the exchange of electronic value transactions between customers of member banks. In its operations, the settlement process of transactions might be done in real time settlement system or batch system. Internet Banking Internet banking allows customers to conduct many banking transactions electronically via their personal computer and modem that connected to the Internet. For instance, they may use their computer to view their account balance, request transfers between accounts, and pay bills electronically by visiting the bank's website. Another benefit provided by Internet banking is that customers are able to do their transactions without leaving their homes or offices. Telephone Banking Telephone banking comes in two forms as follows (Deakin, Goddard & Welch, 1999): 1.

Conversational voice telephony. National direct telephone services provide instant accessibility, often on a 24-hour basis. Security of contact is maintained by using personal data for identification, e.g. mother's maiden name, and / or personal identification numbers (PINs). 2. Automated data telephony. This typified by a combination of what, by necessity, has to be rather exaggerated speech by the consumer, or more commonly, tone entry push button dialing to give commands and receive computer generated spoken responses.

This voice response technology utilizes spoken messages that have been pre-recorded, often with thousands of permutations. Security is maintained with access codes, or account numbers and PINs, and consumers have the additional comfort of knowing that funds can only be transferred out of their accounts to known and pre authorised beneficiaries. Consequently, if payment was made to a beneficiary who had not been pre-authorized, it is less likely that there would be difficulty in obtaining a refund. To provide electronic banking services to their customers, banks' Ais use a computer network that span regional, national, or even global areas. This type of network is often called as wide area network (WAN). WANs typically use a multitude of communications channels including leased phone lines, microwave transmitters, and perhaps even satellite transmission.

WAN are typically complex, multifaceted systems that serve many users for many purposes. However they can also be dedicated to specific tasks. A bank's WAN is not only connecting the head office with all of its branches, but also connecting all of the ATMs, POS machine and customers home / office stations with the central computer that process all of electronic transactions performed by customers. The central computer also plays the role as the central of account information which directly updating the customers' accounts for every transaction done by the customers.

Impacts of Electronic Banking on Customers & Employees Customers who have access to electronic banking services will benefit from a greater range of such services; more rapid access to cash; easier access to payment facilities; more accurate and timely information about their accounts, more overall convenience (not having to visit the branch is a major part of this), improved status and-very importantly-a greater perception that the bank's services are personalized to their own needs. Of course, much of this perception is a kind of illusion caused by the remarkable ability of electronic banking services to be targeted very precisely at the customer's own requirements and account details. Indeed, the security system used to ensure that only a bona fide customer gets access to the information concerning him or her naturally guarantees that the service will be highly personalized. From the customer's perspective, however, the fact that the personalization is basically an illusion does not matter: the customer gets what he or she wants, and is perfectly happy. When we analyse the role of information technology in banking, it soon becomes clear that it is a force that both makes change happen and is a response to change. In many industrial and commercial sectors, technology is only implemented in direct response to customer demand, but the dynamic of the use of technology in the banking industry is more subtle than this.

One cannot say, for example, that Internet banking came about because there was a customer demand for it. Until customers saw an Internet banking system in action, they had no way of knowing whether or not they wanted to make use of such a thing. The same applies to all other new types of channel for delivering services to customers, whether these are ATMs, EFTPoS, or debit systems, and any kind of remote banking mechanism. In these cases, technology has to be seen as a sort of driver of demand rather than a consequence of it. If we take a deeper view, it is clear that technology is a response to profound changes in customer demand. In retail banking, for example, the actual specific implementation may be driven by what has become available at a technical level, but the overall need for the implementation has stemmed from sweeping changes in customer expectations, lifestyle, ambitions and prosperity.

In wholesale banking, the enormous impact that technology has had during the past 20 years is more of a direct response to customer demand for rapid, accurate and global access to information and funds. Electronic banking plays a key role in reducing the proportion of routine and dull transactions, which must be processed by branch-based staff. Many usual transactions such as cash withdrawals, transfer between accounts, and bills payment can be done through ATMs, telephone or the Internet. Thereby, electronic banking are freeing banks employee for more interesting, interpersonal types of activity such as those relating to sales and general provision of customer advice. On the other hand, with many transactions handled automatically, the reduction of banks' employees is expected. Banks do not need tellers and other clerical officers as many as before, since many transactions are now handled automatically by computer system.

In the corporate area, customers will increasingly insist on dealing with financial professionals who can provide advice and information for optimizing investment strategy. The implication of this is that the corporate customer can no longer be serviced by a traditional calling officer or simply a line banker, but will have to be serviced by a pool of talent, including a line banker, and a system specialist representing an advanced automated data processing capability. Once a bank has recognized these changes, it can begin to formulate human resources plans that anticipate: shortages of senior level officers and entry-level workers; the expanded middle-aged, baby-boom generation; and more women and minority employees (Essinger, 1999). Future Development of Electronic Banking The success of companies like Microsoft and IBM in creating standards which whole industries adopt suggests that standardization will increase rapidly and that electronic banking systems will become more compatible across banks and between banks and corporate's. The resulting ability to share services will change the way in which banks use electronic banking as a competitive weapon-just as ATMs developed as a shared service, rather that as an area of interbank competition. For example, in 1996 15 North American banks and IBM announced plans to join together to set up a common private banking service using an open inter connectivity standard, which will be published for others to adopt (Deakin, Goddard & Welch, 1999).

In the past, banks have been early users of developments largely paid for by other research / development. There is no reason for this trend to change. Another new development direction for the banks to watch closely is the combination of the falling cost of computer power and the growth of multimedia. Communications companies (telephone and television) are developing exciting new products such as 'set top' modules, which use cable television or telephone lines to bring electronic messaging capability into the home. The major communication providers are actively seeking and marketing new products for transmission across their networks and they will seek to work closely with the banks to include financial services early in the development cycle. The Internet is another agent of rapid change, which is making electronic services accessible to wider population of users.

These developments offer banks the opportunity to become gateways to a number of networks and bank services could focus on assisting bank's clients to use the network effectively. For example, major banks could use the strength of their reputation and name to provide 'stakeholder' or trustee services for business which wish to encourage their customers to make payments across the Internet. Many new applications will be created as banks and business realize the capabilities of open access services. Expansion of electronic banking services, combined with the newer capabilities of multimedia, will provide a further generation of private banking activity incorporating the following (Deakin, Goddard & Welch, 1999): 1. Voice recognition will reduce the need for operator intervention, reducing the cost to the banks of providing the service and increasing the speed and efficiency of delivery. This implies a further significant reduction in the need for bank branches.

2. Further financial products will be added to retail electronic banking, such as insurance products, share dealing and so on. 3. Further shopping products may be added, linking credit sales or direct debits to televised or computerized retail sales catalogues. 4.

Data manipulation services may be added, such as domestic account analysis. Conclusion Generally, a bank's AIS have the same role as in other companies. However, due to its business characteristics, banks' AIS have specific features related to their liquidity management and the management of their customers' accounts information. The innovation of advanced computer and communication technology in banking has expanded the range of bank services that can be delivered to customers. It has also extensively produced convenient service delivery systems for the banking industry, consumers, and corporations. In the future standardization of banks' network will increase rapidly and electronic banking systems will become more compatible across banks and between banks and corporate's.

Expansion of electronic banking services, combined with the newer capabilities of multimedia, will provide a further generation of private banking activity.

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