History And The Development Of The Internet Banking Finance Essay

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Thomas Jefferson had ever said that he had a definite assurance that the institution of the banking had a much more importance and graveness threaten for the freedom of the human than the military threaten from the enemy. This is absolutely true, why I am saying this is how do you feel if the world's wealth concentrated on your hand.

As the stream of time has gone, the internet and the personal computer have been extensive used and have made a real impact upon our every day lives. As a consequence, the banking industry starts to use the internet to operate their services and this is named as the internet banking service which is also the latest and most innovative service offered by the bank industry. People nowadays are quite busy in the week days and their working hours are the same as the banking hours, which lead them to not even having much spare time to visit their bank for conducting banking transactions. This problem now can be overcome by the adoption of the internet banking. Internet banking enables bank customers to carry out most of their banking transactions by using a safe website, which is operate by their respective banks. Of course, the internet banking is not to change consumer's money habit. It is to use today's computer technology to give consumers the option of bypassing the time-consuming, paper-based aspects of the traditional banking in order to govern their own finances more quickly and efficiently. Moreover, the internet banking service also helps the customer to keep a much closer eye on their finances outside of the traditional banking hours (Worobec).

There are two types of the internet banking, which are the Virtual bank and Brick-to-click bank (which also known as e-bank and e-branch correspondingly). The virtual bank is bank that exists entirely on the internet, with no physical branches access and tellers, whereas it does provide almost the same scope of services and follow the same federal regulations as the bricks-and-mortar bank. This model provides an opportunity for the bank to exist with non-paper, with non-geographical restrictions, and not closed the doors to customers. The brick-to-click bank is the traditional bricks-and-mortar bank providing the internet banking services to its clients (Nath, Schrick and Parzinger, 2001). Currently, almost all large national banks, regional banks and even smaller banks and building societies have internet access for their customers, and even some institution offer the internet-only accounts.


Describe and discuss the history and the development of the internet banking in the UK

Banks which are one of the intermediaries in the financial markets are to borrow short (accept deposits) with a lower interest rate and lend long (make loan) with a higher interest rate (Valdez, 2006). As time goes by, and the technology keeps developing and the popularization of the personal computer and internet spread, the bank sector is also developing and extending their service to the internet banking services.

Internet banking is not a simple extension of the terminal of banking computer system, it is the combination of the modern high-tech and the traditional banking business. Specifically, with the help of the internet technology, internet banking can provide the customers with many different services online, such as information services and financial transaction services, accessing to the financial business-related online services. Internet banking truly becomes a customer-centric banking services - 3A services (Anytime/Anywhere/Anyway)

The precursor for the modern home online banking services were the distance banking services over electronic media from the early 1980s. The term online became popular in the late 1980s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. 'Home banking' can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services started in New York in 1981 when four of the city's major banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) offered home banking services (Cronin, 1997) using the videotex1 system. Because of the commercial failure of videotex these banking services never became popular except in France where the use of videotex (Minitel) was subsidized by the telecom provider and the UK, where the Prestel system was used.

The UK's first internet banking services2 was introduced in 1983 by the Bank of Scotland for the customers of the Nottingham Building Society (NBS)3. As the internet did not exist yet on those days, they commanded it online banking (not known as the internet banking yet on that period). The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) to connect with the telephone system and television set, and this was continuing handled partially by the bank staffs.The system (known as 'Homelink') allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Homelink system. Typical recipients were gas, electricity and telephone companies and accounts with other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. Later this was automated by the Bankers' Automated Clearing Services (BACS) system in 1985. In 1995 the internet (www) was introduced to the general public and internet banking has been becoming more popular since that day. While in 1997 the Nationwide Building Society introduced the first online banking service in the United Kingdom.

Although it has only been 13 years in the UK as the internet banking services introduced in 1997, its popularity has grown a lot. It has been raised by 174 percent from 6.2 million bank clients in 2001 to 17 million in 2006. Similarly, the number of the adults shopping online has increased by 154.5 percent in the same period from 11 million in 2001 to more than 28 million in 2006 (Alsajjan and Dennis, 2010). According to the APACS (the UK Payment Administration), 22 million customers had used the internet banking with their main current account in the first half of 2009. This denotes that for the first time there are above 50 percent of the regular internet users (41 million), who are banking online. The number of people banking over the telephone has declined to 14.5 million from a high of 16.1 million in 2005, as many of us have found it more convenient to switch from banking over the phone to the internet.


Analysis the benefits of the internet banking to banks and consumers

Consumer's side


In these day and age, man can do almost everything through the internet, such as shopping for breads or clothes, and making phone call to a friend in or outside the country through the man's computer. As the internet seems to have endless possibilities, the internet banking services from the banking industry has also becoming very popular in the recent years. Many people today manage their banking online, firstly because it is convenient and easy. Unlike the traditional bricks-and-mortar banks, the internet banking sites never close, and they are available 24 hours a day and seven days a week. Therefore, the bank customers do not necessarily need to physically visit their local bank branch, and then they can avoid queuing in the branch. Instead, with the internet banking services, the users are able to manage everything in their bank account from their comfort home, working place or elsewhere and at any time of the day and night. By dong the internet banking, it automatically cuts off any phone calls or trips to their closets bank branches. This category of convenience and easy can be approved by the following fields:

1: Transferring and receiving money between the user's own account and other people's account.

It is very easy to transfer money between the user's own accounts, as it only needs a couple of clicks on the bank websites. For example, if the user does not have much money left on his/her current account, and does forgot to put money into that account in the day time, but the user need the money on that time. This is not a problem anymore, as the user just need to do a quick transfer and the money then leaves his/her saving account to the current account almost instantly.

In addition, it is also very easy to send money to friends, family or others. For instance, if the person needs to pay for the accommodation fees to the landlord or the real estate agency, he/she can pay it through the internet banking by adding the landlord or the agency who the person should pay for, or just choose from the list of people if the person has paid in the past. This is much simple and faster compared with paying cash by post and cheque. Moreover, the person can also set up a regular payment as the direct debits, therefore the bank can transfer the money on the specific day to the account the user appointed, and the user now does not need to worry any additional bank charges by the delay of any credit card payments due to forget or out of the country.

2: The bank customers can request for a loan without physically visiting their local bank branch, as the bank already have their details and credit history on file.

Besides the category of convenient and easy, the cost saving is another factor which affect using the online banking services.


Furthermore, the internet banking service is also a good tool to manage the customer's money. Not only it will allow the users to manage their future finances online but they can also check their existing direct debits and standing orders so that they are aware of what they have connected to their account. The account holders will be able to view exactly how much the amount is in their account, the last date it was taken out and the next date the payment is due to come out. If there is anything out of the ordinary then any of the holder's direct debits can be amended or cancelled in order to avoid paying for anything the holder is not wanting to. Take the tuition fee for example, if a student is not sure whether his/her account has enough money for his/her tuition fees, the student can just login to the online banking to assure he/she has got enough money to cover that fees. Moreover, it can provide the transaction history for the account holder for any specific period of time. For instance, the user can use the internet banking to search for the payments as the proof to the company if the Electricity or Water Company declares the user not paying the bill in some period.

Bank side


On the banks point of view, online banking is a powerful adding value tool to attract and retain new customers and it can also help to eliminate costly paper processing and teller interactions in an increasingly fierce competitive financial environment.


First, comparing with the traditional banking services, the internet banking services can help the users to save money. Every transaction conducted with a teller costs a bank approximately one to two ponds, but an online transaction costs a bank only a fraction of a penny (Standford, 2002). In other words, online operation costs is probably 1% that of manual transactions (Yuan and Lee, 2010).

Besides cost saving, cost-effective is another benefit of the Internet banking. Thousands of customers can be handled simultaneously and it does not need to have many clerks and cashiers. The administrative work gets reduced drastically with Internet banking. Expenditures on paper slips, forms and even bank stationery have gone down, which helps to increase the profit margin of the bank by a surprisingly large number (Peterson, 2006).