E-Banking: Trend, Status, Challenges and Policy Issues
E-banking: Status, Trends, Challenges and Cunning Implications 1. Commencement In enumeration to commencement (individuality I) and disposal (individuality VI), the paper conceives indelicate individualitys.
Individuality II addresses the limitation and popular top of e-banking. Then, individuality III addresses the contact of e-banking on banking employment. After that, individuality IV addresses the senior contact of e-banking. That is also the depth consummationion whether e-banking can be viable in a kingdom. Individuality V addresses the new challenges e-banking has brought and cunning implications from the perspectives of community, banks, and regulatory instance as courteous-mannered-mannered as empire. . Condition 2.
1. Limitation • The Internet conceives all kindred web-enabling technologies and notorious telecommunication networks ranging from frequented dial- up, the exoteric Universe Wide Web, cable, and regulative peculiar networks. (BIS-EBG, 2003) • Internet banking (e-banking) is explaind to conceive the food of dispose-of and little rate banking products and uses through electronic instruments as courteous-mannered-mannered as extensive rate electronic acquittals and other commercial banking uses delivered electronically. (BIS-EBG, 2003) 1 2. 2. Fundamental characteristicsComparison unordered the popular globular financial alteration (e-banking) and elapsed financial alterations The popular alteration (ebanking) Content Bestowal instrument alteration-deliver banking employment via internet. Contact Wider Elapsed financial alterations Products and uses, i.
e. , bestowal, swap Narrow 2. 3. Levels/Scope of e-banking employment • • Basic advice e-banking/web sites that harmonious circutardy advice on banking products and uses presented to bank customers and the notorious exoteric; Simple proceedingal e-banking /web sites that afford bank customers o resign contacts for incongruous uses, constitute queries on their recital balances, and resign instructions to the bank, but do no enjoin any recital forwards; • Deceased proceedingal e-banking/web sites that afford bank customers to electronically forward funds to/from their recitals pay bills, and direct other banking proceeding online. • Usually, e-banking refers to forms II and III. 2. 4.
Popular outgrowth tops (in industrial numberries) • E-banking products and uses are getting advance and advance deceased and increasing in multiplicity.From providing advice at the forthcoming measure to providing proceedingal activities. 2 • • Twain work and distribute in the completion banking employment are getting bigger and bigger very wild (Graph, Europe) E-banking customer shameful is getting bigger immediately. 2. 5. Condition in developing numberries Developing numberries are in transmitted up in e-banking: • • • • • • The mediocre e-banking observation for developing numberries by the end of 1999 was plug to 5% (World Bank Survey, 2001). In Brazil, the enumerate of e-banking users arrive-ated 8 pet in 2000.
In Mexico, the enumerate of e-banking users arrive-ated 1. 5 pet in 2000. In India, balance 50 banks are presenting onsuccession banking uses. ICICI Bank’s e-banking is very impressing. E-banking in Korea, Thailand, Malaysia, and Singapore, Hong Kong and Taiwan (China) is thriving. In Ghana and some other African numberries, bbetray cards shamefuld on Visa Horizon proximately technologies are getting inaugurated. 3.
Prospects--Impact of E-banking on transmitted banking 3. 1. The forthcoming stipulated prudence: • • Internet banking would demolish the transmitted banking employment mould and prefer the annals of newcomers from the beyond of the banking assiduity.Developing numberries could entertain the “opportunities to leapfrog” in the preoption of efinance on a extensive lamina. 3. 2. In substantiality, e-banking develops wild, but not wrongful as stipulated prudence incomplete.
• The conception of leapfrog has not worked in numerous developing numberries due to uncertain impediments. This can be signed by UNCTAD declaration. “Some definitive signs are 3 already observable, including a noble smooth of numbererpart-among of technology by customers and financial institutions…. H(h)owever, most projects entertain not yet been deployed on a extensive lamina. ” (UNCTAD 2002. It gets a ample aspect at the condition of efinance in developing numberries.It secures array of areas kindred to e- finance including e-banking, e-payments, e-trades, and e-praise advice).
• • Even in industrial numberries, e-banking is stagnant a numbererpartary tools to transmitted banking. Lots of guileclose e-banking employmentes entertain been circumventous out of dispense. Internet-singly banks entertain been in-effect close remunerative. They propagate inferior employment works and any savings propagated by inferior substantial balanceheads answer to be offset by other forms of non-observation expenditures, notably dispenseing to entice new customers. (De Young 2001). 3. 3.
Prevailing expectation • The manageling purpose today is that Internet banking can singly achieve if it is in-one integrated amid the bulky banking infrastructure, which should join “click” (e-banking) after a occasion “mortar” (substantial branches) due to the moment of exoteric belief in banks, the rate of an normal infamy designate, and the long-for of customers to do bigwig substantially. • According to this purpose, Internet is present babelieve as another disposal instrument as a numbererpart-among to substantial braches, phone banking and ATM networks. The mastery of the so-called “click and mortar” mould can be explained by its consummation on the foundation.Two cheerful specimens are Wells Fargo in the US and Nordea in Scandinavia. 3. 4. Case-study--experience from the two most consummationful circumstances Two most consummationful specimens: • • Wells Fargo (US), has actually the nobleest absolute enumerate of onsuccession customers, advance than 3 pet out of its completion 24 pet customers in 2001.
Nordea (Scandinavia), has 2. 3 pet onsuccession customers, representing balance 20% of its completion customer shameful. It has the nobleest distribute of onsuccession customers. 4 They distribute the subjoined low elements: • • • • • Twain are conveyers in their transmitted dispenses and thus can chiefize on a sizable customer shameful.Furthermore, their customer shameful is technologically affected. California and Scandinavia entertain very-fur noble rates of Internet use. Twain are technologically deceased and inaugurated forthcoming in Internet deployment.
Wells Fargo inaugurated e-banking employment as forthcoming as in 1989. Twain entertain tightly integrated Internet in their operations and their bulky infrastructure. Twain entertain extensive enumerate of SME customer shameful. 3. 5. Prospects Depth consummationion: the force to mainstream SME and beings into E-banking. 4.
Trend: The senior contact of e-banking—SME finance E-banking is used advance and advance for comely vestibule to finance.Financial constraints for SMEs entertain never been tellingly unobstructed-upd and entertain been conception infallible. This individuality gain cbalance the advantages of e-banking on this exhibition. 4. 1. Obstacles to SME’s vestibule to finance 4. 1.
1. from banks’ perspective • • • Noble absorbs and low profitforce of SME advances accordingly of the little advance size. Noble betrays of SME advances due to bankruptcy of employment vestige annals, praise truth, and pellucid advice. Evaluating SME betray is “too labor- intensive” to be remunerative. 5 • Numerous banks bankruptcy strategies and skills to adornments impediments associated after a occasion SME finance.In numerous developing numberries, the staff of banks bankruptcy regulative skills to unexceptionably assess praise betrays of SMEs 4. 1.
2. from SME’s perspective • Inmisalienate products and uses, which are rigidly supply-driven instead of demand-driven. Commercial bank products are usually intended to buy the wants of extensive corporations; few products and use are inequitableally tailored to the wants of SMEs. SME sector is usually inferiorserved. • • • Noble observation rates. SMEs usually demand fur littleer advances than extensive enterprises. banks, consequently, usually load noble margins to cbalance the absorbs.
Cumbersome procedures.Over insistence on indirects and guarantees. SMEs usually entertain low- smooth of unroving effects and relatively noble- smooth of established chief. Therefore, when lending to an SME, a bank wants to assess the SME’s economic viforce and coming capital proficiencys instead of indirects. However, in numerous developing numberries, banks are stagnant in the very forthcoming measure of mastering gauge lending policies and cheerful praise practices. Their lending answers to babelieve believe on indirect rather than capital- proficiency projections. banks’ bankruptcy of cleverness of non-indirect praise duty has caused them incapable to get lending uses to SMEs.
Inflexible praise criteria—one size fits all. 4. 2. New Technology, New Hope for SME Finance 4. 2. 1. From bank’s aspect, new technology (e-banking) constitutes SME finance economically practicable (i) inferior operational absorbs of banks • • • Automated way Accelerated praise sentences Lowered part-amongiality advance size to be remunerative (ii) theoretically inferior margins 6 • • • • • • Inferior absorb of annals Expanded financing arrive-at Increased genuineness (iii) notorious arrive-at through self-use Inferior proceeding absorb Constitute some oppidan uses economically practicable for SMEs Constitute anyspace vestibule to recitals and advance advice practicable .
2. 2. From SMEs’ perspective E-banking employment constitutes vestibule to finance from banks enticeive. SMEs entertain benefited from the outgrowth of E- finance and part-amongially stepped out of the unceremonious sector. In feature, E- finance presents the subjoined enticeive benefits for SMEs: • • • • • Ease of use Inferior absorbs of financing Convenience Space savings Operational gainingness 4. 2. 3.
From the empire’s perspective New technologies entertain getd the inducements/benefits for the empire to rectify SME finance by • • • • Increasing vocation. Contributing to destitution abatement. Contributing to economic outgrowth.Reducing the unceremonious sector and capital distribution1 . 1 Bankruptcy of SME’s vestibule to FIs is one of the senior reasons why there are usually big unceremonious economic sector (capital distribution) in numerous developing numberries. Improved SME vestibule to regular financial institutions is expected to subject the unceremonious economic sector. 7 5.
Challenges and cunning implications 5. 1. Cross-border e-banking activities and its cunning implications 5. 1. 1. limitation • Definition: Cross-border e-banking is explaind as the food of proceedingal on- consummationion banking products or use by a bank in one kingdom to residents of another kingdom. BIS, 2003) • • A voice on the limitation: A bank delivering its e-banking activities via its substantial branches/ subsidiaries in a number kingdom does number into cross-border e-banking.
A advance voice: banks can use the new bestowal instrument (e-banking) arrive-at customers in another kingdom after a occasionout as fur expectation on substantial influence and the momentous siege that it entails (example). 5. 1. 2. Two scenarios • • The in-out scenario—In-kingdom institutions providing banking uses to customers beyond the residence kingdom.The out- in scenario—institutions shamefuld beyond the residence kingdom providing banking uses to part-amongies amid the residence kingdom. 5.
1. 3. Raised numerous challenges and interrogations for banking regulatory authorities (twain residence and number) • Who should use the superexpectation allegiance? Borderclose sort of e-banking extension the virtual for lawfulizational ambiguities after a occasion i-elation to the superintendenty responsibilities of incongruous notorious authorities. Such tops could convey to scant superexpectation of cross-border e-banking activities. • • Does it want to be licensed?Banks that buy in cross-border e-banking may aspect extensiond allowable betray. Specifically, unclose banks direct courteous due assiduity they run the betray of virtual non-compliance after a occasion incongruous notorious laws and regulations, including 8 convenient consumer shelter laws, annals-keeping and declarationing demandments, secrecy rules, AML rules. • Non-banks may present after a occasion greater dexterity bank- relish uses after a occasionout any form of superintendenty approbation or balancesight due to limitational ambiguities that may pause wit revere to what constitutes a bank (or banking uses).
• • • Which kingdom’s law applies to cross-border e-banking activities.Role and responsibilities of the residence kingdom banking superintendent and national superintendent. Supervisors want to concede that the Internet affords for the food of e-banking uses that can p geographic borders and theoretically circumvent into interrogation bulky lawfulizational authorization demandments and the regulatory wayes; • Supervisors want to concede the implications of taking a stringent way inland popularly regulated banks after a occasionout an impartial texture of irrelevant forms that may direct point or nforthcoming point activities via the Internet in the national lawfulization. Supervisors should determine that banks unexceptionably mould the allowable misgiving during the date occasion the allowable infrastructure for cross-border e-banking debris inferior interpretation. 5. 1. 4.
Its cunning implications • Cunning goal: The external of twain the number and residence superintendents should be to forsake or minimize allowable betrays stemming from lawfulizational ambiguities, and to determine that e-banking activities are courteously supervised after a occasion clforthcoming explaind superintendenty responsibilities. •Basic truth: Rendezvous observation on the want for telling residence kingdom superexpectation of cross-border e-banking activities on a obscure premise as courteous-mannered-mannered as continued internotorious compact unordered residence and national banking superintendents revereing such activities loving the practicable scantiness of a substantial banking influence in national lawfulization. Such as rendezvous is regulative to prefer impregnable and gauge cross-border e- 9 banking after a occasionout creating undue regulatory lot or impediments to banks’ use of the internet bestowal instrument to buy customer wants. Complementary truth : Residence superintendents should get number superintendents after a occasion obvious advice on how they balancesee a bank’s e-banking activities on a obscure smooth. Number superintendent would notoriously believe on the residence superintendent to tellingly convey out its superintendenty program. Where there are concerns about the tellingness of a residence superintendent’s balancesight program, the number would way the residence superintendent on a bilateral premise. The number superintendent gain want to ponder what actions may be mismisalienate to shield national residents and their banking method.
Compact unordered notorious superintendents . Rapid tread of outgrowth of e-banking and the associated betrays gain demand superintendenty agility, resources and, in the crossborder composition, compact unordered residence and number superintendents. 5. 2. From the community’s perspective 5. 2. 1.
Challenges 1. Theft of identical unity 2. Secrecy issues 3. Who use the allegiance in circumstance of robbery 5. 2. 2. Cunning implications 1.
Regulative are efforts to explain the secrecy framework and to use technology to unobstructed-up lessen enforcement problems. . 3. From bank’s perspectives 5. 3. 1. Betray mouldment challenges • Adaptation to Technology issues: The expedite of substitute relating to technological and customer use alteration in e-banking is rare.
This intensifies challenges to the mouldment to determine that courteous strategic duty, betray 10 dissection and securities reviews are directed former to instrumenting new e-banking contacts. • Outsourcing issue: E-banking extension banks’ ependence on advice technology, thereby increasing the technical entanglement of numerous operational and ease issues and advanceing a incline inlands advance co-operations, alliances and outsourcing arrayments after a occasion third part-amongies, numerous of whom are irregular. • • Increased allowable and reputational betrays E-ease issue: The internet is ubiquitous and global by sort. It is an notorious network vestibuleible from anywhere in the universe by unrecognized part-amongies, after a occasion routing of messages through unrecognized locations and via wild evolving wireclose devices.Therefore, it raises momentous challenges on ease manages, customer notoriety techniques, basis shelter, audit order procedures, and customer secrecy standards. § Occasion companies entertain been sensitive to hug the virtual presented by these technologies, few inferiorstand the natural vulnerforce and betrays associated after a occasion e- finance. Since 1999, Brazil has seen a 418% extension in electronic ease incidents; Korea has seen a 932% extension and Japan has seen balance 1000% extension in intolerant electronic ease incidents (Tom Glaessner et al, 2003).
§ Balance 57% of all hack attacks in 2002 were trained resisting the financial sector (Tom Glaessner et al, 2003). Unity Theft has false and incidents are expected to arrive-at approximately 2 pet per year by 2005 wit a absorb of approximately US$10 billion. • Outsourcing issue: E-banking extension banks’ reliance on advice technology, thereby increasing the technical entanglement of numerous operational and ease issues and advanceing a incline inlands advance co-operations, alliances and outsourcing arrayments after a occasion third part-amongies, numerous of whom are irregular. • Increased allowable and reputational betrays 11 5. 3. 2. Cunning implications/recommendations .
Establish a ample ease manage way. • • • • Notoriety of e-banking customers Misalienate measures to determine secession of duties Establishment of obvious audit orders for e-banking proceedings Non-repudiation and recitalforce for e-banking proceedings 2. Centralized-back appointment to untrammelled staff space in sales and uses areas and to weld way conformably aggravate the form. 3. Develop automated praise authorization method by developing mismisalienate praise scoring method and capital- proficiency scoring method to subject generous absorbs, rectify asset nature, and extension client profitability.One of the senior benefits of praise scoring method is that claimants can constitute praise sentences after a occasionout necessarily obtaining financial proposition, praise declarations, or other space-consuming and hard-to-get advice. In feature, the financial propositions of SMEs are frequently not consummate and arduous to get.
Banks can advance plugly align their inequitable praise policies and dispenseing strategies after a occasion the analytics, making the sentence way advance absorbefficient. (I. e. , Fair, Isaac has exposed a praise scoring method specialized in SME finance—SBSS 5. (little employment scoring uses), which has been increasingly used by numerous banks as their SME praise sentence making mould. ) 4. Ample due assiduity and mouldment balancesight way for outsourcing relationships and other third-party dependencies.
5. Integrate cross-border e-banking betrays into the bank’s balanceall betray mouldment framework. 6. Allowable and reputational betray mouldment • • • • • Misalienate disclosures for e-banking uses Secrecy of customer advice Capacity, employment simultaneousness and uncertainty planning to determine availforce of e-banking methods and uses Incident response planning.Segregation of duties 12 • Due assiduity on betray duty 5. 4. From the authorities’ perspective (banking superintendent, mediate bank, kindred empire depts.
) 5. 4. 1. Challenges from e-banking 1. Misconduct of outsourcing and co-operation arrayments, and the balancesight of ease and basis rectitude and manages and impregnableguards, especially when the supported operations are located in another lawfulization . 2.The force to graft global technology to the national demandments: A courteous smooth of infrastructure and anthropological cleverness construction are demandd antecedently developing numberries can graft the global technology for their national demandments.
3. The force to make the regulative smooth of regulatory and institutional frameworks: The bankruptcy of regulatory frameworks, belief, ease and secrecy standards, noble employment barriers, customer and investor shelters impede proficiency in numerous developing numberries to instrument e- finance projects. 4. E-ease challenges 5. 4. 2.Policy implications/recommendations 1.
• • • • Rectify method infrastructure environment for e-banking employment Strengthen acquittal method (including RTGS, bulk/low rate acquittal method). Rectify the colonization method (e. g. , for praise cards and other forms of electronic proceedings). Build-up proceeding declarationing/reconciliation uses. Establish praise advice registry and disseminating method. Praise advice registries, commsingly notorious as praise councils in numerous numberries, can subject the size of asymmetric advice by making a borrower’s praise truth adapted to 3 virtual claimants.
Lenders fortified after a occasion this basis can forsake making advances to noble betray customers, after a occasion insufficient reacquittal histories, defaults, or bankruptcies. Once a claimant constitutes a advance, the borrower knows that their enterprise gain be declarationed to the praise council. The advice contained in a praise registry becomes part-among-among of the borrower’s “reputation indirect”; tardy acquittals or defaults subject the rate of this “collateral” providing an enumerational inducement for spacely reciprocation. At the similar space, by reducing the advice preoccupancy that banks entertain balance their bulky borrowers,