e2 - virtual banking

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tailoredspecifically to their financial needs, and non-bank competitors are betterfulfilling theseneeds. Banks today hold only 20% of household financial assets,versus 34% twentyyears ago; they have 30% of business deposits, versus 42% only sevenyears ago.Nonbank credit card providers have gained inroads against banks,holding a 25%market share versus 5% in 1986 (WebTech, Inc., May 17, 1995).Internet banking offers an attractive solution to this redesigned productsand services.Customers have 24-hour graphical-interface access to their accountsand appreciatethat their bank is doing something to make banking easier for them.

03.00 ABOUT THE INTERNETThe Internet has exploded in the last two years thanks to the inventionof the so-called"browser." A browser is a point-and-click software program that allows"surfers" to

navigate around the Internet without knowing any UNIX commands. Thefirstbrowser was developed by the National Center for SupercomputingApplications, agovernment agency. With a browser and access to the Internet, you canorder a pizza,listen to and purchase a CD, stroll through the Louvre, or view satellitephotographsof Scotland.Although it may get congested from time to time, the Internet itself is

extremelyreliable. There is not actually any one network that is the Internet; it ismade up ofthousands of networks that connect to each other through commonroutes, and theyall agree to carry each other's traffic. There is a lot of money flowing upfrom localaccess providers to these national players, guaranteeing that theinfrastructure willcontinue to expand to meet demand.

Because so many resources are shared, the Internet is also veryefficient. It costs a lot


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less to connect a business to the Internet than to lease telephone linesthat customersdial into with their modems. Most likely Internet users will continue to becharged forthe size of the "pipe" connecting them to the Internet.The number of commercial entities with an Internet presence doubled inthe first threemonths of 1995. Modems will keep getting faster, allowing moreinformation, bettergraphics, and full-motion video to be downloaded more easily. However,in five yearsmost households will probably buy their Internet access from their cablecompany,who will provide them with a 10 megabit-per-second connection throughtheir cablewire. A 10-MB connection would download in one second a file thattakes a 28.8Kmodem five and a half minutes to download (WebTech, Inc., May 171995).

04.00 VIRTUAL BANKING AND APPLICATIONSPicture a bank without any branches. No tellers. No rows of desks. no

racks ofbrochures, no automated teller machines outside. Picture, in fact, avirtual bank, onethat for the customer exists only in his or her office or home, as imageson a computerscreen. US financial institutions are moving towards "virtual banking."This strategyis about making bank products and services available to customers anytime and anyplace they want them. As virtual banking becomes more popular, it is

very likely thatmore customer service will be seen while the number of traditionalteller-staffedbranches will decline. Bank customers will move away from traditionalbanking andwill become more dependent on electronic transactions using ATMs orPCs (Britt,Savings&Community Banker, February 1995, p.9).Thanks to the revolution, financial institutions are using softwareprograms, online

services, and even the Internet to allow customers to check balances,pay bills, and


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transfer funds among accounts, Bankers promise that, in the nearfuture, we will alsobe able to more easily buy certificates of deposit, mutual funds, andother investments,and even apply for loans electronically.For most people, today's best option may be plug into their bankthrough one of threeleading home-budgeting software programs: Intuit's Quicken, MicrosoftMoney, andManaging Your Money.

By charging $5 to $20 a month for such services, banks are sure tocash in on thehigh-tech superhighway. For customers, the job is made easy. All that isrequired is apersonal computer, software and a modem. On-screen instructions,laden withcolorful graphics and pictures, explain how to select and work onvarious tasks. Thesystem automatically calculates and updates account balances andkeeps records ofbills.A handful of banks have already set up home pages on the Internet toprovide

information to their existing and potential customers about upcomingservices. Theystarted their transactions. Internet banking differs from the traditional PCbankingmodel in several ways. In most home banking ventures, the bank sendsan applicationsoftware program to the customer which runs on the customer's PC.The customerthen dials into the bank with their modem, downloads data, and runs theprograms

that are resident on their computer, perhaps sending back a batch ofrequests such astransfers between accounts. It demands more and more space andspeed from thecustomer's computer. With Internet banking, on the other hand, thereare potentialcustomers who already have all the software they need to do theirbanking, since allthey need is a browser. The actual banking software resides on thebank's server in

the form of their home page. This software can be updated at anymoment with new


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information, such as new prices or products, without having to sendanything to thecustomer; it can also continue to expand and become moresophisticated withoutbecoming cumbersome for the customer to operate. Banking with abrowser, on theother hand, involves a continuous, interactive session, initiated by alocal telephone callto a local access provider or online service.

A home page in the Internet is not only a customized product tailoredspecificallyfor that bank's customers, but an advertisement for the bank as well.Early entrants in the Internet banking market will benefit on multiplefronts. Thesebanks will appeal to a vast new potential market who represent anattractivedemographic segment: educated, professional, affluent. These newcustomers will savebanks money because they will visit branches less frequently and willswitch frompaper to electronic transactions. More importantly, by developinginternal expertisetoday, banks can position themselves to react quickly to competitive

moves andconsumer trends as the financial services industry evolves. Thesebanks will see thebenefits of early players and they will enjoy the public relations boostthat comes frombeing a market leader(WebTech, Inc., May 17, 1995).

INTERACIVE APPLICATIONSIn Columbus, Ohio, Huntington Bancshares Inc. has put its stamp onthe virtual bank

concept with Huntington's Access, an automated branch office that'salways open.The Access branch houses both traditional and advanced-functionautomated tellermachines that use imaging technology to display deposited checks forverification andto cash a check to the nearest dollar. Also on site is the Personal Touchscreen,interactive video kiosks where customers can conduct a variety oftransactions. At the

touch screen, customers are able to talk face to image with a customerservice


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representative.Banks find themselves facing a window of customer opportunity. "In alot of theirother business transactions, the retail customer in general is learning toself-serve.And, of much more importance, he or she is learning to self-sell," saysGeorgeBollenbacher, manager of strategy and business development forworldwide financialservices at Unisys Corp. In short, they are ready for self-banking.Some progressive banks already have a presence on the World WideWeb. WellsFargo Bank of San Francisco gives customers access to currentaccount balanceinformation and transaction histories at its Web site Using browsersfrom NetscapeCommunications Corp. First Union Bank, in alliance with Open MarketInc. plans byyear's end to offer full Web transaction services to its 10 millioncustomers (Kay, A.,Communications Week, August 14, l995, p.36-40).

05.00 SMART CARDSEmployees at Bank of America, Chemical, Wells Fargo, and other large

U.S. banksuse them to buy lunch and snacks. Smart cards-plastic cards withcomputer chips-arestarting to be used for prepayment, debit, and credit purchases all overthe world. Inthe U.S., smart cards can be only used at a contained group ofmachines, or for onepurpose. "They are part of the broader shift to electronic delivery, tomaking ATMsmore functional, to using PCs and the Internet to do home banking, to

going to POSterminals to get cash back, to getting electronic benefits transfer off acard." saysEdgar Brown, senior vice- president of alternative delivery products atFirst Union,Charlotte, N.C.One of the advantage of using chips on cards with or instead ofmagnetic stripes isbetter security. Microprocessor chips are very difficult to alter or forge.Chips can

carry more information than magnetic stripes can. A microprocessorchip can store up


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eight kilobytes of data. Smart cards make possible cheaper and fasterpayments.Money can be deducted from a chip without on-line authorization. Thismakes for atwo-second transaction versus an up-to-two-minutes one, andtelecommunicationscosts are saved (Lunt, P., ABA Banking Journal, September 1995,p.46).

09.00 REFERENCES

Britt, P. (1995, February). Savings&Community Banker.

Humpehreys, K. (1995). Security First Network Bank.http://www.sfnb.html.

Internet Banking. (1995, May 17). WebTech, Inc. Online information.

Kay, A. (1995, August 14). Interactive Applications. CommunicationsWeek,36-40.

Lunt, P. (1995, September). ABA Banking Journal, 46.

Wells Fargo Bank. (1995, May). The Orange County Register.

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