TABLE OF CONTENTS01. 00. . . . .
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. . . EXECUTIVE SUMMARY02. 00. .
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. TRENDS IN RETAIL BANKING03. 00. . . .
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. . . ABOUT THE INTERNET04. 00.
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. VIRTUAL BANKING AND APPLICATIONS04. 01. . .
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SMART CARDS05. 00. . . .
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. . . . EXAMPLES06.
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. . . SECURITY ON THE INTERNET06. 01. .
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. CRYPTOGRAPHY06. 02. .
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FIREWALLS06. 03. . . . .
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. . TRUSTED OPERATING SYSTEMS07. 00. . .
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. . . . REGULATIONS AND PROBLEMS08.
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. . . CONCLUSION . 09. 00.
REFERENCES01. 00EXECUTIVE SUMMARYThe Internet is emerging as an efficient delivery channel for financial services. WithInternet banking, customers do not need to have special bank-issued software. Banksmaintain their identity and can differentiate themselves by customizing the services And information they provide over the Internet.
02. 00TRENDS IN RETAIL BANKINGWhat does better customer mean? Increasingly, customers are demanding moreconvenient ways to do their banking. An Ernst and Young study (Technology inBanking Report) concluded that “nothing changes in the banking world if customerscannot get financial services when and where they wish. . . this means anywhere, at anytime.
” Statistics show that ATM’s, telephone banking, and home banking account forover fifty percent of all banking transactions today, and total non-branch activity isgrowing at fifteen percent a year. In one survey (Web-Tech, Inc. , May 17, 1995),eighty-two percent of 18- to 34-year olds polled preferred banks with 24-hourservice. Customers are also demanding a more sophisticated mix of products tailoredspecifically to their financial needs, and non-bank competitors are better fulfilling theseneeds. Banks today hold only 20% of household financial assets, versus 34% twentyyears ago; they have 30% of business deposits, versus 42% only seven years ago. Nonbank credit card providers have gained inroads against banks, holding a 25%market share versus 5% in 1986 (WebTech, Inc.
, May 17, 1995). Internet banking offers an attractive solution to this redesigned products and services. Customers have 24-hour graphical-interface access to their accounts and appreciatethat their bank is doing something to make banking easier for them. 03.
00ABOUT THE INTERNETThe Internet has exploded in the last two years thanks to the invention of the so-called”browser. ” A browser is a point-and-click software program that allows “surfers” tonavigate around the Internet without knowing any UNIX commands. The firstbrowser was developed by the National Center for Supercomputing Applications, agovernment agency. With a browser and access to the Internet, you can order a pizza,listen to and purchase a CD, stroll through the Louvre, or view satellite photographsof Scotland. Although it may get congested from time to time, the Internet itself is extremelyreliable.
There is not actually any one network that is the Internet; it is made up ofthousands of networks that connect to each other through common routes, and theyall agree to carry each other’s traffic. There is a lot of money flowing up from localaccess providers to these national players, guaranteeing that the infrastructure willcontinue to expand to meet demand. Because so many resources are shared, the Internet is also very efficient. It costs a lotless to connect a business to the Internet than to lease telephone lines that customersdial into with their modems.
Most likely Internet users will continue to be charged forthe size of the “pipe” connecting them to the Internet. The number of commercial entities with an Internet presence doubled in the first threemonths of 1995. Modems will keep getting faster, allowing more information, bettergraphics, and full-motion video to be downloaded more easily. However, in five yearsmost households will probably buy their Internet access from their cable company,who will provide them with a 10 megabit-per-second connection through their cablewire.
A 10-MB connection would download in one second a file that takes a 28. 8Kmodem five and a half minutes to download (WebTech, Inc. , May 17 1995). 04.
00VIRTUAL BANKING AND APPLICATIONSPicture a bank without any branches. No tellers. No rows of desks. no racks ofbrochures, no automated teller machines outside.
Picture, in fact, a virtual bank, onethat for the customer exists only in his or her office or home, as images on a computerscreen. US financial institutions are moving towards “virtual banking. ” This strategyis about making bank products and services available to customers any time and anyplace they want them. As virtual banking becomes more popular, it is very likely thatmore customer service will be seen while the number of traditional teller-staffedbranches will decline. Bank customers will move away from traditional banking andwill become more dependent on electronic transactions using ATMs or PCs (Britt,Savings&Community Banker, February 1995, p. 9).
Thanks to the revolution, financial institutions are using software programs, onlineservices, and even the Internet to allow customers to check balances, pay bills, andtransfer funds among accounts, Bankers promise that, in the near future, we will alsobe able to more easily buy certificates of deposit, mutual funds, and other investments,and even apply for loans electronically. For most people, today’s best option may be plug into their bank through one of threeleading home-budgeting software programs: Intuit’s Quicken, Microsoft Money, andManaging Your Money. By charging $5 to $20 a month for such services, banks are sure to cash in on thehigh-tech superhighway. For customers, the job is made easy. All that is required is apersonal computer, software and a modem.
On-screen instructions, laden withcolorful graphics and pictures, explain how to select and work on various tasks. Thesystem automatically calculates and updates account balances and keeps records ofbills. A handful of banks have already set up home pages on the Internet to provideinformation to their existing and potential customers about upcoming services. Theystarted their transactions.
Internet banking differs from the traditional PC bankingmodel in several ways. In most home banking ventures, the bank sends an applicationsoftware program to the customer which runs on the customer’s PC. The customerthen dials into the bank with their modem, downloads data, and runs the programsthat are resident on their computer, perhaps sending back a batch of requests such astransfers between accounts. It demands more and more space and speed from thecustomer’s computer.
With Internet banking, on the other hand, there are potentialcustomers who already have all the software they need to do their banking, since allthey need is a browser. The actual banking software resides on the bank’s server inthe form of their home page. This software can be updated at any moment with newinformation, such as new prices or products, without having to send anything to thecustomer; it can also continue to expand and become more sophisticated withoutbecoming cumbersome for the customer to operate. Banking with a browser, on theother hand, involves a continuous, interactive session, initiated by a local telephone callto a local access provider or online service.
A home page in the Internet is not only a customized product tailored specificallyfor that bank’s customers, but an advertisement for the bank as well. Early entrants in the Internet banking market will benefit on multiple fronts. Thesebanks will appeal to a vast new potential market who represent an attractivedemographic segment: educated, professional, affluent. These new customers will savebanks money because they will visit branches less frequently and will switch frompaper to electronic transactions. More importantly, by developing internal expertisetoday, banks can position themselves to react quickly to competitive moves andconsumer trends as the financial services industry evolves. These banks will see thebenefits of early players and they will enjoy the public relations boost that comes frombeing a market leader(WebTech, Inc.
, May 17, 1995). INTERACIVE APPLICATIONSIn Columbus, Ohio, Huntington Bancshares Inc. has put its stamp on the virtual bankconcept with Huntington’s Access, an automated branch office that’s always open. The Access branch houses both traditional and advanced-function automated tellermachines that use imaging technology to display deposited checks for verification andto cash a check to the nearest dollar. Also on site is the Personal Touch screen,interactive video kiosks where customers can conduct a variety of transactions. At thetouch screen, customers are able to talk face to image with a customer servicerepresentative.
Banks find themselves facing a window of customer opportunity. “In a lot of theirother business transactions, the retail customer in general is learning to self-serve. And, of much more importance, he or she is learning to self-sell,” says GeorgeBollenbacher, manager of strategy and business development for worldwide financialservices at Unisys Corp. In short, they are ready for self-banking.
Some progressive banks already have a presence on the World Wide Web. WellsFargo Bank of San Francisco gives customers access to current account balanceinformation and transaction histories at its Web site Using browsers from NetscapeCommunications Corp. First Union Bank, in alliance with Open Market Inc. plans byyear’s end to offer full Web transaction services to its 10 million customers (Kay, A.
,Communications Week, August 14, l995, p. 36-40). 05. 00SMART CARDSEmployees at Bank of America, Chemical, Wells Fargo, and other large U.
S. banksuse them to buy lunch and snacks. Smart cards-plastic cards with computer chips-arestarting to be used for prepayment, debit, and credit purchases all over the world. Inthe U. S.
, smart cards can be only used at a contained group of machines, or for onepurpose. “They are part of the broader shift to electronic delivery, to making ATMsmore functional, to using PCs and the Internet to do home banking, to going to POSterminals to get cash back, to getting electronic benefits transfer off a card. ” saysEdgar Brown, senior vice- president of alternative delivery products at First Union,Charlotte, N. C.
One of the advantage of using chips on cards with or instead of magnetic stripes isbetter security. Microprocessor chips are very difficult to alter or forge. Chips cancarry more information than magnetic stripes can. A microprocessor chip can store upeight kilobytes of data. Smart cards make possible cheaper and faster payments.
Money can be deducted from a chip without on-line authorization. This makes for atwo-second transaction versus an up-to-two-minutes one, and telecommunicationscosts are saved (Lunt, P. , ABA Banking Journal, September 1995, p. 46).
09. 00 REFERENCES Britt, P. (1995, February). Savings;Community Banker.
Humpehreys, K. (1995). Security First Network Bank. http://www. sfnb. html.
Internet Banking. (1995, May 17). WebTech, Inc. Online information. Kay, A. (1995, August 14).
Interactive Applications. Communications Week,36-40. Lunt, P. (1995, September). ABA Banking Journal, 46.
Wells Fargo Bank. (1995, May). The Orange County Register.Words/ Pages : 2,475 / 24
