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Impact of e-banking on traditional banking services

Introduction:

In order to introduce e-banking and traditional banking this part of the article is explained a short background of established bank, problem statements, research question and the research intention. Also, a concise overview of e-commerce activity on e-banking and traditional bank has been presented in this chapter.

Bank and business are intimately connected to each other. At the beginning, the original type of commercial bank that handled customer deposits and made investment loans to businesses. Franlin (1995) illustrated that the traditional banks only entities legally able to issue checking accounts prior to the 1980s. While still dominant in the banking industry, traditional banks are joined by savings and loan associations, credit unions, and mutual savings banks.

In a recent decade, traditional banks adopted e-commerce and converted to e-bank that is an important component of business development plan. During better times, business is easier to acquire and maintain. An extreme view speculates that the e-banking will destroy old models of banking services (DeYoung, 2001a). This extreme view proved that banks take advantage of this new technology that depends on their assessment of the profitability and established e-banking services (Malhotra and Singh, 2009). For example, Titrade (2008) demonstrated that e-banking services offer customers to get online benefits those are:

• achieve information about accounts and loans,

• transfer money to different accounts, even between external banks,

• Paying bills,

• Buying and selling stocks and bonds by depot,

• Buying and selling fund shares

Magdalena and Luminita (2009) reported that banking services through internet have, generally, operational and transactional costs cheaper than usual banking services. In the meantime, banking industry must adapt to the electronics age, which in its turn is changing all the time

In addition, Berger (2003) revealed that industry analysis outlining the potential impact of e-banking on cost savings, revenue growth and risk profile of the banks have also generated considerable interest and speculation about the impact of the e-banking industry on traditional bank. However, one of the issues currently being addressed (Titrade, 2008) is the impact of e-banking on traditional banking. Rogers (1998) points out that the impact of traditional bank measures based only on traditional balance sheet figures where as largely ignored non-traditional activities. On the other hand, Panait (2009) argued that the impact of e-banking evaluates to customer information under the existing regulations.

Ensure the security and confidentiality of customer information;

Protect against any anticipated threats or hazards to the security or integrity of such information;

Save from unauthorized access to or use of such information that could result harm or problem to any customer.

Researcher’s important activities and usefulness course of action have prompted a search for better methods for reducing impact of traditional banking service. Although a number of methods have been reported, simple and efficient approaches still remain scare. In recent years much effort has been devoted to study the effect of different measuring extreme systematic risk process (Olivier, 2008).

In this paper it will be discussed how e-banks are different from the traditional banks in terms of profitability, cost efficiency, asset quality and other characteristics by examining bank financial statements. The present study will examine a comprehensive a set of measurements of financial performance that allow us to “look inside the black box” of e-banking performance. By developing a deeper understanding of these phenomena, we can draw more insightful inferences about the impact of e-banking strategies, production processes and financial performance.

Background:

Research significance:

The need and demand of e-banking possesses a great challenge for traditional banking service. In order to meet a high-quality service in business sector traditional banking service has to be optimized to e-banking. The significant of research associated with e-bank itself and e-commerce, off course, lies in its availability. Ineligible banking progress and decisions may amplify a financial strategic risk (Cezar et al.). Carter and Garcia (2009) made it clear that traditional banking system and transactions have recognized that they are not as permanent as previously assumed. The loss of confidence in traditional banking system has revealed by the recent financial system fall down.

Panait (2009) made it understandable that banking operation’s hazard arises from fraud, handling errors, system trouble, or other unexpected actions. This risk continues in each item for consumption and service offered. Funding and investment-related risks could increase with an institution’s e-banking initiatives depending on the volatility and pricing of the acquired deposits.

On the other hand, the drawback lies in its security factors and complexity. Both of them have profound impact of e-banking traditional banking service. It may appear form social and organizational perspective (Ioannis, 2009) and may arise due to a failure of some relevant integrity or all the lack of authentic and confidential information.

From the above point of view, it is clear that traditional banking faced a lot of problems from different user and non user. The study can be extend this examine to all banks offering online banking sectors.

Problem statement:

Main area of this study is “impact e-banking on traditional bank services and several drawbacks of some traditional banking”. There are few reasons for directed on this topic:

1) Most traditional bank activities, such as banks acting as derivatives dealers, expose banks to risks and moral hazard problems failure to get customer satisfaction (Franlin, 1995).

2) A potential commercial market for e-banking services are successful, but old model banks getting lose to manage their vast expenses (Yuan, 2010).

3) The banking sector has been most successful with online transaction, easy internet access, the availability of secure, high standard online banking functionality, cost savings, and the necessity of banking services (AC Nielsen Consulting 2000; Laforet & Li, 2005). Besides that poor public image, customer dissatisfaction, competition and specialization had made the practice of much more difficult to deal traditional banking.

Research Question:

The research questions of this study relate to the factors that influence the adoption and implementation of e-commerce in particular reference to the traditional banking industry. The specific questions to be examined are: What impact factors verify the adoption of ecommerce in traditional banks? According to the present study I initiated following question:

How e-banks are different from the traditional banks?

How the traditional bank’s financial performance affected by e-banking?

General responsible of bank is public funding operation such as; payment and deposits then why bank are regulated?

In comparison with e-banking why traditional bank services failed to get customer satisfaction?

How to utilize the new digital products and services to create a more sustainable future.

Aim and object:

Aims:

In view of the extensive occurrence of traditional banking in our society, specifically in public sector and organizations as well as their important activities of the e-banking, it is planned to search for better methods and recommendation for developing banking systems.

Objectives:

The study is designed to correspond with the objectives of assessing the impacts of e-banking, specifically focusing e-banking on the traditional banking service. The following objectives are discussed:

Understanding e-banking and traditional banking terms of profitability.

To assess the impact of e-banking on traditional banking service.

To identify and highlight potential improvements what reduces the impacts of traditional banking.

To highlight the different products or services distribution strategies which increases resource of efficiency and customer’s satisfaction?

2. Literature review:

2.1. E-banking VS traditional banking:

The banking sector is an integral part of the economy. Bjelica and Dejan (2010) addressed that traditional banks are considered to be financial institutions which deal with financial activities in terms of collecting deposits and giving loans. An e-banking, on the other hand, is consists of several distribution channels that can supply several information about transaction (Karjaluoto (2002a). Similarly, Daniel (1999) illustrated that e-banking is the delivery system of banks which provides information and services to customers via different delivery policy that can be used with a variety of devices such as a internet accessory, cell phone and desktop, telephone or digital television.

Under the traditional bank payment transactions, we assume every payment which is done via a bank or some other similar organization concerning any kind of legal affairs (Bjelica and Dejan, 2010). However, the Internet is a main delivery channel for e-banking and its value to customers and banks is continuously increasing its delivery systems (Karjaluoto, 2002; Mattila, 2001). But, the payment transactions system does not include only cash payments, i.e. when a debtor gives money to a creditor.

Definition of traditional banking transactions system extended by Bjelica and Dejan,( 2010) that all natural and legal persons are on the side of the applicants while the authorized organizations for payment transactions (banks, PTT exchange, savings banks) are on the side of the recipients. Conversely, e-banking is the automated delivery system to customers through internet, interior message channels (Daniel, 1999; Sathye, 1999). According to Basel Committee report on banking supervision (2008) “it refers to the provision of retail and banking products and services through electronic channels. Thus in the most encompassing definition, electronic banking would run the gamut from direct deposit, ATMs, credit and debit cards, telephone banking, to electronic bill payment and web-based banking”.

2.2. Movement of e-banking

According to Karjaluoto (2002), the consumer movement from traditional branch banking to e-banking has meant that new strategies to attract new customers and retain existing ones become critical. Ranaweera and Prabhu (2003) argue that ideally, firms should aim at a combined strategy that makes switching costs act as a complement to customer satisfaction. While customer satisfaction may be one important driver of customer retention, switching costs are also likely to influence customer retention (Lee et al., 2001; Ranaweera and Prabhu, 2003). Portal providers are likely to attract the most significant share of banking profits. Indeed banks could become glorified It required much more effort to manage and sustain a successful practice.

2.3. The impact of traditional bank:

In the last two decades the impact of traditional banks tainted a great deal. Therefore the understanding of the essence of this banking system has been changed as well. Bjelica and Dejan (2010) illustrated that many aspects prejudiced this trend. For example; internationalization, globalization, the increase in number of financial services, the progress of competition, technological development and the appearance of a great number of innovations have changed banking system. In addition, Altunbas et al., (2001), Iannotta et al. (2007) argued that the impact of traditional bank is focused on ownership of different types banking service such as; the state ownership (Porta et al.,2002), Berger et al. (2005), Micco et al. (2007), foreign ownership (Berger et al. (2005), Lensink et al. (2008), Staikouras et al. (2008)) and block holder ownership (Caprio et al. (2007), Laeven & Levine (2008)) are on the banking performance. Furthermore, DeYoung et al. (2001) was studied to examine the impact of the level of management and board ownership on bank efficiency.

By separating management and board ownership, It address the criticism presented in Demsetz & Villalonga (2001) that many studies on the impact of management ownership has included board ownership in the management or insider ownership variable even though the interests of the management and board are different.

2.4. Potential improvements that reduces the impacts of traditional banking

Goski et al.(2007) concentrated on the frustrations of accessing credit facilities compel from formal banking systems to informal enterprises which is non banking activities and informal arrangements to access funds for their business operations. De Wulf et al. (2001) realize that building a profitable and sustainable long term relationship with customers is central to the relationship marketing theory. Correspondingly, increasing customer’s retention, developing and maintaining trust and commitment between sellers and customers (Gaur & Xu, 2009) are part of theory. In addition, Gaurav, (2008) appreciated that achieving high customer’s loyalty and more customers’ satisfaction is the main objectives of an organization. Also, cost reduction due to the better understanding of customers needs (Ndubisi, 2004) equally important of marketing theory. The application of relationship marketing theory has even extended into financial services, due to the deregulation policy (Yavas & Yasin, 2001).

The removal of restrictions between banks, building societies and insurance companies (Speed and Smith, 1992) and the vast expansion in the adoption and use of information technologies (Bergeron et al, 2008) is important factor. There are outlined specific actions that organization should consider in implementing a security program (Ramball M. (2008)). These measures include:

Identifying and assessing the risks that may threaten consumer information;

Developing a written plan containing policies and procedures to manage and control these risks;

Implementing and testing the plan;

Adjusting the plan on a continuing basis to account for changes in technology,

the sensitivity of customer information, and internal or external threats to information security.

There are also outlined the responsibilities of management to oversee the protection of customer information including the security of customer information maintained or processed by service providers. Titrade, (2008) afraid that in opportunity of e-banking and its allegation are uncertain. The points of view in favor are as follows:

• E-banking transactions are much low-priced than branch or even phone transactions. This could be a large competitive advantage for e-banking, that allow e-banks to undercut bricks-and-mortar banks. This is commonly known as the "beached dinosaur" theory.

• E-banking will lead to al other banking sector that is currently enjoyed by the major UK banks.

2.5. Products or services which increase resource of efficiency and customer’s satisfaction:

Traditional banks may simply be left with payment and settlement business even this could be cast into doubt and customers unhappiness. The idea of customer pleasure has been exercised since the early 1980 (Bailey & Pearson, 1983; Ives, Olson, & Baroudi, 1983) and its have been studied since the 1980 (Bailey & Pearson, 1983; J. Chin, Diehl, & Norman, 1988; Ives et al., 1983; Rivard & Huff, 1988; Rushinek & Rushinek, 1986). Bailey et al. (1983) state that several factors affect the user satisfaction and it can be seen as a bi-dimensional attitude. The user satisfaction can be seen sum of user’s feeling and attitudes toward several factors that affect the usage situation (Bailey et al., 1983).

Recently, there has been growing interest in traditional bank user experience (Hiltunen et al., 2002; Lindgaard & Dudek, 2003; Wilson & Sasse, 2004), which can be seen as much larger concept of consumers satisfaction. User experience has become an important factor in e-banking because the end user often pays for the majority of new products and services, which indicates that new products characteristics such as; security, ease of use, Digital products/services, transaction and payments, and innovation contents(Khanfar, 2006). From this perspective, assessing the user experience is essential for many technology products and services (Wilson & Sasse, 2004).

3.2. Theoretical framework:

From the practical point of view, there are mainly two kinds of venture, one of which is adaptation of e-commerce and other is development of e-banking. Kyu and Bipin (2001) provided both theoretical explanations and empirical validation on the adoption of e-commerce for traditional banking services. Regarding the adoption of e-banking, they enabled to offer specific recommendations on marketing strategies for practitioners. Ronald (2003) observed that law and right and the increase of internet facilities moved up the transaction. Elias (2000) explored the status of e-commerce in the banking industry. Many researches focused on the user of e-banking that have been done on adoption of e-commerce, and the following factors influencing it.

Security: The quality or state of being secure to be free from danger.

Ease of Use: A method that the bank Availableness it for the customer who through it use the procedures of banks easily.

Digital Products/Services: Goods and services that can be transformed to digital format and deliver upper the internet banking.

Transaction and Payment: services and procedures that the bank availableness for the customer who through it able to payment and other borrow and other transaction form banks online.

Information Content: content at a web site that need to be changed continually to keep it up to date.

Innovation: the innovation of new ideas such as new technologies, design and best practice that permit bank to compete efficiently in the worldwide environment.

When an enterprise realized danger, it will takes a series of examine on the basis of tthree hypothesizes. This study tries to make relationship and linkage between e-business and networking technology.

HYPOTHESIS DEVELOPMENT

The proposed model depicts that a customer’s assessment of traditional banking service quality is positively related to customer satisfaction and his/her willingness to recommend and will decrease his/her likelihood to complain. On the other hand, if the customer’s assessment of the traditional banking service quality is negative, the customer will engage in unfavorable behavioral intentions.

Therefore, the following hypotheses are developed:

H1: There is a significant difference between customers’ expectations and their perceptions of service quality offered by traditional banking.

H2: There is a significant relationship between traditional banking service quality and customer satisfaction.

H3: There is a significant relationship between internet banking service quality and customer behavioral intentions

H4: Customers at are dissatisfied with banks environment and location. There is a significant relationship between customer satisfaction and customer behavioral intentions

3. Methodology:

The methodology will be based on a cross- sectional survey method with three (3) main components. These included Reviews, Contacts and Field Activities. The review was conducted through desk research of online resources, research papers, working documents, conference documents, and other publications. The contacts were made through one on one discussion and/or small group discussions by visiting offices and officials of banks whether, semi informal or formal. A self developed instrument was used for the field exercise. The study classified the system into three categories based on the classification by (Basu et al., 2004) in an IMF working paper.

The suggested method which is also applicable in the study is the use of the questionnaires wherein the banks can determine the level of understanding of the customers about the online banking and the other related services. Also through the help of the questionnaires, the banks can measure the influence or the impact of the interactive banking in finding solutions out of the client’s busy life. All of the information created out of the questionnaires will lead to the determination of the various perceptions of the customers in the services that is offered through the use of Internet.

Investigation will be prepared by collecting data, analyzing, comparing and interpreting the results according to literature procedure. The course of action will be ready by gathering data from several years to current published journal. The data will be monitored by comprising with several aspects. The accumulated data will be justified based on analytical data obtained from internet publication.

Rationale:

The important networking activities and usefulness as natural process have prompted a search for better methods of producing e-business. Although a number of synthetic methods for judging of e-business have been reported, simple and efficient approaches still remain scare.

Limitation:

To collect more information from present fast moving situation, manage formal and informal interview within the time will be main problem for this study. Anyway, more limitation will be including actually when I will handing out data.

Reflection: e-banking is the real output of the impact of traditional bank.

Timetable:

Task

Start

End

Research proposal

10/11/2010

18/11/2010

Topic selection

19/10/2010

22/11/2010

Finding

23/11/2010

30/11/2010

Literature review

01/12/2010

10/12/2010

Problem identification

11/12/2010

15/12/2010

Methodology

15/12/2010

20/12/2010

Drafting

21/12/2010

27/12/2010

Submission of research proposal

28/12/2010

08/12/2010

Conclusion:

The result of this study shows that traditional bank users are not completely satisfied in comparison with online banking system. Traditional bank did not provide sufficient facilities to their clients that they obtained from online bank organizers’. For instant, e-bank consumers are achieving several benefits such as; ATM, internet banking, credit card and a range of buying or selling option. As a result, most of the customers are moving to e-banking system. Usefulness, perceived ease of use; consumer awareness and perceived risk are the important determinants of e-banking banking adoption.

This study meets the desired objective; but it suffers from one setback. Study concludes that a majority of customers are accepting e-banking since of many positive issues. We concluded that value, effortlessness of use of the system and the awareness about online banking and risks related to it. Those are real thing to accept online banking system. These factors have a strong and positive effect on customers to accept online banking system.

These researches provide a rapid entry to justify business market in all conditions. This methodology is expected to be widely used in e-banking sector. Therefore, the process will provide a new entry into the active system for improving traditional banking system.


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