E-Banking Transactions

The introduction of new technologies has transformed banking transactions radically. In the past, customers had to go to the bank branch in person in order to undertake banking transactions including transfers, deposits and withdrawals. Banks had to employ several tellers to make all those transactions in person. Automatic teller machines (ATMs) which allowed people to undertake their bank work on their own, practically any time wherever an ATM was located. This helped banks cut down on the number of tellers and focus on managing money.

Through the Internet, another venue for customers to do banking was introduced, reducing the need for ATM& Online banking allowed customers to undertake financial transactions from their PCs at home. The Internet provides an ideal platform for commercial exchange helping banks achieve new levels of efficiency in financial transactions by strengthening customer relationships and by increasing their reach.

Now, with the emergence of wireless application protocol (WAP) technology, banks can use the infrastructure and applications developed for the Internet and move it to mobile phones. Now people no longer have to be tied to a desktop PC to conduct their banking transactions. The WAP interface is much faster and more convenient than the Internet, allowing customers to see account details, transaction details, make bill payments and even check their credit card balance.

The cost of payment transactions on the Internet is the lowest as compared to other methods of transaction. Studies in the US have found that the transaction cost through mobile phones is an estimated 16 cents, through a fully computerized bank using its own software it is 26 cents, through a telephone bank it is 54 cents, a bank branch $1.27, an ATM 27 cents, and on the Internet, just 13 cents. In 2002, more than 2,000 banks in the world had transactional websites and the growth of online lending solutions is making them more cost-efficient.

Banks are increasingly building payment infrastructure with various security mechanisms (SSL, SET) because there is tremendous potential for profit, as more and more transactions are conducted through the Internet. However, the challenge for banks is to offer a payments backbone system that will be open enough to support multiple payment instruments (credit cards, debit cards, direct debit to accounts, e-checks, digital money, etc.) and scalable enough to allow for a stable service regardless of the workload.

The market for electronic bill presentment and payment (EBPP) is growing. According to a study, 18 million households in the US are expected to pay their bills online by the end of 2003 compared to 2 million households in 2001. As a higher number of bill payers is getting online, several banks are making efforts to find ways to meet the growing needs of EBPP. Established banks can emerge as key online integrators of customer bills and can capitalize on this high potential market. Growing with the popularity of EBPP is also the payment of multiple bills at a single site known as bill aggregation. Offering online bill payment and aggregation will increase the competitiveness and attractiveness of Internet banking services and will allow banks to generate service-fee income from the billers.

In the B2B segment, the customer value proposition for online bill payment is even more compelling. B2B e-commerce is expected to grow from $406 billion in 2000 to $2.7 trillion by 2004 worldwide, and more than half of all transactions will flow through online B2B marketplaces. There is a need for automated payment systems to reduce cost and human error and improve cash-flow management. To meet this need, a group of banks and non-financial institutions led by Citibank and Wells Fargo have formed a company called Financial Settlements Matrix (FSMx). It provides business buyers and sellers access to secure payment processing, invoicing and other services that participating financial services firms offer.

However, a B2B marketplace would provide minimum value to its customers if it just matches buyers and sellers, leaving the financial aspects of transactions to be handled through traditional non-Internet channels. Hence, the marketplace must be capable of providing the payments processing, treasury management services, payables/receivables data flows and credit solutions to complete the full cycle of a commercial transaction on the Internet. Web-based B2B e-banking offers a tremendous opportunity for banks, payment technology vendors and e-commerce companies to form strategic alliances. This new form of collaboration between partners with complementary core competencies may prove to be an effective business model for e-banking.

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