Internet - The Future Delivery Channel for Banking Services?

Internet - The Future Delivery Channel for Banking Services? Gloria Yan and Joseph C. Paradi Centre for Management of Technology and Entrepreneurship, University of Toronto [email protected], [email protected]

A b stract M u c h h a s h a p p en ed in th e w o rld o f In tern et b a n kin g sin ce w e sta rte d ex a m in in g th e p a ra m eters o f b a n k p a rticip a tio n a n d th e p o te n tia l risks in vo lve d in In tern et b a n kin g fro m a cu sto m e r’s p o in t o f vie w in o u r p re vio u s stu d y. In o rd er to a ssess th e im p o rta n ce o f th e In te rn et a s a fu tu re d elivery m e ch a n ism fo r th e b a n kin g in d u stry, w e n o w fo cu s o n th e p o ten tia l risks in vo lve d in o fferin g In tern et services fro m th e b a n ks’ p o in t o f view . B y c o rrela tin g th e risks p erc eived b y b o th cu sto m ers a n d b a n ks w ith th e a ctu a l In tern et services o ffered , w e p ro vid e a m o re co m p lete p ictu re o f th e req u ire m en ts a n d c o n ce rn s in th is n e w w a y o f d o in g b u sin e ss n o w a n d in th e fu tu re.

1. B ackgrou n d 1.1.

B an kin g A ctivities on th e In tern et

S in ce 1 9 9 3 , b u sin esses starte d to u se th e In tern et, esp ecially th e W orld W id e W e b (W W W ), to carry o u t b u sin e ss activities. T yp ical b u sin ess relate d u sa g e of th e W W W ran g e d fro m gath erin g g en eral in form atio n , v en d or su p p o rt, to d ire ct sellin g of p ro d u cts an d serv ices. A s th ere are m o re th a n ten m illio n u sers o n th e W W W , c o m p a n ies h a ve re alized th at th e In tern et h as e n c o m p assed re v olu tio n ary c h an g es in c o m m u n icatio n s, en tertain m e n t, in form atio n an d c o m p u tin g. T h e im p licatio n s of th ese ch an g es w ill b e p ersu asiv e, tran sfo rm in g b a n k in g as w e k n o w it tod a y. B a n k s n o t on ly in itiate th eir o w n m o v e s o n to th e In tern et b u t are also p u sh e d b y oth er n o n -b a n k c o m p etitors. In offerin g serv ices o n th e In tern et, b an k s h a v e to u n d erstan d th e typ e s of service s th at cu sto m ers w ill read ily accep t th ro u g h th is n e w d elivery c h an n el, w h ile c on sid erin g th e in vestm e n t an d h u m a n reso u rc es in v olv ed in in tro d u cin g it to b oth e xistin g an d p oten tial cu sto m ers. A s of to d a y, m a n y b an k s d o n o t h a v e a clear strate g y, b u t h op e th at startin g th eir o w n W e b p a g es w ill giv e th e m so m e id ea o f cu sto m er req u ire m en ts.

1.2.

o v er th e W W W in v o lves tra n sactio n s th at tak e p la ce in p art or e n tirely u sin g th e In tern et. In o rd er to en c o u ra g e cu sto m ers to u se In tern et b a n k in g service s, b oth c o n su m ers an d su p p liers m u st b e c o n fid e n t th at: i) electron ic c o m m u n icatio n s an d tra n sactio n s are se cu re ii) th e origin of m essa g es can b e verified a n d ac cep te d as leg ally b in d in g iii) p erso n al p riv ac y c an b e p rotected . W e c o n clu d ed fro m F ig u re 1 [1 ] th at cu sto m ers h a ve n ot yet d e v elop e d c o m p lete c o n fid e n ce in electro n ic c o m m erc e. C u sto m ers’ p erce p tion of sec u rity d irectly in flu en c es th eir b eh a v iou r to w ard s In tern et b a n k in g. A lth o u g h se v eral secu rity p roto c ols su ch a s R S A P u b lic K e y E n cryp tio n [2 ] h a ve b een in tro d u ced to a d d re ss th is c on cern , cu sto m ers still d o n ot u n d erstan d or h a v e c on fid en ce in u sin g th ese secu rity featu res. In ord er to su ccee d in In tern et b an k in g, b an k s an d th eir p artn ers m u st ed u cate th eir cu sto m ers. E ve n th o u g h secu rity p ro toc o ls are a v ailab le for In tern et tran sactio n s, cu sto m e rs still th in k th at th eir p erso n al in form atio n is n ot ad e q u ately p rotecte d b e cau se n o g o v e rn m e n t re gu latio n s are in p lac e to m o n ito r d ifferen t activities o n th e In tern et in c on trast to th e n u m b er of re gu latio n s th at are im p o sed o n th e fin a n cial servic es in d u stry. Sending credit card # over the Internet 5 Giving credit card # over the phone 31 Sending credit card data to a commercial online 34 S i Writing credit card # on a catalog order Form 43 Using credit card at a public phone 57 Banking by computer 57 Banking by phone 62 ATM's 77 0

20

F ig u re 1 . C o m p u ter C o m m erc e.

T ran saction s on th e W W W

E lectro n ic d elivery o f fin an cial p ro d u cts an d servic es

1060-3425/98 $10.00 (c) 1998 IEEE

40

60

C o n fid en c e

in

Percentage

U sers

80

E lectro n ic

fu n d s tra n sfer, b ill p a y m e n t an d ch e q u e issu an c e are c on sid ered to b e very risk y.

2. F u tu re B an kin g T ren d s O v er th e p ast 3 0 years, b an k s h a ve d e v elo p ed m a n y n e w d elivery c h an n els. T h ese in clu d e a u to m atic teller m ach in es (A T M s), p h o n e b a n k in g , k iosk s, a n d rec en tly P C b an k in g. S tu d ies h a v e sh o w n th at cu sto m ers are lo o k in g for w a ys to m e et th eir b an k in g n eed s w ith o u t v isitin g a b an k b ra n ch . F igu re 2 [1 ] rep orts o n th e resu lts o f a stu d y d on e b y th e B a n k A d m in istration In stitu te (B A I) on typ ical cu sto m er in teraction s w ith b an k s. It sh o w ed th at ab o u t 5 8 % of typ ical cu sto m er in teractio n s w ith b a n k s are th ro u g h th e p h o n e an d m ail th at th e y calle d “v irtu al in tera ction ”. T h e total “ p h ysical in teraction ” w h ich in clu d es b ran ch , A T M s an d P O S (p o in t of sales term in al) ac c o u n ts for o n ly 3 2 % . T h e a m o u n t of “ p h ysical in teractio n ” is d eclin in g as th e n u m b er of b a n k b ra n c h es d e crease. H o w e ver, in ord er to virtu ally in teract, typ ically, cu stom e rs m u st ob tain a c op y of th e b an k s’ p ro p rietary so ftw are, learn to u se it, th en d ial in to th e b a n k s’ n etw o rk w h en n e ed e d . T h is is in c o n ve n ien t for m a n y c u sto m e rs w h o tra v el c on stan tly b e cau se of th e n eed to retrain a n d to k eep u p w ith d ifferen t v ersion s of th e softw are. In tern et b a n k in g see m s to b e a solu tio n to th is p rob le m . T h e tre m e n d o u s n etw o rk in g p o w er an d easy access of th e In tern et allo w c u stom e rs to re ach th e b an k s’ W eb p a ge s re gard less of th eir p h ysical loc ation . A s lo n g as th e y h a v e a b ro w ser an d an In tern et S ervice P ro v id er (IS P ), th e y w ill b e ab le to see th eir o w n fin an cial d ata an d p erform alm o st an y tra n sactio n th e y d esire. In tro d u cin g th e id ea of In tern et b a n k in g to to d a y’s cu sto m ers is sim ilar to in trod u cin g A T M s to th e m ark et m o re th an tw o d eca d es a g o . It too k 1 5 years of b u ild in g to reach critical m ass ac cep ta n ce in th e c ase of A T M s a n d cred it card s [3 ]. O n ce at th e critical m ass, cre d it card an d A T M tra n sactio n s p ro g resse d fairly q u ic k ly. E lectro n ic b an k in g, w h ic h in clu d es In tern et b an k in g, is reac h in g th at sa m e critical m ass after a d ec ad e’s d e v elop m e n t. T o d a y, m a n y b an k cu sto m ers are q u ite c om fo rtab le w ith p erso n al c o m p u ters. B a n k in g T e ch n olo g y [3 ] rep orted th at ab o u t 5 0 % of b an k in g h o u seh old s h a v e p erson al c o m p u ters in th e U n ited S tates. E n ticin g th e se cu sto m e rs to u se electron ic b an k in g w ill red u c e c osts for th e b an k s. T h is article also stated th at th e tran sition to ele ctron ic b an k in g w ill n ot b e d riven b y th e c o n su m er b u t rath er b y b u sin e ss as it seek s to red u c e th e h ig h c osts ge n erate d b y p ap er.

2.1. C u stom er A ccep tan ce of In tern et B an kin g A lth o u g h h u n d red s of b an k s created th eir o w n W eb p a ge s o ver th e last 1 5 m o n th s, w h eth er th e y are a cce p ted b y th eir cu sto m ers are in q u e stion . T h is w a s p artially ad d ressed b y Y an et al. [4 ] w h ere th e y lo o k ed at c u sto m ers’ c on c ern s a b ou t th e typ es of serv ices offered o n th e W W W b y th ese in stitu tio n s. T h e stu d y sh o w e d th at cu sto m ers are n ot c o m fo rtab le in u sin g th e In tern et for an y tra n sactio n th at in v olv es m o n e y e x ch an g e b ec au se tra n sactio n s su c h as

Interactions

Includes

Primary Channels

Electronic 10%

Phone and Mail (Virtual) 58%

- Wholly - Non-electronic electronic Interactions not transactions requiring a physical location - Phone (AVRU) - Mail - Electronic - Phone Funds (involving person) Transfer

Branch and ATM (Physical) 32% - Interactions requiring a physical location - Branch - ATM - POSTM

F ig u re 2 . T yp ical C u sto m e r In teractio n s w ith B a n k s (A V R U = a u to m atic v o ice resp o n se u tility; P O S = p o in t of sale).

2.2. Im m ed iate Issu es for B an ks A s re p orted b y T a ylor et al. [5 ], th e op p ortu n ities an d risk s arisin g fro m th e ra p id gro w th of o n lin e d eliv ery an d th e n e w c o m p etitive e n viro n m e n t for retail b a n k in g h a v e b ec o m e p ro m in e n t, C E O -le vel issu e s. M o st b a n k s are n o w aw are of on lin e d elivery an d in d ee d , m an y b a n k s n o w vie w o n lin e d elivery as a n im p orta n t strate g ic in itiative. H o w e v er, b ein g a w are of th e issu e is n o t en o u g h for b a n k s to ac h ie v e a c o m p etitive p ositio n in electro n ic b an k in g. A s G e o rge re p orte d in B a n k in g T ech n o lo g y [6 ], sig n ifican t p ro gre ss in In tern et b an k in g h as b ee n m ad e d u rin g 1 9 9 6 . In 1 9 9 5 , a large n u m b er of b an k s in trod u ce d th eir first W e b p a ge s to test c u sto m er resp o n se [7 ]. A t th e tim e, th e w orld ’s first In tern et-on ly b a n k , S e cu rity F irst N etw ork B a n k (S F N B ) started its b ra v e, b u t as yet u n p ro v e n , e xp erim e n t on th e In tern et. S in c e th en , S F N B p ic k ed u p resp ecta b le cu sto m er b a se, d e m a n d in g th at th e b a n k e xten d s its p rod u ct ran g e to in clu d e a secu rities b ro k era ge service. A lth o u g h its creators still refer to it as a p rototyp e, it is n o w u n d e n iab ly a v ery real an d flou rish in g b an k . T h e su ccess of S F N B h as p u sh ed oth er m e m b ers of th e F in a n cial S ervices In d u stry (F S I) to serio u sly in v estigate th e p ossib ility of u sin g th e In tern et as a d eliv ery c h an n el for essen tially all b a n k in g services. In fact, d u rin g th e last few m o n th s, b an k s arou n d th e w orld h a v e m a d e sign ifica n t p ro gre ss in in creasin g th eir In tern et service offerin gs. T h e se n e w In tern et b ased services in clu d e cre d it card ap p licatio n an d p re-au th orizatio n , loan a p p licatio n an d p reau th oriz ation , as w ell as p ro vid in g a ccess to In tern et b an k in g serv ices th ro u g h M icro soft M o n e y 9 7 ([8 ]; [9 ]; [1 0 ]; [1 1 ]). T h e issu es face d b y m o st b a n k s u sin g th is n e w tech n olo g y are th ree fold : cu stom e r a ccep ta n ce, sec u rity an d c o m p etition . O n lin e B a n k in g R ep o rt [1 2 ] h as state d th at 2 .5 m illio n p e o p le in th e U .S . w ere a b le to access th eir

1060-3425/98 $10.00 (c) 1998 IEEE

ch ec k in g ac c o u n ts o n lin e in 1 9 9 6 , so c u sto m er a cce p tan c e is gro w in g ra p id ly as th is n u m b er is 1 0 tim es as m u c h as it w as in 1 9 9 5 . It also rep o rted th at W e lls F arg o ’s o n lin e cu sto m er b ase h as gro w n fro m 2 0 ,0 0 0 to 2 7 0 ,0 0 0 in 1 8 m o n th s. S till, secu rity is a serio u s issu e a n d m a n y c o m p an ies h a ve in tro d u ced n e w sec u rity so ftw are to h a n d le In tern et tran sa ction s. S ec u rity is n o t ju st an issu e for th e b an k s: B a n k in g T ech n olo g y M a ga zin e [1 3 ] rep orted th at, T an d e m , a c o m p u ter m an u factu rer, h as lau n ch e d its first p rod u cts aim e d at th e In tern et m ark et b y a d d in g sec u rity related syste m s to its fau lt tolera n t c o m p u ter syste m s. N et b ro w sers su ch as N etscap e an d E x p lorer n o w su p p ort w e b p a ge s d e v elop ed in a sec u re lan g u a g e su c h as Ja v a. A s w ell, th e b ro w sers are ca p ab le o f a p p lyin g cryp to grap h y to in c o m in g an d ou tg o in g m essa g es to en h a n ce sec u rity. T h e n e xt step is to ed u cate c u sto m ers a b o u t th ese se cu rity featu res, so th at th e y w ill h a v e en o u g h c o n fid e n ce in th e syste m an d u se it for cash related tran sa ction s. W ith tech n olo gical ad v an ces in co m m u n ication s an d c o m p u tin g, c o m p a n ies ca n m o v e in to glo b al m ark ets m u c h easier an d fa ster th an b efore a n d th erefo re in cre ase c o m p etitio n . B an k s are facin g tw o typ es of c o m p etition : fro m o th er b an k s an d fro m n o n -b a n k s. T h e form e r is fa m iliar to b a n k s, b u t th e latter is n e w a n d in clu d es firm s su ch as G E , In tu it, A T & T an d M icroso ft w h ich are m o v in g in to th e fin an cial services in d u stry b y in tro d u cin g p ro d u cts, su ch as Q u ick e n an d M o n e y, th at are im p o rtan t for lin k in g b an k s to th eir cu sto m ers [1 4 ]. N on -b a n k c o m p a n ies su c h as V isa, M icro soft, M a sterC ard , IB M an d N etsca p e form strate gic p a y m e n ts allian ces for d e v elo p in g p a y m e n t syste m s th at w ill h a ve sig n ifican t im p act on th e m e m b ers of th e F S I ([1 5 ]; [1 6 ]). T o b e su c cessfu l, b a n k s w ill n ee d to o p erate in a fast-c h an g in g, tec h n olo g y d rive n en viro n m e n t w h ere p ro d u ct life c ycles are as sh o rt as 1 8 to 2 4 m o n th s. A s T a ylo r et al. [5 ] su g g este d , b an k s m u st ad ap t to th e m o re fren etic p ace of th e o n lin e en v iro n m e n t, an d b e m u c h m o re a g g ressiv e in d efe n d in g an d ex p an d in g th eir b u sin e sses. A s alw a ys, c ost is an issu e w h en d e velo p in g a strate g y for In tern et b a n k in g . A B A I stu d y [1 ] an alyze d th e lik ely im p act of on lin e d elivery o n retail b a n k ec o n o m ics a n d o n th e o verall d elivery in frastru ctu re. T h eir resu lts su g ge st th at th e gro w th of o n lin e b an k in g w ill h a v e tw o p rofo u n d effects on th e retail d eliv ery stru ctu re of b a n k s. T h e first is th e o verall in crease in activity th at b an k s are lik ely to e xp erie n ce as th e y m a k e on lin e acce ss a vaila b le ju st lik e th e in trod u ction of A T M s an d tele p h o n e ac cess. T h e sec o n d effect is th e su b stitu tion of activity a cross c h an n els. T h e retail d eliv ery in frastru ctu re ac c ou n ts for th e large st sin gle ite m o f n o n -in terest e x p e n d itu re for m o st retail b an k s. B ran ch c o sts acc o u n t for a sig n ific an t, alth o u gh d eclin in g, p ortion s o f th is total. In n o v atio n s in d eliv ery o v er th e p ast tw o d ec ad es h a ve in c rease d cu sto m er c on v en ie n ce a n d ac cess, b u t th e y h a v e also in crease d th e c ost an d c o m p le xity of th e d elivery in fra stru ctu re, m a k in g

it m o re d ifficu lt for b an k s to serve c u sto m ers c on sisten tly across all ch a n n els. A lth o u gh in ve stm e n t m ig h t in crease as b an k s start to offer on lin e serv ices, oth er in d u stry an alysts su g g ested th at offerin g o n lin e serv ices w o u ld h elp b an k s to cu t op eratin g c o st sin ce it w ill elim in ate m u c h of th e p a p er u sa g e. W h eth er or n ot offerin g on lin e service s is a c ost sa vin g strate g y, d e p en d s o n th e typ e o f syste m a n d ap p licatio n th at a b an k in v ests in a s w ell as cu sto m e r accep ta n ce o n th e a p p licatio n .

3. O b jectives A lth o u g h th e n u m b er of b an k w eb sites in crease d sig n ifican tly d u rin g th e p ast 1 2 m o n th s, th e n u m b er of b an k s actu ally o fferin g tran saction services a m o u n ts to on ly 2 .8 % of th e total [1 2 ]. T h is su g ge sts th at w h ile b an k s are in vestigatin g th e In tern et as a fu tu re d elivery c h an n el for th eir services, th e y a p p ear to b e slo w to act. T h erefore, th e o b jective s of ou r stu d y are to d e velo p a strate g y fo r u sin g th e In tern et as th e n e xt d eliv ery ch an n el as w ell as try to foresee th e p ossib le p ro b le m s an d c o n cern s th at b an k s w ill lik ely fa ce w h e n th eir In tern et serv ices g o in to p ro d u ction .

4. M eth od ology In ord er to o b tain th e b an k s’ p ersp ective in offerin g In tern et S erv ices, a su rv e y w as d esig n ed a n d a d m in istere d to b an k p erso n n el th rou g h e m ail. In ord er to o b tain b ro ad c o vera ge, th e su rv e y w as d ivid ed in 5 sectio n s. T h e first section w as o n In tern et O p eratio n al In form atio n w h ere in form atio n on th e W eb site w as re q u este d alo n g w ith in form atio n on th e site d e v elo p er, on m ain ten a n ce p o licies, o n th e m eth od s u sed to u p d ate th e w eb p a g e c on te n ts an d th eir e m ail resp o n se rate. F u n ction al in form atio n on W eb p a ge s w as ob tain ed in se ction B , w h ere w e tried to d eterm in e th e actu al fu n ction s p rov id ed o n th e W eb site. S p e cific q u estio n s o n th e p erc en tag e b rea k d o w n of te xt a n d grap h ics c o n ten ts, as w ell as th e n u m b er of lan g u a ges a vailab le w ere in clu d ed . In ad d itio n , sp ecific b a n k serv ices w ere listed in th is section w h ere re sp o n d en ts w ere a sk e d to p ro vid e a risk factor for ea ch service on th e list. T h is risk factor ran g ed fro m 1 to 1 0 , 1 b ein g th e least risk y an d 1 0 b ein g th e m o st risk y. R e sp o n d en ts w ere ask ed to in d icate w h eth er th eir in stitu tion p ro vid ed a n y of th e services o n th e list. T h is w ill sh ed ligh t o n th e typ es o f tran sactio n s a vailab le o n th e In tern et. T h e list o f services o n th e su rve y is tab u lated in T ab le 1 . A c o m m en t sectio n follo w e d section B allo w e d resp o n d en ts to state an y c on cern s, p rob le m s an d issu es th e y h a v e w ith th e im p le m e n tatio n of th eir service. S ectio n C p rob ed fo r m ark etin g in fo rm atio n ab o u t targ et cu sto m ers, su c h as a ge a n d g o als of th eir W eb p a ge s. G en eral in form atio n ab o u t th e resp o n d in g b an k w as o b tain e d in S e ction D , in clu d in g d ata on th e b an k ’s h istory, typ es of b u sin e ss, asset size an d m o d e o f op eration .

1060-3425/98 $10.00 (c) 1998 IEEE

5. In ternet B an kin g fro m a B an k’s P ersp ective T h e su rve y w as se n t to m o re th an 2 0 0 b an k s aro u n d th e w orld . T h ese are b a n k s th at e x p licitly liste d th eir e m ail ad d resses o n th eir W e b site. T h e su rv e y w as n ot sen t to b an k s w h ich o n ly p ro v id e a feed b ac k form on th eir W e b site for c o m m u n icatio n sim p ly b ec au se w e c o u ld n ot attac h th e su rve y to th ese form s. A m o n g th ese b an k s, 1 9 retu rn ed th e su rve y at th e tim e th is p ap er w a s w ritten . W ith in th ese 1 9 resp o n d en ts, th ere w ere 1 G erm a n b a n k , 1 C an a d ian b an k , 1 B ritish b a n k , 1 K orean b an k , 1 L e b an e se b a n k , 1 S w iss b a n k , 2 M e x ica n b an k s, 3 A u stralia n b an k s, an d 8 U .S . b an k s. B esid es th e 1 9 b an k s th at c o m p leted th e su rve y, 1 0 oth er b an k s rep lie d to th e in itial e m ail ack n o w led g in g th e receip t of th e su rve y an d p ro m isin g to p ass it o n to th e rig h t p erso n at th eir orga n ization . In th e follo w in g section s o f th is p ap er, w e re p ort th e resu lts of ou r stu d y b a sed o n th e sectio n ord ers on th e su rve y. B a n k in g S ervices P ro vid ed o n th e In tern et B ill P a y m e n t (B P ) A c c ou n t B alan c e (A C B ) F u n d s T ran sfer (F T ) C h eq u e Issu a n ce (C H Q ) O n lin e C red it C ard P re-au th o rization (O C C ) O n lin e M ortg a g e P re-a u th oriz ation (O L M ) O n lin e L o an P re-a u th orizatio n (O L L ) D o w n lo ad a b le F in an cial T o o ls, F o rm s a n d In form atio n (D F T ) E lectro n ic C o m m erce C ap a b ility (E C ) P rod u cts an d S ervices In fo rm ation (P & S ) C orp orate In form atio n (C I) In v estm e n t In form atio n an d S tatistics (S tat) E -m ail C ap a b ility (E m ail) G e n eral In form ation (G I) T a b le 1 . B a n k S ervices P ro vid e d on th e In tern et.

5.1. In tern et O p eration al In form ation In th e section e n titled “ In tern et O p eratio n al In fo rm atio n ”, d ata w ere c ollected o n th e d e v elo p m e n t an d m ain ten a n ce of th e b a n k ’s W eb site as w ell as so m e statistics su c h as th e n u m b er of em a ils an d h its th e y receive d on a w ee k ly b asis. A m o n g th e retu rn ed su rv e ys, 6 8 % of th e b an k sites w ere d e velo p e d in tern ally. T h e a v era g e n u m b er of F T E (fu ll tim e e m p lo yees) resp o n sib le for m ain tain in g an d en h a n cin g th e w eb p a ge s w as 3 .2 . T h is is tw ice as m a n y as th e n u m b er rep o rted b y G e org e [7] in 1 9 9 6 w h ere 8 B ritish

b an k sites w ere stu d ie d an d all of w h ic h h a v e an sw ered th at th e y h a v e ab o u t 1 .5 F T E k eep in g th eir site u p -to-d ate. T h is in crease in F T E in su p p o rtin g th e W e b sites su g g e sts th at b an k s are p u ttin g m o re e m p h asis o n th eir W eb sites th a n th e y d id b efore. A m o n g th e resp o n d en ts, ab o u t 3 2 % u p d ate th eir site d aily. It is also in terestin g th at on e of th e tw o c yb erb a n k s, w h ich resp o n d ed to th e su rv e y, u p d ates its w eb p a g e o n ly m o n th ly. T h e n u m b er of h its an d e m ails receive d vary sig n ifican tly a n d 2 6 % d id n ot k e ep a rec ord of th is d ata. T h e w e ek ly h it rate for th e rest of th e re sp o n d en ts ran g ed fro m 1 5 0 to 1 ,5 0 0 ,0 0 0 , e m ail receive d w ee k ly varie d fro m 1 to m o re th a n 1 ,5 0 0 .

5.2. W eb P age In form ation 5.2.1. W eb P ag e D esign . In th is section , w e fo cu sed o n e valu atin g w eb p a ge d esig n . In p a rticu lar, w e sou g h t d ata o n th e a m o u n t of te xt, static gra p h ics, d yn a m ic grap h ics, m o v ie clip s, au d io clip s a n d oth er featu res su ch as form s. W e fou n d th at ab o u t 8 4 % w a s te xt, static gra p h ics c on stitu te d 4 6 % , d yn a m ic gra p h ics w as 5 .7 % , au d io clip s 0 .6 % an d 4 .2 % oth er featu res. D e p en d in g o n th e b an k ’s n atio n ality an d its target m ark ets, it is e x p ecte d th at b an k s p ro v id e in fo rm atio n in d ifferen t lan g u a g es o n th eir w eb site. A cc o rd in g to ou r resu lts, 6 8 % of th e re sp o n d in g b an k s p ro vid e in form atio n in o n e lan g u a g e o n ly, 1 6 % p ro vid e it in 2 lan g u a ge s, 1 1 % h as 3 lan g u a g es a n d 5 % h as 4 d iffere n t lan gu a ge s on th eir w e b sites. T h e c h oice of la n gu a ge is solely fo cu sed o n loc al cu sto m er gro u p s. F or in stan ce, th e G erm an b an k on ly p ro vid es in form atio n in G erm a n w h ereas U .S . b a n k sites are in E n g lish on ly. O n e p ossib le e x p lan atio n is th e re gu latio n s im p osed o n th e b a n k in g in d u stry. T ra d itio n ally, each c o u n try h as its o w n b an k in g re g u latio n s th at very ofte n p rote ct lo cal b a n k s b y p re v en tin g fo reig n c o m p etitio n . T h erefo re, b a n k s are b o u n d to targ et lo cal cu sto m ers as th eir first p riority, ex c ep t th o se b ig b an k s th at h a ve e n tered th e glob al m ark et lon g b efo re th e e m e rge n ce of th e In tern et. T h ese b an k s h a v e su b sid iaries all o ver th e w orld an d each su b sid iary h as its o w n w eb site w h ic h p ro vid es in form atio n o n service s tailored to th eir local cu sto m ers. T h e oth er situ ation w h ere m u ltip le lan g u a ges are p ro vid ed , typ ic ally a m ark et pu ll c on seq u en ce, is w h ere th e lo cal p o p u latio n is c o m p o se d o f large eth n ic gro u p s. A g o o d e xa m p le of th is situ atio n is C a n ad a w h ich is at least a “ d u al-cu ltu re” so ciety, h e n ce alm o st all b a n k s o ffer in form atio n in b oth E n glish an d F re n ch , so m e sites e ve n p ro vid e in form atio n in oth er lan gu a ge s su c h as C h in ese. In term s o f c o m m u n ic ation an d cu sto m er in tera ction , all resp o n d e n ts p ro vid e d e m ail ad d ress o n th eir sites an d 6 8 % also p ro vid e d so m e so rt of fe ed b ack form fo r ob tain in g cu sto m er c o m m e n ts. T h ese fee d b ac k form s are u sefu l in g ath erin g id eas, in sig h ts, c o m m e n ts, service re q u ire m e n ts an d g au gin g th e le v el of cu sto m er satisfactio n . A s G e org e

1060-3425/98 $10.00 (c) 1998 IEEE

[7 ] m en tion ed , m an y e xistin g b a n k sites are in th eir p ilot sta ge b e cau se b an k s are still tryin g to assess c u sto m e r accep ta n ce a n d serv ice d e m an d for In tern et b an k in g. 5.2.2. T ran sa ctio n s a n d S ervices O ffered o n B a n k W eb S ites. T h e sec o n d p art of th is se ction foc u se d on actu al tran sactio n s an d services a v ailab le at th is tim e. R esp o n d e n ts w ere ask ed to in d icate w h eth er th eir w eb sites p ro vid e th e sp e cific services listed in T ab le 1 an d to ra n k th ese servic es fro m 1 to 1 0 . F igu re 3 sh o w s th e p erc en ta g e of b an k s offerin g v ario u s servic es on th e In tern et b ased o n su rve y resu lts. It sh o w s th at o v er 6 0 % o f th e resp o n d en ts offer gen eral service s su ch a s e m a il, p rod u cts an d servic es in form atio n , c orp orate in form ation an d d o w n loa d ab le fin an cial to ols. T h e p erc en ta g e of b a n k s offerin g tran sactio n b ase d servic es in clu d in g b ill p a y m en t, acc o u n t b alan c e an d fu n d s tran sfer are 2 6 % , 3 7 % an d 3 2 % resp ectiv ely. S ervice s su c h as ch e q u e issu an ce, on lin e p reau th oriz ation an d electro n ic c o m m e rce w ere offere d at lo w er p erce n ta g es.

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F ig u re 3 . P erce n ta ge o f B a n k s O fferin g V ario u s S erv ices o n th e In tern et. T h e risk fa ctor c orresp o n d s to e ach service sh o w n in F igu re 4 in d icatin g th at servic es / tran saction s associated w ith th e h ig h e st risk s fro m th e b an k s’ p ersp e ctive are: fu n d s tra n sfer, b ill p a y m e n t, ch eq u e issu an c e, acc o u n t b alan c e, on lin e cre d it card , on lin e m o rtga g e p reau th oriz ation s, o n lin e loan , a n d electro n ic c o m m erce. T h e least risk y service s w ere d o w n load a b le fin an cial to ols, c orp orate in form atio n , e m ail, p rod u ct an d service s in form atio n . T h e p erce n ta ge of b an k s offerin g th ese services reflects th e b an k s’ p ersp ectiv e of th e risk s of as sh o w n in F ig u re 3 . W h e n c o m p arin g F ig u res 3 a n d 4 , it is in terestin g to see th at alth ou g h b an k s d o n ’t c on sid er cash tran sactio n services e x tre m ely risk y, an d in fact n on e of th e services in T ab le 1 h as a risk facto r h igh er th an 5 .1 , less th an 5 0 % of th e resp o n d e n ts offere d an y serv ices w ith a

risk factor of 3 or h ig h er. W e th e n tried to c o m p are th e risk facto rs fro m b oth cu sto m ers’ [4 ] an d th e b an k s’ p ersp ectiv e. F igu re 5 sh o w s tw o sets of risk fa ctors alo n g w ith th e p ercen ta g e of b an k s offerin g d iffere n t service s b ase d on o u r b a n k su rve y. It is easy to see th at th e tw o risk factors acro ss servic e typ e s are sim ilar. A lth o u g h th e risk facto rs give n b y th e cu sto m ers are c on siste n tly h ig h er th a n th ose g iv en b y th e b an k s, th e tren d s for th e tw o are v ery sim ilar. Issu in g c h eq u es a n d tran sferrin g fu n d s o v er th e In tern et see m to b e th e m o st risk y servic es fro m b oth cu sto m er an d b a n k p ersp ectiv es. In ord er to assess th e c orrelation b etw een risk a n d services offered , a c o m b in e d risk factor w as c o m p u ted b y a v era gin g b oth b an k a n d c u sto m er risk fa ctors. T h e re su lt w as p lotted to g eth er w ith p ercen ta g e of b an k s offerin g th e c orresp o n d in g serv ices o n F ig u re 6 . T h e d ata in F igu re 6 su g g est th at risk factors a n d th e p o rtio n of th e b an k s offerin g th e se are in v ersely related to o n e a n oth er for services listed in T ab le 1 . A s e x p ecte d , th e h igh er th e risk in v olv ed , th e lo w er th e p erce n ta ge offerin g of a p articu lar service o n th e In tern et. T h is ob servatio n is less p ron o u n ce d for b ill p a y m e n t, acc ou n t b ala n ce, fu n d s tran sfer a n d electron ic c o m m erc e. O n e p ossib le e xp lan atio n is th at th e b an k s resp o n d in g to o u r su rv e y foc u se d th eir b u sin ess m o stly on retail b a n k in g (4 0 % of th e total b u sin ess). S in ce p a yin g b ills, o b tain in g acc o u n t b alan c es an d tran sferrin g fu n d s are c ore services req u ired or u sed b y m o st retail cu sto m ers, it is essen tial for b a n k s to p ro v id e th e m o n all of th eir d elivery c h an n els e v en if th ere are so m e risk s. In th e case of electro n ic c o m m erce (i.e. a n y fu n ctio n alities fo r p u rc h asin g g o o d s a n d services as w ell as lin k s to c o m m ercially a vaila b le fin an cial m a n a g e m e n t softw are), alth ou g h th e risk facto r is relatively lo w w h e n c o m p are d w ith cash typ e tran sactio n servic es, th e p erce n ta g e offerin g it is lo w sim p ly b ec au se of th e larg e a m o u n t of w o rk req u ired in settin g u p th is serv ice. In ord er to d o electro n ic c o m m erce, b an k s n ot o n ly h a ve to d e velo p a p a y m e n t p rotoc o l b u t also cre ate an a p p ro p riate syste m in terface a n d estab lish a gree m e n ts w ith m erch an ts p la n n in g to p articip ate in th e electron ic m all. T h is p rocess is tim e c o n su m in g. D u e to th e relatively lo w d e m a n d for electro n ic c o m m erc e at p resen t, it is really n ot v ery c o st-e ffective yet for b an k s to p ro v id e su c h a service. S o m e services listed in T ab le 1 h a ve th e sa m e risk facto r. A n a v era g e p erc en ta g e offerin g w as c o m p u ted b y gro u p in g th ese service s to geth er. F igu re 7 sh o w s a n in versely p ro p ortio n al relation sh ip b etw een service offerin g an d risk . T h is resu lt is co n sisten t w ith Y an et al.[4 ] w h ere it w as c o n clu d ed th at b an k s are very c on servative in offerin g risk y serv ic es on th e In tern et. H o w e v er, th e y d re w th is c o n clu sio n b ased o n first h an d e valu atio n of W eb sites n ot o n actu al b an k resp o n se s. B y in clu d in g b a n k resp on ses, ou r resu lts p ro vid e a m o re accu rate p ictu re fro m a b an k ’s p ersp ective.

1060-3425/98 $10.00 (c) 1998 IEEE

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F ig u re 5 . C o m p ariso n B etw ee n R isk F a ctors G ive n b y C u sto m ers a n d B an k s.

5.3. M ark etin g In form ation In ord er to d eterm in e w h eth er a p artic u lar m ed iu m is su itab le for u se a s a d elivery ch a n n el, b a n k s m u st id en tify th eir targ et cu sto m e rs first. S ectio n C o f th e su rv e y w as d ed icate d to e valu atin g m a rk etin g efforts. S in ce u sin g th e In tern et in v olv es so m e k n o w le d ge of c o m p u ters, n ot all e xistin g cu sto m ers w ill b e ab le to u se b a n k services o n th is d elivery c h an n el. O u r su rve y classified p oten tial cu sto m ers in to 6 a ge gro u p s. B a n k s w ere a sk e d to p ro vid e th eir b e st estim ate s of th eir cu sto m ers’ a g e. A s ca n b e see n in F ig u re 8 , cu sto m ers in th e a ge gro u p of 3 6 to 4 5 are th e m ain targ ets for In tern et b an k in g, as ab o u t 2 8 % of th e m ark etin g effort e m p h asis w as aim e d at th is p articu lar a ge g rou p . T h e sec o n d a g e gro u p target w as 2 6 to 3 5 , follo w ed b y 4 6 to 5 5 , th en old er th an 5 5 an d th e last targ e t a ge gro u p w as 1 6 to 2 5 ye ars of a ge. T h is resu lt is c on siste n t w ith th e resu lts sh o w n in T a b le 2 b y th e A m erican B a n k er an d G allo p [1 2 ] o n p erc en ta g e P C o w n ersh ip across d ifferen t a g e gro u p s in

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F ig u re 6 . R elatio n sh ip B etw een A v era g e R isk F acto r an d P erce n ta ge O fferin g of D ifferen t In tern et S erv ices. ad vertisin g. Y a n et al. [4 ] h ad c on clu d ed th at b an k s u se d th eir w e b sites as a m ark etin g to ol at th e tim e w h e n th e y fin ish ed th eir stu d y in 1 9 9 6 . T od a y, th is p ictu re h as ch an g ed , as a n e ver in creasin g n u m b er of b an k s are u sin g th e In tern et as a service d eliv ery ch an n el [1 2 ], e vid en c ed b y th e fact th at th e y o ffer tran sa ctio n b ased serv ices in ad d ition to g en eral in form atio n .

5.4. C orp orate In form ation In th is se ction of th e su rve y, w e ob tain ed c orp orate in form atio n on th e resp o n d e n ts. S p ecial e m p h asis w as p laced o n th e resp o n d e n t’s b u sin ess foc u s b e cau se th is d irects b an k p olicies a n d d ictates th eir b e h a vio u r in certain situ atio n s. B ased o n ou r resu lts, th e a v era g e b re ak d o w n of b u sin e ss is: retail b an k in g 4 6 % , b u sin ess b an k in g 2 1 % , c orp orate b a n k in g 9 % , foreig n e xc h a n ge 6 % , in vestm e n t b an k in g 9 % an d oth er b u sin e ss 8 % . T h is resu lt su p p orte d o u r p re vio u s c o n clu sio n in section 5 .2 w h ere w e su g g ested

1060-3425/98 $10.00 (c) 1998 IEEE

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F ig u re 4 . R isk F actor A sso ciate d w ith V ario u s B a n k S ervic es P ro v id e d on th e In tern et fro m B a n k s’ P rosp ective.

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th e U n ited S tate s. A cc o rd in g to T a b le 2 , P C o w n ers in th e a ge gro u p of 3 5 to 4 4 are very lik ely to u se In tern et b an k in g b eca u se a h ig h p erc en ta ge o f P C o w n ers in th is a g e gro u p h a v e alread y u se d m an y of th e services listed in th e tab le. T h e tab le also sh o w s th at in d ivid u als w h o h a v e a h igh er h o u seh old in c o m e are m o re lik ely to u se th ese services. T h erefore th e In tern et is a p o ssib le d eliv ery ch an n el for a sp e cific cu sto m e r seg m e n t: th e c o m p u ter literate an d h ig h n et w orth c u stom e rs. W e are also in terested in th e b an k s’ oth er g o als in u sin g th eir w e b p a g es, th u s F igu re 9 sh o w s th e p erc en ta g e b reak d o w n of th ese d ifferen t g o als. B ase d on o u r su rv e y resu lts, 2 8 % of th e w eb p a g es are aim e d to ac h ie ve a ctu al tran sactio n s, 3 2 % is for p ro v id in g p ro d u ct an d serv ice in form atio n , 2 2 % is m ark etin g effort an d 1 8 % is

6

A ll h o u seh old s w h o :

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H ou seh old In co m e

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H a v e P C at h o m e

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H a v e P C & m o d e m at h o m e

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55%

H a v e u sed th e In tern et

59%

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19%

54%

56%

70%

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su

su

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39%

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36%

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42%

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42%

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44%

H a v e u sed o n lin e b a n k in g

6%

6%

9%

2%

4%

0%

3%

6%

7%

A re v ery in tereste d in on lin e b a n k in g

23%

27%

26%

20%

15%

8%

18%

23%

29%

A re so m e w h at in terested in o n lin e b an k in g T o ta l very o r so m ew h a t in terested

29%

30%

26%

30%

31%

31%

28%

30%

34%

52 %

57 %

52 %

50 %

46 %

39 %

46 %

53 %

63 %

P C O w n ers w h o :

T ab le 2 . 1 9 9 6 A m erica n B an k er/G allu p C o n su m er S u rve y o n P erso n al C o m p u ter O w n ersh ip . (su = statistically u n reliab le). S o u rce fro m = O n lin e B an k in g R ep o rt, V ol.2 1 , Jan u ary 1 9 9 7 .

40 Percentage

Percentage

100 80 60 40 20

30 20 10 0

0 0

2

4

6

Transaction

F ig u re 7 . C orrelation B etw ee n P erc en ta g e O fferin g a n d G ro u p ed R isk F actors. 30 % Breakdown

P & L info

Marketing

Advertising

Functional Categories

Risk Factor

25

F ig u re 9 . G o als th at B an k s L ik e to A ch ie v e th rou g h T h eir W eb S ite.

5.5. W eb P age D esign an d C u stom er R esp on se

20 15 10 5 0 < 16

16 to 25 26 to 35 36 to 45 46 to 55

> 55

Age Groups

F ig u re 8 . A g e D istrib u tion s of T arg et C u stom e rs. th at th e focu s o n retail b an k in g affects th e typ es of b a n k services offered o n th e In tern et. A s e x p ecte d , w e fo u n d th at th e on ly b ran c h less b a n k , offerin g its services solely th rou g h its W eb site (c yb erb an k ), resp o n d e d to th is q u estio n foc u sed 1 0 0 % o n retail b a n k in g offerin g a fu ll lin e of serv ices o n its W eb site as if it w ere a b an k b ran c h .

W e also e v alu ate d th e resp on d e n t b an k s’ w eb p a ges to d eterm in e w h eth er th ere is an y c orrelation b etw e en w e b p a ge d esig n an d c u sto m e r resp o n se. O n c e a b an k retu rn ed th e su rve y, w e th en e x a m in ed its w e b site in d etail an d th e in form atio n in T a b le 3 w as rec o rd e d . S in ce n ot all b an k s retu rn e d a c om p lete su rv e y, so m e in form atio n w as n ot a v ailab le from c ertain resp o n d en ts. T o p ro vid e a m o re c o m p lete p ictu re, w e on ly in clu d ed b an k s th at fu lly c o m p leted th e su rv e y. T h is red u ce d th e n u m b er of b an k s to 1 1 at th e tim e th is p a p er w as w ritten . T h e sm all sa m p le size m a y n ot giv e u s as a ccu rate a p ictu re as w e w o u ld lik e of th e glo b al In tern et b a n k in g servic es offerin g b u t it can serve as a n in d ic ation to th e real p ictu re. O th er m eth o d s su c h as e m ailin g o r callin g th e p erso n in ch arg e of In tern et b a n k in g are b ein g p u rsu ed to ob tain m o re resp o n ses.

1060-3425/98 $10.00 (c) 1998 IEEE

In fo rm a tio n Item s G a th ered fro m th e B a n k s’ W eb P a g es N u m b er of E xtern al L in k s N u m b er of In tern al N a vig ation al L in k s

cu sto m ers th e y h a ve. W h en w e ex c lu d ed th e resp o n se of 3 b an k s, th ere w as a stron g lin ear co rrelation b etw een th e n u m b er of h its an d assets (in U S m illion ). T h e r 2 is 0 .9 1 an d th e slo p e of th e re g ressio n lin e is 0 .9 4 3 w h e n p lotted o n a lo g-lo g scale.

T a b le 3 . In fo rm atio n Ite m s R ec ord ed fro m B an k s’ W e b P a g e. T h e c o rrelation b etw ee n w eb p a ge d esign a n d c u sto m er resp o n se is assessed b y relatin g th e d ifferen t d esig n featu res of a w e b p a g e to th e n u m b er of h its p er w eek . F irst, w e c o u n te d th e n u m b er of lin k s a v ailab le, “ lin k s” are c on n ectio n s b etw ee n th e d iffere n t p a g es on th e b an k ’s site. T h e y in clu d ed fu n ctio n ality b u tton s, k e y w o rd s, grap h ics th at can b rin g th e u ser to th e p a g e th at c on tain s th e c orresp o n d in g in fo rm atio n b y click in g th e m o u se. D u e to th e c o m p le x d e sign of so m e b an k sites, w e o n ly c o u n te d th ese lin k s d o w n to 4 la yers. P a ge s b e yo n d la yer 4 w ere n ot in clu d ed . F ig u re 1 0 sh o w s th e relation sh ip b etw e en th e n u m b er of h its p er w ee k an d th e n u m b er of lin k s in th e w eb site. It w as fo u n d th at n u m b er of h its in cre ases as th e n u m b er of lin k s in creases in F igu re 1 0 . F ig u re 1 1 sh o w s a n in versely p rop o rtion al relatio n sh ip b etw ee n w ee k ly h it rates an d th e n u m b er of e xtern al lin k s av a ilab le o n a w eb site (r 2 = 0 .5 2 ). O n th e oth er h a n d , F igu re 1 2 sh o w s a p rop o rtion al relatio n sh ip b etw ee n w eek ly h it rates an d th e n u m b er of te xt p a g es (r 2 = 0 .3 5 ). S in c e te xt p a g es are th e k e y featu res u se d in p ro v id in g in fo rm atio n on b an k s’ services, o n e w ou ld e xp ect th at th e m o re te xt p a g es, th e m o re cu sto m ers w ill visit th e site. B ased o n F ig u res 1 0 to 1 2 , it w as fo u n d th at cu sto m e rs are lo o k in g fo r “v a lu ead d e d ” w e b p a g es. T h ese “ valu e-ad d e d ” featu re s are n ot e xtern al lin k s b u t in tern al lin k s an d te xt p a g es. In fact th e y are real fu n ctio n alities w h ere real in tera ction s are a v ailab le to th e c u sto m e rs. F or th e c yb er b a n k , its w eb site is th e o n ly m e d iu m for its service s, th ere fore its d esig n is fo c u sed o n tran sa ction s a n d in tera ction rath er th an in form a tion e xch an g e. H e n ce, th e n u m b er of h its it receiv ed w ee k ly is sig n ifican tly h ig h er th an th e oth ers. In o rd er to attract m o re cu sto m ers to u se In tern et b a n k in g, b an k s m u st p ro v id e tran sactio n services o n th eir w eb sites th e sa m e as th o se a vailab le at a b a n k b ran c h . T h is is su p p orte d b y th e ran k in g s d o n e b y M o n e yP a g e T M [1 7 ] w h ere th e to p ten ran k in g b a n k sites all offer In tern et b an k in g a n d b ill p a y m e n t. In a d d ition , w e also atte m p te d to a ssess th e relatio n sh ip b etw een a sset size an d w eek ly h it rate s. F igu re 1 3 sh o w s a lin ear relatio n sh ip b etw ee n th ese tw o v ariab le s w h en e xclu d in g 3 b an k resp o n se s (th ose th at are b e y o n d o n e stan d ard d e viation , w h ere σ = 1 .7 6 o n a lo g-lo g scale). T h is m ig h t b e ca u sed b y th e h ig h er c o n fid e n ce le v el th at cu sto m ers h a v e in th e b ig g er b a n k s b u t m o st lik ely it is d u e to th eir size d ifferen c es - th e larger th e y are, th e m o re

Log(# of Hits/Week)

N u m b er of T e xt P a g es 1.00E+07 1.00E+06 1.00E+05 1.00E+04 1.00E+03 1.00E+02 1.00E+01 1.00E+00 0

500

1000

1500

2000

Number of links

F ig u re 1 0. R elatio n sh ip B etw een N u m b er of H its an d N u m b er of In tern al N a vig ation s on B a n k s’ W eb P a ge. W e fu rth er in v estigate d th e d ata p o in ts th at lie ou tsid e th e lin ear relation sh ip . T h e 3 ou tlier b a n k s c o n sist of 1 c yb erb an k , 1 G erm a n b an k an d 1 K o re an b a n k . In terestin gly, b u t n ot u n e x p ecte d , th e d ata sh o w ed th at h its p er w eek o n th e c yb er b an k w eb sites w as 2 0 0 0 tim es h igh er th a n th at of th e b an k s w ith sim ilar asset size. T h e G erm an b an k d oes n ot see m to fall in to th e lin ear relatio n sh ip sin ce th e n u m b er of h its it gets is sig n ifican tly h igh er th a n th e oth ers th at are sim ilar in asset size. T h is m ig h t b e d u e to th e rea d y ac cep tan ce of th e In tern et tech n olo g y b y G erm an s. O n th e o th er h a n d , K orea n s see m to b e very c o n servativ e in term s of In tern et B a n k in g. T h e n u m b er of h its receiv ed at th e K ore an b an k is sig n ifican tly lo w er th an b an k s arou n d th e w o rld . R esu lts in F igu re 1 3 su g g ests th at for b a n k s w h ic h h a v e p h ysic al lo cation s, th eir asset sizes see m to h a ve p ositive effects in attractin g cu sto m ers to th eir w e b sites. O n th e oth er h a n d , c yb erb an k s see m to b e g ain in g m o re atte n tion for th eir w e b site w h en c o m p ared to th eir c o m p etitors o f sim ilar size b u t w ith p h ysical b ran ch locatio n s. B a sed o n o u r resu lts, in ord er for b an k s to su c cee d in In tern et b an k in g, th e y sh o u ld c o n sid er creatin g a su b sid iary in th e c yb ersp ac e th at offers actu al tran sactio n s tailored to cu sto m er n ee d s.

5.6. C on cern s T h is stu d y tried to d eterm in e th e p ro b le m s or c o n cern s b an k s face in offerin g In tern et b an k in g. B an k s w ere ask ed to state th eir c o n cern s in th e c o m m e n t section a n d tw o th ird s of th e resp o n d en ts p ro v id ed su ch c o m m e n ts. A m o n g th ese resp o n d en ts, o n e-th ird of th e m stated th at attractin g cu sto m ers to th eir site is a m ajor c h allen g e. S o m e o f th ese b an k s d o n o t h a v e a form al m ark etin g p lan o n In tern et

1060-3425/98 $10.00 (c) 1998 IEEE

b an k in g. S in c e m illio n s of c o m p a n ies are o n th e In tern et at p resen t, it is n ot easy for u sers to c au sally c o m e across a p articu lar site if th e c o m p an y is oth erw ise u n k n o w n to th e m . A d v ertisin g o n th e W eb th ro u g h W eb B ro w sers, IS P (In tern et S erv ices P ro vid er) H o m e p a g es or S e arch E n gin e H o m e p a g es is on e w a y of m ark etin g th e c o m p a n y’s w e b site.

Log(# of Hits/Week)

1.00E+07 1.00E+06 1.00E+05 1.00E+04 1.00E+03 1.00E+02 1.00E+01 1.00E+00 0

20

40

60

80

Number of External Links

Log(# of Hits/Week)

F ig u re 1 1. R elatio n sh ip B etw een N u m b er of H its an d N u m b er of E xtern al L in k s o n B an k s’ W e b P a g e. 1.00E+06 1.00E+05 1.00E+04 1.00E+03 1.00E+02 1.00E+01 1.00E+00 0

20

40

60

80

Number of Text Pages

Log(Asset), Million USD

F ig u re 1 3. R elatio n sh ip B etw een N u m b er of H its an d A sset S ize. T h e sec o n d m ajor c on cern is cu sto m e r acc ep ta n ce a n d satisfaction . O n e b a n k sp ecifically stated th at th eir staff w as w o rried th at if th e cu sto m er’s n e ed s are n ot fu lfilled

1.00E+06

1.00E+05

1.00E+04

1.00E+03

1.00E+02

1.00E+01

1.00E+07 1.00E+06 1.00E+05 1.00E+04 1.00E+03 1.00E+02 1.00E+01 1.00E+00 1.00E+00

Log(# of Hits/Week)

F ig u re 1 2. R elatio n sh ip B etw een N u m b er of H its an d N u m b er of T e xt P a g es on B a n k s’ W e b P a g e.

th rou g h In tern et b an k in g, c u sto m e rs w ill lea ve th e b an k . A n oth er b an k m en tio n ed th at th e y h a v e p ro b le m s o v erc o m in g cu sto m er p erc ep tio n o f th e In tern et as lack in g secu rity. A lth o u g h th e W W W can b e m o re secu re th an u sin g a sta n d ard telep h o n e lin e for tra n sactio n s d u e to ad va n ce e n cryp tion tec h n olo g ies, c u sto m ers tru st trad itio n al d elivery ch a n n els m u ch m o re th a n th e In tern et. T h e th ird c on cern is th e c o st of d ev elo p in g an d m ain tain in g a w eb site th at p ro v id es fu ll fu n ctio n ality. T h e Jan u ary issu e of th e O n lin e B a n k in g R ep ort [1 2 ] sh o w ed th e start-u p c ost of a P C b an k in g service via In tu it’s Q u ick e n for a sm all U S b a n k . In clu d in g th e a m o u n t sp e n t o n th e W eb site, th is a m o u n ted to alm o st $ 5 0 0 ,0 0 0 U S . F or a larg e b an k , th is a m o u n t m igh t n o t b e sig n ifican t, b u t for sm all b an k s, su ch as th o se w h ic h h a v e o n ly on e or at m o st a few b ran c h es in o n e state, th is c ost is u n a ccep ta b le. T h is also e xp lain s th e lin ear relatio n sh ip b etw ee n asset size a n d w e ek ly h it rates in F ig u re 1 3 . W h e n m o re reso u rc es are allo cated to w e b site d e velo p m e n t, b an k s are a b le to p ro vid e m o re featu res to attract an d retain cu sto m ers. O n e b a n k c o m m e n ted o n th e fu tu re of In tern et b a n k in g w ith in th e n e xt 5 to 1 0 ye ars. A ssu m in g th at access sp ee d s in crease as a n ticip ate d th e In tern et w ill p la y a m ajor role in th e fin an cial services in d u stry. T h is v ie w p oin t is also su p p o rted b y th e literatu re ([1 8 ]; [1 9 ]). A s p e o p le are in creasin g ly p ressed for tim e in th e c o m in g m ille n n iu m , n e w tech n olo g ies su c h as th e set-to p b o x, w h ich tran sfo rm s d o m estic tele visio n sets in to h o m e b an k in g term in als, in c orp o ratin g a sm a rt card rea d er for p a y m e n t of g o o d s a n d services, w ill allo w p e op le to m e et m an y o f th eir fin an cial n eed s in th eir o w n h o m e a n d , in tu rn , sa ve a lot of tim e ([2 0 ]; [2 1 ]). In o rd er to g ain th eir m ark et sh are, b a n k s h a ve to act in a tim ely m a n n er in offerin g serv ices o n th e In tern et. T h ere see m s to b e little d o u b t th at th e In tern et is o n e of th e im p o rtan t fu tu re d elivery ch a n n els for b an k in g services. A s stated in th e b o o k D ig ital M o n e y [2 2 ], b an k cu sto m ers are m o re lik ely to a ccep t In tern et b a n k in g faster th an th e y acce p ted A T M s in th e 1 9 8 0 s. T o d a y, th e gen eral p u b lic is e x p ose d to c o m p u ters m u c h m o re th a n th e y w ere in th e 1 9 8 0 s. T h e y are c o m forta b le w ith c o m p u ters at th eir w ork p lac e an d at h o m e. A s w ell, th e ra p id d e v elo p m en t in c o m p u ter h ard w are led to p o w erfu l, b u t lo w c o st p erso n al c o m p u ters, h en ce m o re p e o p le can n o w afford to b u y on e for th eir h o m e u se. Q u ick actio n w ill en su re th at b y th e tim e In tern et b an k in g re ach es critic al m ass, th e b a n k s w ill b e read y to ta k e th eir sh are.

6.0

S u m m ary

O u r stu d y h as fo u n d th at b an k s h av e started to u se th e In tern et as o n e of th eir d eliv ery ch an n els. A lth o u g h n ot all b an k s act th e sa m e w a y w h e n th ey o ffer servic es on th e In tern et. R esu lts fro m th is stu d y sh o w th at c yb erb a n k s are m o re su c cessfu l in In tern et b a n k in g b ec au se of th e typ e s of services th e y offer o n th eir W e b p a g es to g eth er w ith th eir

1060-3425/98 $10.00 (c) 1998 IEEE

b u sin e ss foc u s. C u sto m ers are loo k in g for fu ll services in stead of ju st ge n eral in form ation . B an k s w h ich o ffer tran sactio n al services o n th e In tern et attracted m o re cu sto m ers. C u sto m ers w h o h a v e c o n fid e n ce in th e In tern et to e xec u te tran sactio n s are v ery lik ely to u se In tern et b an k in g if it is offere d in a w a y th at w ill sa v e th e m tim e a n d m o n e y. A s in th e c ase of A T M s, b a n k s h av e to m o v e q u ic k ly in estab lish in g th eir strate g y. A s m o re n o n -b a n k in stitu tio n s are in v o lve d in th e F in a n cial S ervices In d u stry, b a n k s n ee d to fo rm allian ces w ith th ese tech n olo g y c o m p a n ies to learn a b o u t state-o fth e-art tech n o lo gie s as w ell as to b e in v olv e d in settin g stan d ard s for electro n ic tran sa ction s. H a vin g te ch n ical k n o w le d g e in on lin e tra n sactio n p roc essin g, b an k s can p rep are th e m selv es in areas su ch a s m ajor h ard w are u p grad es, h u m a n resou rces alloc ation s a n d strate gic d e velo p m e n ts. In su m m ary, o u r resu lts in d icated th at b an k s w ill lik ely lose th eir c o m p etitiv en e ss if th e y d ela y th eir action s in offerin g tran saction s b ase d service s on th e In tern et b e cau se cu sto m ers are very c o m fo rtab le in u sin g c o m p u ters as w ell as re m o te b a n k in g servic es. T h e lo w c o sts of c o m p u ter an d c o m m u n icatio n d e vices w ill en c ou ra g e cu sto m ers to m o v e in to ele ctron ic b an k in g m u ch faster th an th e y d id in th e case of A T M s. If b an k s can ’t m eet th ese cu sto m er d e m a n d s q u ick ly, th e y w ill lose a su b sta n tial p art of th eir b u sin e ss in th e n e x t 5 to 1 0 ye ars. T ra d itio n al b a n k s h a ve to m o v e in to oth er m ark ets q u ic k ly. A s c yb erb a n k s m o v e in to th e in vestm e n t m ark et an d m e rch a n t m ark et in ad d ition to retail b a n k in g, tra d itio n al b a n k s w ill lo se th eir c o m p etitive e d g e if th e y allo w th ese c yb erb an k s to b e c o m e lead ers in In tern et b an k in g. In th e e n d , to b e su ccessfu l, b an k s h a v e to d rive In tern et b a n k in g th e m selves in ste ad of b ein g p u sh ed in to it b y oth ers.

7.0

R eferen ces

[1 ]

B a n k A d m in istration In stitu te, “ T h e In fo rm atio n S u p erh ig h w a y an d R etail B an k in g ”, V ol. II, 1 9 9 5 . R S A L a b orato ries, R S A s F req u en tly A sk ed Q u estion s A b o u t T o d a y’s C ryp tog rap h : Key M an a ge m e n t, 1 9 9 5 . G ro en feld t, T ., “ F ree W h eelin g ”, B a n k in g T ec h n olo g y, N o v e m b er 1 9 9 6 , p p .4 9 -5 0 . Y a n , G .; P arad i, J. an d B h arg a v a, S ., “B a n k in g on th e In tern et an d Its A p p licatio n s”, P ro c ee d in gs of th e T h irtieth H a w aii In tern ation al C on fere n ce o n S yste m S cien ces, V ol. IV , 1 9 9 7 , p p .2 7 5 -2 8 4 . T a ylo r, D .; M e h ta, B . an d W u rster, T ., “S earc h in g fo r R etail S trate gies: O n lin e D elivery & th e In form atio n S u p erh ig h w a y”, Bank M an a ge m en t, 1996. (h ttp ://w w w .b ai.org /M a g azin e/jan fe b 9 6 search retail.h tm l). G e o rge, T ., “ T o m o rro w ’s T o o L ate ”, B a n k in g

[2 ]

[3 ] [4 ]

[5 ]

[6 ]

[7 ] [8 ] [9 ] [1 0 ] [1 1 ] [1 2 ] [1 3 ] [1 4 ] [1 5 ] [1 6 ]

[1 7 ] [1 8 ] [1 9 ] [2 0 ] [2 1 ]

[2 2 ]

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