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Critical Analysis of the Impact of E-Banking on the Customers of the Banking Sector in the United Kingdom and Their Future Behaviour

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Critical analysis of the impact of E-banking on the customers of the banking sector in the United Kingdom and their future behaviour

Chapter 1-Introduction

1.1 Internet Banking in the United Kingdom and Europe

In the United Kingdom, Internet banking services are available and provided by twelve Internet banking services providers. The Egg, for example, is an Internet banking service provider (exclude current account features) that has more than 150,000 customers visited their web site during October 1998 to July 1999. The Internet banking services providers in the U.K. have encountered an increasing demand for cross boarder payment transactions for smaller amount of cash and payment over the Internet. Many banks continue to develop and launch new banking services on the Internet in order to satisfy and meet their Internet-based customer requirements in term of time, ease of use, security and privacy in the U.K. (Birch and Young, 1997; Mathew and Dagi, 1996; Gandy and Brierley, 1997).

In June 1999, the U.K. and eight other western European countries: France, Spain, Portugal, Germany, Switzerland, Holland, Luxembourg, and Scandinavia have become leading nations in providing Internet banking services in Europe.

Germany also has been rated as the nation that has the highest number of Internet banking services providers in Europe (BlueSky International Marketing, 1999). Although the UK has smaller number of Internet banking sites on the Internet than in Germany, but it has been rated as the highest quality and functionality at no additional charges to their customers in Europe. However, there are two banks in the U.K. that charge additional fees for Internet banking services:

(1) Natwest has a one-time charge of 30 pounds per customer, and

(2) NPBS has 2.99 pounds per month after a free introductory period of six months.

In Scotland, the Bank of Scotland does not provide 24 hours Internet banking services via the web site. Customers can not access to Bank of Scotland web site between 1:00 a.m. and 5:00 a.m. during weekdays and between midnight and 5:00 a.m. during weekends. During the bank web site is not accessible, a daily back office operations and maintenance is performed to assure accuracy and security according to local restrictions, rules and regulations.

Most of customers in the U.K. and European countries use Internet banking services to inquiry about their outstanding balances in saving and checking accounts, and details about their latest or last transactions for their daily reconciliation. The frequency to access the customers account per day is quite high. Many banks, therefore, have provided many view only features for customers to inquiry and view the information on their accounts as often as they want per day. As a result, the banks have reduced both operating costs and work hours for their staffs at call centers and local branches for frequently asked (FAQ) and repetitive transactions. The customers also benefit from quick, accurate, private, time saving services and access from their convenient computer, time and places.

1.2 E-banking security provokes fear or indifference for the British

A recent study by analyst Forrester Research has unearthed conflicting views about the safety or otherwise of online banking. The survey of 11,300 UK net users found that while many online banking consumers are complacent about security, a large minority have given up online banking as a direct result of security fears.

Most UK net users are aware of security threats like phishing and keystroke logging but are unfazed by these risks and expect their banks to deal with the problem - even though these attacks are thrown against consumer's PCs rather than a bank's own systems. Ideally users want banks to supply a blanket guarantee against fraud.

Based on responses to its survey, Forrester concludes that an estimated 600,000 from a total of 15m subscribers have ditched online banking as a direct result of security fears. Forrester reckons that users are confused and banks need to step up their efforts to educate customers about online fraud. Measures to restrict the functionality of some accounts (for example controlling how much money can be transferred on any day), stronger internet banking authentication and improved customer profiling are also needed to defend against security threats, it advises.

In addition to people who plan to drop net banking accounts as a result of security fears, another fifth of net users say that security fears will stop them ever banking online.

Benjamin Ensor, senior analyst of financial services at Forrester Research, said: "Net users don't know what to think about online banking security. Without the technical knowledge to judge the severity of security threats like keystroke logging and phishing or, frankly, much interest in acquiring that knowledge people struggle to reach a balanced judgment. The result is that about half of the UK's Net users are either complacent or paranoid about online banking security. So UK banks still face big communication and security problems." (

1.3 UK Consumers shy away from e-banking

Customers still value direct contact with real people in their bank branch. A vast majority of bank customers thinks that an online banking service is not important for their relationship with a bank.

According to a survey by Deloitte Consulting, less than one third of customers rate e-banking as an important service, and of those only 22% actually use it.

Even more unwelcome news for many banks will be the poll finding that more than 30% of customers do not even know whether their bank provides online services at all.

The findings contrast starkly with the market expectations among banking executives. In an earlier Deloitte survey, financial services executives had predicted that customers would be eager to do their banking on the web.

1.3.1 Cutting costs, not customer care

Julian Badcock, retail financial services analyst at Deloitte, said customers were certainly not rating the internet or interactive services "as a key factor in measuring their satisfaction with their banking service provider".

A "responsive service" and the feeling of "being treated as a valued customer" were much more likely to make consumers feel happy with their bank.

And more than 50% think it is important



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