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Online Banking

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Online Banking:

How Technology has Affected the Bank Industry

Aluscine Kabia

Diana Mickle

Jennifer Ross

Betty Tekeste

University of Phoenix

COM525: Managerial Communication and Ethics

Edward L. Dempsey

March 14, 2005

Modern technology has set the stage for today's industries to adopt faster, more effective and efficient tools to improve their business and productivity. A vast majority of organizations within various industries are using new technology to introduce changes to their business operations. Simply stated, these changes are manifested in what they do, with whom they do it, how they do it, and the tools they use to get it done. However, it is worthwhile to note that, while technology can offer beneficial changes to organizations, change usually comes with both positive and negative consequences. In any business, if technology serves as a catalyst for improvement without significant drawbacks, adopting the changes that it brings will be more beneficial than harmful.

Online banking is a technological advancement that has brought about such a change. The banking industry has adopted virtual banking to improve business process, infrastructure, and customer relationships. These changes have had a major impact on the banking business, but more transparently on the customers of online banking. The matrix measures for the improvements added by online banking can be evaluated on comparable levels of service, efficiency and cost satisfaction, for both the provider and consumer of this technology. Throughout this document, we will discuss the advantages and disadvantages of online banking in hopes of formulating a better understanding of why banks of today are moving towards online business. While virtual banking has considerable concerns, the advantages it generates, far outweighs the disadvantages because the value added through this technology benefits both the banks, and the customers.

E-banking has had a considerable impact on today's banking business, affecting both customers and banks in multiple ways. Banking activities such as; account inquiries, depositing or transferring funds and ordering checks, can now be done remotely, 24 hours a day and seven days a week. From a business organizational point of view, this technology is changing the employee structure of the average bank. The U.S Department of labor noted in 2004 that "banking employment is projected to grow more slowly than average as consolidation and automation make banks more efficient". Changes in how banks are providing their service has affected, and will continue to affect hiring practices, as more online services become available, demanding the need to employ computer specialists.

Online banking is also changing the way banks market their products. Customers are not just seeing the new interest rate offer for opening a one-year CD or money market account, on an easel as they walk into their local branch. Today's banker sees the ad on a flashing banner as they launch their bank's website. Banks also advertise various types of loans, investment accounts and insurance products that are easy to purchase or open with an online application. The growing use of new credit scoring software allows banks to advertise a guaranteed answer or 24 hour approval on such applications. E-tools for conducting such services have completely changed old banking processes, and provide new, more convenient ways of banking, that Banks are using to lure customers into their business.

The customer's of online banking reap many benefits from the added convenience of online banking, but the nature of banking has completely changed and requires new skills. For instance, basic personal computer skills are a must for bankers wanting to enter the online banking world. Bankers will now need to be able to maneuver through the numerous tabs, buttons and icons on their computers, to be able to access their accounts, and complete transactions. Officials of the Internet-only bank, BankDirect, acknowledge that banking online "is a service best suited to computer-savvy clientele" (Yip, 2000, p22).

Another change for customers is the number of staff members that are now available to offer them assistance. According to the Department of Labor in 2004, "fewer employees will be hired to staff new branches than in the past." This is a considerable change for traditional bankers who continue to conduct branch and telephone banking. One notable change for this group is the higher fees they now have to pay for using the service of tellers whether in the branch offices or over the phone. Major banks such as Bank of America advertise free online banking on their website, but charge anywhere from six to twenty dollar service fees for checking accounts that offer unlimited teller access. Whilst such changes affect customer-bank interaction, the advantages brought as a result of the change are beneficial to both entities.

With online banking, banks have a considerable marketing advantage in that the internet makes well-directed sales pitches easier by allowing them to interact directly with potential customers by online advertising (The Virtual Threat, 2000). Banking institutions have effectively utilized the internet's ability to provide for customers the same economical advantages of automated services that they have benefited from for years through network banking (Bankrate, 2003). In this case, the "value added" to the banking business through the automation process of millions of transactions is offered to customers through online banking tools. Online banking also helps eliminate potential human error associated with paper handling and incorrect data input. This automation also eliminates the customer's dependency on receiving live assistance from tellers for simple transactions and printing out statements (Wolfe, 2004).

From a cost perspective, online banking offers ways for banks to save money and market their products more efficiently (The Virtual Threat, 2000). Banks are able to cut operational costs associated with rent for the buildings that house their business and the tellers that are hired to operate transactions. As a result, online banking allows banks to offer better deals to their customers by cutting service fees and increasing interest rates (Online Banking, 2005).The cost savings therefore has a two-fold effect as it benefits both the customers and the banking institutions.

Despite the business advantages



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