Why Is e-Banking Important?
Understanding e-banking is important for several stakeholders, not least of which is
management of banking related organizations, since it helps them to derive benefits
from it. The Internet as a channel for services delivery is fundamentally different
from other channels such as branch networks, telephone banking or Automated
Teller Machines (ATMs).
Therefore, it brings up unique types of challenges and
requires innovative solutions.
Many banks and other organizations have already implemented or are planning
to implement e-banking because of the numerous potential benefits associated with
it. Some of these major benefits are briefly described below.
Why Is e-Banking Important? # Choice and Convenience for Customers
In the fierce battle over customers, providing a unique experience is the compelling
element that will retain customers. A ‘customer first’ approach is critical for success in e-banking. Customers hold the key to success and companies must find out
what different customers want and provide it using the best available technology,
ensuring that they are acting on the latest, most up-to-date information.
In modern business environments, customers want greater choice.
They want
the traditional range of banking services, augmented by the convenience of online
capabilities and a stronger focus by banks on developing personal relationships
with customers. Avkiran (1999) stressed the importance of the human touch in
the customer services. Politeness and neatness, recognition in terms of greeting,
willingness to provide prompt service, ability to apologise and express concern for
a mistake are all important for bank customer.
Most of these aspects of customer
service cannot be automated. The adequacy of staff members serving customers can
be expected to directly influence the customers’ satisfaction. However, e-banking
backed up by data mining technologies can help in better understanding customers’
needs and customizing products/services according to those needs.
Offering extra service delivery channels means wider choice and convenience
for customers, which itself is an improvement in customer service.
E-banking can
be made available 24 hours a day throughout the year, and a widespread availability
of the Internet, even on mobile phones, means that customers can conduct many
of their financial tasks virtually anywhere and anytime. This is especially true of
developed countries, but increasingly in developing countries, the spread of wireless
communications means that services such as e-banking are becoming accessible.
Why Is e-Banking Important? # Attracting High Value Customers
E-banking often attracts high profit customers with higher than average income and
education levels, which helps to increase the size of revenue streams. For a retail
bank, e-banking customers are therefore of particular interest, and such customers
are likely to have a higher demand for banking products.
Most of them are using
online channels regularly for a variety of purposes, and for some there is no need
for regular personal contacts with the bank’s branch network, which is an expensive
channel for banks to run (Berger & Gensler, 2007).
Some research suggests that adding the Internet delivery channel to an existing
portfolio of service delivery channels results in nontrivial increases in bank profitability
(Young, 2007).
These extra revenues mainly come from increases in noninterest
income from service charges on deposit/current accounts. These customers
also tend to be of high income earners with greater profit potential.
Why Is e-Banking Important? # Enhanced Image
E-banking helps to enhance the image of the organization as a customer focused
innovative organization. This was especially true in early days when only the most
innovative organizations were implementing this channel. Despite its common
availability today, an attractive banking website with a large portfolio of innovative
products still enhances a bank’s image. This image also helps in becoming effective
at e-marketing and attracting young/professional customer base.
Why Is e-Banking Important? # Increased Revenues
Increased revenues as a result of offering e-channels are often reported, because
of possible increases in the number of customers, retention of existing customers,
and cross selling opportunities. Whether these revenues are enough for reasonable
return on investment (ROI) from these channels is an ongoing debate.
It has also
allowed banks to diversify their value creation activities. E-banking has changed
the traditional retail banking business model in many ways, for example by making
it possible for banks to allow the production and delivery of financial services to
be separated into different businesses. This means that banks can sell and manage
services offered by other banks (often foreign banks) to increase their revenues.
This is an especially attractive possibility for smaller banks with a limited product
range.
E-banking has also resulted in increased credit card lending as it is a sort of
transactional loan that is most easily deliverable over the Internet. Electronic bill
payment is also on rapid rise (Young, 2007) which suggests that electronic bill
payment and other related capabilities of e-banking have a real impact on retail
banking practices and rapidly expanded revenue streams.
Why Is e-Banking Important? # Easier Expansion
Traditionally, when a bank wanted to expand geographically it had to open new
branches, thereby incurring high start up and maintenance costs. E-channels, such
as the Internet, have made this unnecessary in many circumstances. Now banks with
a traditional customer base in one part of the country or world can attract customers
from other parts, as most of the financial transaction do not require a physical presence
near customers living/working place.
In one case study presented in Chapter
VIII, a bank based in the southern part of the UK was attracting customers from
northern England, where it had no branches. In many countries banks share their
resources such as ATMs or use post offices as their main interaction points, with
customers for services such as cash and cheques deposits.
Why Is e-Banking Important? # Load Reduction on Other Channels
E-Channels are largely automatic, and most of the routine activity such as account
checking or bill payment may be carried out using these channels. This usually
results in load reduction on other delivery channels, such as branches or call centres.
This trend is likely to continue as more sophisticated services such as mortgages
or asset finance are offered using e-Banking channels. In some countries, routine
branch transactions such as cash/cheque deposit related activities are also being
automated, further reducing the workload of branch staff, and enabling the time to
be used for providing better quality customer services.
Why Is e-Banking Important? # Cost Reduction
The main economic argument of e-banking so far has been reduction of overhead
costs of other channels such as branches, which require expensive buildings and a
staff presence. It also seems that the cost per transaction of e-banking often falls
more rapidly than that of traditional banks once a critical mass of customers is
achieved.
The research in this area is still inconclusive, and often contradicting
reports appear in different parts the world. The general consensus is that fixed
costs of e-banking are much greater than variable costs, so the larger the customer
base of a bank, the lower the cost per transaction would be. Whilst this implies that
cost per transaction for smaller banks would in most cases be greater than those of
larger banks, even in small banks it is seen as likely that the cost per transaction
will be below that of other banking channels.
Having said that some sources of research in this area suggest that banks so
far have made little savings from introducing e-banking (Young, 2007). It implies
that, any efficiency related savings are offset by above average wages and benefits
per worker due to the need for a more skilled labor force to run the more sophisticated
delivery system. Other costs such as systems integration and extra security
measures also take their toll.
To implement e-banking, organizations often have to re-engineer their business
processes, integrate systems and promote agile working practices. These steps,
which are often pushed to the top of the agenda by the desire to achieve e-banking,
often result in greater efficiency and agility in organizations. However, radical
organizational changes are also often linked to risks such as low employee morale,
or the collapse of traditional services or the customer base.
Thank you for reading the article Why Is e-Banking Important? . If you want to copy paste this article, please include links Why Is e-Banking Important? as its source.
0 comments:
Post a Comment
Thank you for visiting. We are looking forward to your comments to build this Community Bank Online