MANAGEMENT ISSUES IN ONLINE BANKING

MANAGEMENT ISSUES IN ONLINE BANKING

The challenge facing the banking industry is whether management has the creativity and vision to harness the technology and provide customers with new financial products necessary to satisfy their continually changing fi-nancial needs. Banks must deliver high quality products at the customers’ convenience with high-tech, high-touch personal and affordable service. In order to achieve this, management has to balance the five key values that increasingly drive customers’ banking decisions: simplicity, customized ser-vice, convenience, quality, and price.

if you like my post then pls click on advertisment and add as you in my follower list.
Its beneficial for you and me both.

Online banking will realize its full potential when the following key elements fall into place:

• The development of an interesting portfolio of products and services that are attractive to customers and sufficiently differentiated from competitors.

• The creation of online financial supply chains to manage the shift from banks as gatekeeper models to banks as gateways.

• The emergence of low-cost interactive access terminals for the home as well as affordable interactive home information services.

• The identification of new market segments with untapped needs such as the willingness to pay for the convenience of remote banking.

• The establishment of good customer service on the part of banks. The fact that technology increases the ease of switching from one bank to an-other means that banks that do not offer superior customer service may see low levels of customer loyalty.

• The development of effective back-office systems that can support so-phisticated retail interfaces.


Marketing Issues : Attracting Customers

The benefits of online banking are often not made clear to the

potential user. Consumer question includes :

How is balancing the checking account online superior to doing it on paper?

Is paying bills online superior to the familiar 5 of writing checks?
Where is the consumer gaining value?

Perhaps the answers to these questions are not clear to the bankers themselves. Regardless of how a bank chooses to answer these questions, it is clear that make a mistake trying to sell online banking services on the basis of convenience. While short term convenience is important, consumers want 19-term ability to control and organize their finances more than they want convenience.

Banks must also look beyond home consumers for online banking con-sumers. The rapidly growing use of personal computers by small business- provides a solid opportunity for banks to build a profitable base of small business until a broader consumer market evolves. There are mil-lions of small businesses with annual sales ranging from $250,000 to $5 million. Many of these firms have PCs and modems. New services like interactive cash management services could generate significant revenues for banks. Industry studies indicate that 20 percent of small businesses are immediate prospects for online banking and are willing to pay more than individual consumers for the service-up to $100 a “month. Thus, banks have opportunity to tap into this market segment.

Marketing Issues: Keeping Customers

Keeping customers (or customer loyalty) requires the
following:

1. Banks must switch the costs of moving from one software platform to other to keep customers from moving. Customers are increasingly fami-liar with using technology
to access bank accounts and to handle fi-nancial affairs, and this familiarity increases interest in additional vices and increases switching costs.

2. Banks must provide integrated services. The oft-cited time squeeze on consumers-long commutes, heavy workload, family obligations, household management is pushing
consumers toward integrated services that can speed up financial procedures. These integrated services contribute to cementing the customer relationship.

3. Banks can realize the positive cost implications for the long-term value of building customer loyalty. In the online world, there is not a big cost dif-ference between serving
one customer and serving 100,000 customers. Clearly, marketers must also work on building a loyal customer base not only in order to maintain the existing base, but also in
order to be attractive to potential customers. .

Back-Office Support for Online Banking

Although banks are making great strides in developing the front-end inter-face, there needs to be a great deal of thought put into the re-engineering of back-office operations and systems. Back-office operations technology is of-ten a crucial and
misunderstood element of online banking.

Figure shows a model where a bank’s system interfaces with the third party transaction processor Intuit Services, which provides a common interface for Microsoft Money and Intuit’s Quicken transactions.

The inter-esting questions raised by this model are: If a customer pays a bill by Quicken in the morning, can the result of that transaction be seen that evening when he attempts to
balance his checkbook?
Or can a customer call a bank customer service representative to put a stop-request on a payment the same day it was initiated? Or can a customer who transfers money by PC see that transaction when she goes to the ATM later that day? The an-swer to these questions for many banks is “no” and the reason is that exist-ing back-office systems were
not meant to work in real-time.


In addition to the real-time difficulties, online banking is Notes further compli-cated because most existing back-office systems are batch-oriented. For in-stance, if $300 is withdrawn from an account at an ATM machine, the account balance will not be changed until the next day. The delay results from the fact that the third-party transaction processors post these transac-tions by automated clearinghouse in batches in order to accommodate economies of scale. Until banks and other payment processor systems go real-time, there will be a timing disorientation between PC service and the bank’s pay-by-phone, telephone, branch, and ATM services, which are all posted in real-time to the bank’s host computer. This problem is further ex-acerbated when banks try to integrate product lines.

Above figure illustrates the complex structure of back-office systems. The complexity arises from the fact that each of the modules (such as Accounting and Financial Reporting) in large banks may be on separate mainframe sys-tems. With electronic commerce, banks will have to find ways of integrating the information stored in these mainframe databases. This integration will require a fundamental change in the database
design and architecture, with information integration as the goal.

Managers often think of back-office systems and operations as a subor-dinate function that should respond to their needs and desires and go qui-etly about handling all the boring details and back-office drudgeries that a manager should not have to worry about. This attitude may have its roots in the historic role of clerks, whose job was to support the manager. For too long, operations functions in banks have been viewed as cost centers with a vague customer linkage. This thinking will have to change to reflect the strategic nature of back-office systems and will need bank-wide commit-ment to keep up with new
demands.