Kunihiko Higa, Kazuo Nakamura Junior. Department of Industrial Engineering and Management, Tokyo Institute of Technology, 2-12-1 O-okayama, Meguro-ku,.
Strategies towards Internet Banking: products, services and user’s behavior Kunihiko Higa, Kazuo Nakamura Junior Department of Industrial Engineering and Management, Tokyo Institute of Technology, 2-12-1 O-okayama, Meguro-ku, Tokyo 152-8550, Japan
Abstract In a scenario of inter-related actions, due to the development of Internet and IT-based tools, there is one field, which is leading to a huge change on the way people address their consumption and transaction styles. From different industrial and service segments, nowhere has the presence of e-commerce been more evident than in the Internetbanking. Based on the current situation in Japan and foreign countries, this research proposal will investigate the main strategies adopted towards Internet Baking development, focusing on products and services availability as well as customer’s profile and usage behavior. Keywords: e-commerce; Internet-banking; IT
As common practice in the technological innovations field, some are extremely enthusiastic, others are reluctant and stand to a point of non-acceptance of the new. In both cases we have "obstinate prophets": the first ones are able to see only the positive effects of the innovation, while the others are incapable to recognize any positive aspect of it. The only mutual accepted fact is that whether positive or negatively those changes will impact the society. Having in mind that revolutionary innovations are those which affect our way of life and working, our social relations and behavior, it is feasible to assume that the Internet and recent developments in IT are part of this group. A research proposed by Stanford University "Ten Years after the Birth of the Internet, How Do Americans Use the Internet in Their Daily Lives?" [10] details how Internet is leading to a fast transformation on mass media usage. The research presents that 60% of regular Internet users reduced the time they spend in front of a television. Other 33% reduced their time reading newspapers and periodicals. Additional data presented by Stanford's research on Internet practices is that regular users, who spend at least five hours per week on-line, represent about 20% of interviewees. As a result it was discovered that 55% had Internet access at home or in the office. Another perception is that the Internet became a huge shopping mall. The research from Stanford indicates that 25% of users made on-line purchases, and that 10% experienced other types of financial transactions such as banking services. In the last decade of the 20th century we have faced many technological changes among which is the advent of electronic commerce, or the exchange of
products and services telecommunication systems.
and
payments
via
On June 8, 1999 UCLA launched the first comprehensive study ever conducted of the sweeping changes produced by the Internet [3] – an international project created to explore how computers, information technology and their users are shaping and changing society. "Understanding how people use the Internet is even more important than understanding the impact of television," Cole said, director of the UCLA Center for Communication Policy and principal investigator of the study. "While television is primarily about our leisure time, the Internet is already transforming work, school and play. Virtually every business, political and social activity will be affected by the Internet, and most activities will be dramatically transformed. Child rearing, consumer behavior, education, politics and religion are being changed dramatically by the Internet; these changes have unprecedented effects on our culture that need to be better understood." "Everyone either loves or hates the Internet, but there's no question that the impact of the Internet is real and profound -- certainly the most important communication technology of the generation to come." Jeffrey Cole Therefore, it is possible to affirm that the impacts of the Internet are not only profound but also diversified, whose consequences are noticed on technological, commercial, economical and social areas. The combination of each and every change in those fields is definitely leading to revolutionary major social transformation. 1. Internet banking usage as an e-commerce delivery channel
In a scenario of inter-related actions due to the development of Internet and IT-based tools, there is one field that is leading to a huge change on the way people address their consumption style and banking/financial usage. By the end of 2004, USD 7 trillion was estimated on product and services exchange using electronic commerce. From those different industrial and service segments, nowhere has the presence of e-commerce been more apparent than in the banking and financial sectors. With the objective of increasing their options for delivery channels, recently, different banks and financial institutions are introducing Internet Banking. The main benefit of this initiative regards the availability of products information as well as services via online transactions. Among different services and tools, it is common to find online payments, savings and current accounts applications, balance inquiry, investment options, applications for credit, loan payments and others. Despite the great variety of services and products, bill payment is the most popular application. As a result, the more people engage in online banking activities the higher will be the benefits to the financial institutions. Online banking allows the customer to conduct transactions alone, decreasing the need for tellers at bank branches, and - in many cases the branches themselves. Also, Internet banking normally offers all the main banking services with the added flexibility of being able to manage banking needs online. The advantages are not limited to the bank’s side, customers also enjoy the benefits of Internet Banking introduction due to the following reasons: 1.
The ability to access the bank account anytime of day, almost anywhere.
2.
Access to services and products such as balance inquiries, money transfers, general payments, loan, account applications and others.
3.
Some banks, in order to encourage the Internet Bank usage, reduce the fees for online transactions.
4.
Reduced time consumption. Customers are not required to visit the branch in order to perform the transactions available at the Internet Banking website.
2. Internet banking development: Trends and strategies In 1990 the Wells Fargo Bank, based in California USA, introduced the world's first online banking service. Since the introduction of the first services many banks have started their electronic banking services with access available via your PC, mobile phone or an interactive TV. From there, the introduction on Internet based baking was not a difficult obstacle to overcome. As discussed by Irwin Brow [5]
and from the table below [Fig.1], the adoption of Internet Banking is directly related to the change in the social behavior. Along with the high Internet connection speed, Internet assimilation and time/local convenience, there is no doubt that online banking came to be a reality. Fig. 1- Most and Least Perceived Factors in Internet Banking Adoption Internet Banking Adoption Seven point lickert scale. 1-strongly disagree to 7-strongly agree Faster Internet access speed is important for Internet banking. Internet banking makes it easier to do banking. Internet banking is a convenient way to manage my finances. Internet banking is compatible with my lifestyle. Using Internet banking fits into my working style. Information concerning my Internet banking transactions can be tampered with. Information concerning my Internet banking transactions will be known to others. My decision to adopt Internet banking is influenced by my family. Using Internet banking requires a lot of mental effort. Internet banking is a difficult way to conduct banking transactions
Mean 6.2 6.0 5.8 5.7 5.5 3.3 3.0 3.0 2.7 2.4
In terms of Internet Banking design, some websites were developed to serve as a complement to the services provided by traditional “physical” branches. As reported by Vignesen Peruma and Bala Shanmugam [14], currently, there are three basic kinds of Internet banking that are being employed in the marketplace: 1.
Information: This is the most basic level of Internet banking. The bank has marketing information about its products and services on a stand-alone server.
2.
Communication: This type of Internet banking allows interaction between the bank’s systems and the customer. It may be limited to electronic mail, account inquiry, loan applications, or static file updates.
3.
Transaction: Under this system of Internet banking customers are allowed to execute transactions. Relative to the information and communication types of Internet banking, this system possesses the
highest level of risk and must have the strongest controls.
purposes, representing 14 points higher when compared to 2002 (30%).
Due to the current Internet Banking development more and more financial institutions are running to provide online business. As a trend, following the recently presented survey data, it is expected a considerable growth in the number of customers baking online over the next few years.
Another trend is that Internet Banking is more likely to be performed by those with higher educational level as well as higher socio-economic status. Online banking customers tend to be welll-educated and affluent, and the highest use is found in the population between ages 28 and 39. Sixty percent of customers in this age group with Internet access went online for banking transactions. Among those 18 to 27, 38 percent bank online.
From the table below [Fig.2] it is possible to verify the Internet Banking usage during the years 2000 and 2004. According to the research prepared by the International Data Corporation, a significant growth occurred in the past fours years. Considering the case of Japanese Internet Banking development, in 2000, 2.5 millions users accessed Internet for Banking transactions purpose, that figure increased to 21.8 million in 2004. Other Western European countries and the United States also had a significant increase, higher than 100% in between the same period. In total, as per 2004 figures, 122.3 million users, which is more than 3.5 times higher than 2000 data (34.4 million users) are taking advantage of Internet Banking websites to process their transactions. Figure 2. Online Banking Usage, 2000 - 2004 Region (millions of users)
2000 2001 2002 2003
2004
Western Europe
18.6
United States Japan Asia-Pacific (exc. Japan) Rest of the world Total
28
37.8
47.7
57.9
9.9
14.7 17.1
20.4
22.8
2.5
6.5
11.9
19.6
21.8
2.4
4.4
6.8
9.8
13.8
1
1.7
3.1
5.1
6.1
34.4 55.3 76.7 102.6 122.3
Source: International Data Corporation
The research “Internet banking in the U.S., Japan and Europe” by Pyun, Chong Soo [11] mentioned that “In Japan, as in Europe, commercial banks are allowed to have nation-wide branch networks and engage in other financial services such as underwriting of securities, and insurance. Japanese banks have largely confined their Internet banking operations to their domestic markets. The first cyber bank of Japan, the Japan Net Bank (JNB), was established in October 2000 by the consortium of Sakura Bank, Fujitsu Limited, Nippon Life Insurance Company, and Sumitomo Bank. In June 2001, Sony, better known for its brand name electronic products, opened Sony Bank as the second online bank in the country.” Japanese online banks usually offer the same type of services and products as Americans and Europeans, such as foreign currency deposit accounts, credit cards and mortgages and others. The following chart [Fig.3], developed by Pew Internet & American Life project, and summarizes the main trends from the standpoint of Internet Banking usage and customer’s profile in the United States. Among Internet users, 44% are accessing with banking
Figure 3- Growth in online banking 2002-2004: The percentage of those in each group with Internet connections who have tried online banking. In other words, 31% of online men had done online banking in October 2002 and 29% of online women had done it.
Oct-02 Nov-04 All internet users
30%
44%
Sex Men Women
31% 29%
49% 39%
Age Generation Y (ages 18-27) Generation X (ages 28-39) Younger Baby Boomers (ages 40-49) Older Baby Boomers (ages 50-58)
29% 34% 33% 26%
38% 60% 42% 49%
less than $30,000 $30,000-$49,999 $50,000-$74,999 $75,000 or more
21% 31% 33% 35%
32% 44% 51% 55%
Educational attainment High school graduate Some college College and graduate school degree
27% 27% 37%
42% 41% 52%
Internet connection at home Dial-up Broadband
24% 35%
35% 63%
Household income
Source: Pew Internet & American Life Project Surveys: Oct 7-27, 2002 (margin of error is±3%); Nov. 23-30, 2004 (margin of error is ±5%). In general, the considerable spread of Internet Banking activities are currently attributed to the willingness of banks to deliver more and more options online. Online customers tend to be more profitable than the offline customers, mainly due to reduced transactional costs. Also, the increase on Internet availability and higher connection speed were determinant factors to the Internet Banking rapid development.
Charles Goldfinger [4] defined in the Internet Banking Update report a set of broad trends comprised of: 1. 2. 3. 4.
Continuing growth European leadership in Internet banking penetration Closer integration with traditional banking strategies Focus on profitability
Differently from other e-commerce tools, the growth of Internet Banking is happening in a sustainable manner, mainly because the direct integration with the existing banks activities as well as the profitability goal as a guidance and concern. 3. Conclusion Innumerous are the advantages for the Internet Banking development, not only for the Financial Institutions itself, representing a great decrease on operational costs and a new way of reaching customers, but also for the clients, who were given the possibility of performing their financial tasks anywhere and anytime. However, a great portion of banking customers still require human interface. As presented in Pew Internet & American Life Project Surveys, Internet banking users tend to have higher social and educational levels as well as main group of users are concentrated in the youngadult age scale. The crucial issue related to the success of Internet Banking development relies on a sustainable growth. Financial Institution should not deny it as a good opportunity for the business but at the same time having in mind that customers still need to know there is a human face behind the screen. From the current services and products offering, it is possible to identify particular activities which at the present moment are not covered by the Internet banking adoption, such as money withdrawals, deposits, and other functions. They still require a physical presence and staff to be performed. A correct approach for the Internet banking development should consider both customers willingness towards this new delivery channel as well as technology availability. 4. References [1] Adel M. Aladwani - “On line banking: a field study of drivers, development challenges, and expectations” International Journal of Information Management, Volume 21, Issue 3, June 2001 [2] Bomil Suh and Ingoo Han - “Effect of trust on customer acceptance of Internet banking” - Electronic Commerce Research and Applications, Volume 1, Issues 3-4, Autumn-Winter 2002 [3] Center for Communication Policy, The - UCLA “Surveying the Digital Future: How the PC and Internet Are Changing the World.” http://ccp.ucla.edu/pages/StudyDescription.asp
[4] Goldfinger, Charles – Internet banking update, http://www.fininter.net/retail%20banking/internet_banki ng_update.htm , September 2002 [5] Irwin Brown, Zaheeda Cajee, Douglas Davies and Shaun Stroebel - “ Cell phone banking: predictors of adoption in South Africa--an exploratory study” International Journal of Information Management, Volume 23, Issue 5, October 2003 [6] John Simpson - “The impact of the Internet in banking: observations and evidence from developed and emerging markets” - Telematics and Informatics, Volume 19 Issue 4 November 2002 [7] Kyu Kim, Bipin Prabhakar – “Initial trust and the adoption of B2C e-commerce: The case of Internet banking “ - ACM SIGMIS Database, Volume 35 Issue 2, June 2004 [8] Kyu Kim, Bipin Prabhakar - “Initial trust, perceived risk, and the adoption of Internet banking “ Proceedings of the twenty first international conference on Information systems, December 2000 [9] Margaret Tan, Thompson S. H. Teo – “Factors influencing the adoption of Internet banking” - Journal of the AIS, March 2000 [10] Norman H. Nie, “Ten Years After the Birth of the Internet, How Do Americans Use the Internet in Their Daily Lives?” - Stanford Institute for the Quantitative Study of Society [11] Pyun, Chong Soo – “Internet banking in the U.S., Japan and Europe” - Conference on Bank Restructuring and Cyber-banking, the Korea Institute of Finance, Seoul, Korea, May 2000. [12] Richard Dratva - “WWW-based home banking services in Switzerland: a case study” - Computer Networks and ISDN Systems, Volume 28, Issues 1-2, December 1995 [13] Richard Sullivan, Marsha Courchane and David Nickerson - “Investment in Internet banking as a real option: theory and tests” - Journal of Multinational Financial Management, Volume 12, Issues 4-5, OctoberDecember 2002 [14] Vignesen Peruma and Bala Shanmugam – “Internet Banking: Boon or Bane?” - School of Business, Monash University Malaysia - Journal of Internet Banking and Commerce - December 2004, vol. 9, no. 3 [15] S. K. Leong, T. Srikanthan and G. S. Hura - “An Internet application for on-line banking” - Computer Communications, Volume 20, Issue 16, January 1998
