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01.00............ EXECUTIVE SUMMARY
02.00............ TRENDS IN RETAIL BANKING
03.00............ ABOUT THE INTERNET
04.00............ VIRTUAL BANKING AND APPLICATIONS
04.01............ SMART CARDS
06.00............ SECURITY ON THE INTERNET
06.03............ TRUSTED OPERATING SYSTEMS
07.00............. REGULATIONS AND PROBLEMS
08.00............ CONCLUSION .
01.00 EXECUTIVE SUMMARY
The Internet is emerging as an efficient delivery channel for financial services. With
Internet banking, customers do not need to have special bank-issued software. Banks
maintain their identity and can differentiate themselves by customizing the services And information they provide over the Internet.
02.00 TRENDS IN RETAIL BANKING
What does better customer mean? Increasingly, customers are demanding more
convenient ways to do their banking. An Ernst and Young study (Technology in
Banking Report) concluded that "nothing changes in the banking world if customers
cannot get financial services when and where they wish...this means anywhere, at any
time." Statistics show that ATM's, telephone banking, and home banking account for
over fifty percent of all banking transactions today, and total non-branch activity is
growing 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-hour
Customers are also demanding a more sophisticated mix of products tailored
specifically to their financial needs, and non-bank competitors are better fulfilling these
needs. Banks today hold only 20% of household financial assets, versus 34% twenty
years 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 appreciate
that their bank is doing something to make banking easier for them.
03.00 ABOUT THE INTERNET
The 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" to
navigate around the Internet without knowing any UNIX commands. The first
browser was developed by the National Center for Supercomputing Applications, a
government 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 photographs
Although it may get congested from time to time, the Internet itself is extremely
reliable. There is not actually any one network that is the Internet; it is made up of
thousands of networks that connect to each other through common routes, and they
all agree to carry each other's traffic. There is a lot of money flowing up from local
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continue to expand to meet demand.
Because so many resources are shared, the Internet is also very efficient. It costs a lot
less to connect a business to the Internet than to lease telephone lines that customers
dial into with their modems. Most likely Internet users will continue to be charged for
the size of the "pipe" connecting them to the Internet.
The number of commercial entities with an Internet presence doubled in the first three
months of 1995. Modems will keep getting faster, allowing more information, better
graphics, and full-motion video to be downloaded more easily. However, in five years
most households will probably buy their Internet access from their cable company,
who will provide them with a 10 megabit-per-second connection through their cable
wire. A 10-MB connection would download in one second a file that takes a 28.8K
modem five and a half minutes to download (WebTech, Inc., May 17 1995).
04.00 VIRTUAL BANKING AND APPLICATIONS
Picture a bank without any branches. No tellers. No rows of desks. no racks of
brochures, no automated teller machines outside. Picture, in fact, a virtual bank, one
that for the customer exists only in his or her office or home, as images on a computer
screen. US financial institutions are moving towards "virtual banking." This strategy
is about making bank products and services available to customers any time and any
place they want them. As virtual banking becomes more popular, it is very likely that
more customer service will be seen while the number of traditional teller-staffed
branches will decline. Bank customers will move away from traditional banking and
will 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, online
services, and even the Internet to allow customers to check balances, pay bills, and
transfer funds among accounts, Bankers promise that, in the near future, we will also
be 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 three
leading home-budgeting software programs: Intuit's Quicken, Microsoft Money, and
Managing Your Money.
By charging $5 to $20 a month for such services, banks are sure to cash in on the
high-tech superhighway. For customers, the job is made easy. All that is required is a
personal computer, software and a modem. On-screen instructions, laden with
colorful graphics and pictures, explain how to select and work on various tasks. The
system automatically calculates and updates account balances and keeps records of
A handful of banks have already set up home pages on the Internet to provide
information to their existing and potential customers about upcoming services. They
started their transactions. Internet banking differs from the traditional PC banking
model in several ways. In most home banking ventures, the bank sends an application
software program to the customer which runs on the customer's PC. The customer
then dials into the bank with their modem, downloads data, and runs the programs
that are resident on their computer, perhaps sending back a batch of requests such as
transfers between accounts. It demands more and more space and speed from the
customer's computer. With Internet banking, on the other hand, there are potential
customers who already have all the software they need to do their banking, since all
they need is a browser. The actual banking software resides on the bank's server in
the form of their home page. This software can be updated at any moment with new
information, such as new prices or products, without having to send anything to the
customer; it can also continue to expand and become more sophisticated without
becoming cumbersome for the customer to operate. Banking with a browser, on the
other hand, involves a continuous, interactive session, initiated by a local telephone call
to a local access provider or online service.
A home page in the Internet is not only a customized product tailored specifically
for that bank's customers, but an advertisement for the bank as well.
Early entrants in the Internet banking market will benefit on multiple fronts. These
banks will appeal to a vast new potential market who represent an attractive
demographic segment: educated, professional, affluent. These new customers will save
banks money because they will visit branches less frequently and will switch from
paper to electronic transactions. More importantly, by developing internal expertise
today, banks can position themselves to react quickly to competitive moves and
consumer trends as the financial services industry evolves. These banks will see the
benefits of early players and they will enjoy the public relations boost that comes from
being a market leader(WebTech, Inc., May 17, 1995).
In Columbus, Ohio, Huntington Bancshares Inc. has put its stamp on the virtual bank
concept with Huntington's Access, an automated branch office that's always open.
The Access branch houses both traditional and advanced-function automated teller
machines that use imaging technology to display deposited checks for verification and
to 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 the
touch screen, customers are able to talk face to image with a customer service
Banks find themselves facing a window of customer opportunity. "In a lot of their
other 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 George
Bollenbacher, manager of strategy and business development for worldwide financial
services at Unisys Corp. In short, they are ready for self-banking.
Some progressive banks already have a presence on the World Wide Web. Wells
Fargo Bank of San Francisco gives customers access to current account balance
information and transaction histories at its Web site Using browsers from Netscape
Communications Corp. First Union Bank, in alliance with Open Market Inc. plans by
year's end to offer full Web transaction services to its 10 million customers (Kay, A.,
Communications Week, August 14, l995, p.36-40).
05.00 SMART CARDS
Employees at Bank of America, Chemical, Wells Fargo, and other large U.S. banks
use them to buy lunch and snacks. Smart cards-plastic cards with computer chips-are
starting to be used for prepayment, debit, and credit purchases all over the world. In
the U.S., smart cards can be only used at a contained group of machines, or for one
purpose. "They are part of the broader shift to electronic delivery, to making ATMs
more functional, to using PCs and the Internet to do home banking, to going to POS
terminals to get cash back, to getting electronic benefits transfer off a card." says
Edgar Brown, senior vice- president of alternative delivery products at First Union,
One of the advantage of using chips on cards with or instead of magnetic stripes is
better security. Microprocessor chips are very difficult to alter or forge. Chips can
carry more information than magnetic stripes can. A microprocessor chip can store up
eight 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 a
two-second transaction versus an up-to-two-minutes one, and telecommunications
costs are saved (Lunt, P., ABA Banking Journal, September 1995, p.46).
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,
Lunt, P. (1995, September). ABA Banking Journal, 46.
Wells Fargo Bank. (1995, May). The Orange County Register.