1 e-finance chapter 4 participants of internet banking internet banking and its potential in trnc,...

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E-FINANCE

CHAPTER 4

PARTICIPANTS of INTERNET BANKING

Internet Banking and Its potential in TRNC, Zakaria Jado Zakario, Assoc. Prof. Dr. Hatice Jenkins

V.C joshi (2004), E-finance Log into the future, 2nd Edition, Thousand Oakes, London

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Internet Banking has a collective participation of four parties.

1. Consumers

2. Banks

3. Internet Service Providers

4. Regulatory Authorities

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1. CONSUMERS Consumers are the main users of Internet banking

services. They can be companies, organizations or individuals. Each has certain needs to be fulfilled. Banking institution responsibility is to explore these

needs and design financial products and services that best fulfill those needs.

Most people in the world refuse to go their banks and prefer internet banking as it is available.

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1. CONSUMERS (CONT.) Internet services will best fit business needs to the

extent that it will allow for time and money savings. When consumers do not know much about it and

demand is relatively low, they do not play a significant role in developing the internet banking phenomena.

Research: Daily and more frequents users are more pleased with the ease of use and tend to use internet banking more for fund transfer and foreign exchange transactions than less frequent users.

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2. BANKS Banks are the providers of internet banking services. They play a major role in developing internet banking

industry. One of the important issues to consider is demand. Banks are interested in products that will be

demanded. Demand should be investigated and assured.

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This should be done by testing the following 3 areas:A. Consumer’s Demographic Characteristics:

Some customers rely on traditional branches to conduct their banking business.

Others are early adopters of new technologies that arrive in the market place.

Potential customer base that might be turned into an actual customer once internet banking service is provided.

It was found that the demand for internet banking services depends on consumers demographic characteristics.

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A. Consumer’s Demographic Characteristics: (Cont) The demographics of banking customers will continue

to change. The challenge to national banks is to understand their customer base and find the right mix of delivery channels to deliver products and services profitably to their various market segments.

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B. Consumer’s Financial Characteristics:

Banks have to make sure that those customers can obtain whatever is necessary to use internet banking services. In this field, disposable income should be enough to cover costs of obtaining a PC and internet connection.

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C. Infrastructure and Internet Availability:

It is usually the duty of the government to provide telecommunication infrastructure.

Low quality connections resulting from bad telecommunication infrastructure may prevent users from surfing internet smoothly.

Any shortfall would cause demand to breakdown.

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3. INTERNET SERVICE PROVIDERS

For users to gain an access to their bank’s server they should first have internet connection.

Internet services within the country are provided by a group of companies called ISPs, or internet services providers.

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The importance of ISPs to the development of Internet banking services rises from the following points:

A. Internet Service Availability The only mean for customers to contact their internet

bank is through an internet connection, limited number of internet connections means limited number of internet banking users, decision makers have to be sure that internet connection is available for all its potential customers.

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B. Internet Service Quality Slow internet connections can have bad results on

Internet banking services.

C. Internet Service Price Price of the internet services offered is very important. Expensive internet services will make internet banking

customers think many times before being internet banking users.

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4. REGULATORY AUTHORITIES

Central Bank is the authority that supervises its country’s banking system and controls the national monetary system. Thus, it is the central bank role to establish the rules of internet banking.

A.Customer Protection If the internet is used to move or hold money, then

consumers expect their money to be delivered to the destinations wanted without errors and this should be guaranteed by delivering accepted levels of accuracy, safety and secrecy.

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B. Financial System Stability Monetary authority should take into account all kinds of

risk that may emerge with the introduction of internet banking as well as making sure that banks who adopt this approach have the ability to absorb all kinds of risk.

The risks that may have negative effect on bank’s earning or capital are, credit, interest rate, liquidity, price, foreign exchange, transaction, strategic and reputation risks.

These risks are not mutually exclusive and all of them are associated with Internet Banking.

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Services and Products offered by E-finance

The developments in technology and the growing importance of internet in commercial transactions have led to a reduction in the commissions charged.

At the same time, customer pressure for speedier means to execute transactions was growing. Financial institutions had to respond this by offering services on the internet.

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E-Money There is a new internet currency that can be collected on

line and spent at various merchant sites on the web. Cyber Gold, E-charge, Ipin and Millicent are the

companies offering new generation of on-line payment systems.

Smart cards and e-purses are also exciting new options.

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Financial Services The major users of the internet are the corporate

customers. Companies increasingly use internet based systems to

cover their entire range of financial needs, from managing bank accounts and bill payments to asset management and even to insurance products.

Housing finance is one area where functions ranging from loan application apprising, valuation of houses to completion of loan documents are all carried out over the internet.

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Factoring and Leasing E-finance helps in lowering the costs and increases the

availability and ease of transferring the information. This development has increased lender and client opportunities

for factoring, which is the sale of accounts receivables and Leasing which are loans collateralized by assets. Electronic transmission allows for real time information exchange

between parties, increased security, immediate credit decisions and lower transaction costs.

Letters of credit, bills of lading and other documents associated with trade funds are also gradually being taken over under the E-finance umbrella.

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E-Trading E-trading systems provide electronic order routing,

automated trade execution and post trade information services.

E-trading in Foreign Exchange E-trading is being applied first to transactions in liquid

and homogeneous transactions than to larger transactions.

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E-trading in Equity Markets The trading models in equity markets can be divided into

two categories. • 1.Order driven systems combine all bid and ask orders

into one central order book and automatically match the orders without intermediaries.

• 2.Direct access trading, where the investor places an order on-line and the brokerage firm routes it directly to a market maker and obtains a commission from him/her for what is known as payment for order flows.

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E-trading in Fixed Income Securities On-line trading in the fixed income securities market is

of recent origin- barely five years old. Trade-web was the first online bond market.

Margin Trading: Investors have to guard against brokers who gave them too much credit, since margin trading is permitted. Margin lending simply lets you borrow a certain amount against the value of your stocks and trade with that money. Another factor called marginability must also be taken into account.

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MARGIN TRADING (EX.)

X Corp $70

50% Initial Margin

40% Maintenance Margin

1000 Shares Purchased

Initial Balance Sheet Position:

Stock $70,000 Borrowed $35,000

Equity 35,000

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MARGIN TRADING

Stock price falls to $60 per share

New Balance Sheet Position:

Stock $60,000 Borrowed $35,000

Equity 25,000

Margin% = $25,000/$60,000 = 41.67%

Maintenance marginMaintenance margin: minimum amount equity in : minimum amount equity in trading can be before additional funds must be put into trading can be before additional funds must be put into the accountthe account

1 e-finance chapter 4 participants of internet banking internet banking and its potential in trnc,...

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