1. Electronic Commerce Semester 1 Term 1 Lecture 23

2. The Banking Industry Banking as a business can be subdivided into five broad types: –retail –domestic wholesale –international wholesale –investment –trust Of all these types, retail and investment banking are most affected by technological innovations and are the ones that stand to profit most from electronic commerce

3. E-Commerce & Banking The role of e-commerce in banking is multi- faceted - impacted by changes in technology, rapid degregulation of many parts of finance, the emergence of new banking institutions, and basic economic restructuring Given these environmental changes, banks are reassessing their cost and profit structures Technology is the predominant solution for controlling costs

4. Technology & Banking Banks are increasingly turning toward technology toward technology to help reduce operating costs and still provide adequate customer service Technology has also increased the pace of product innovation Technology is changing the interaction between banks and customers

5. Changing Dynamics in the Banking Industry In recent years, there has been a major change in the way banks strive for increased profitability Banks need to find new ways to increase revenues in a ‘mature market’ for most traditional banking services A thorough understanding of this competitive environment is needed before banks can determine their online strategy

6. Factors Contributing to the Competitive Environment Five distinct factors contribute to the new competitive environment: –Changing customer needs driven by online commerce –Optimisation of branch networks in order to reduce costs –Changing demographic trends and potential new consumer markets –Cross-industry competition caused by deregulation –New online financial products

7. Changing Consumer Needs Consumer requirements have changed substantially in the last decade Customers wan to access account-related information, download account data for use with personal finance software products, transfer funds between accounts and pay bills electronically Along with these services, banks must be able to supply and guarantee privacy and confidentiality that consumers demand

8. Cost Reduction Since 1984, the banking industry has been consolidating at a rapid pace The central goal of most mergers is to reduce operating costs As banks merge to reduce their operating costs, they are obviously growing in size However, even their increased size is dwarfed by many of their new competitors, especially in the U.S.

9. Demographic Trends Consumers are increasingly careful about their personal finances Social, demographic and economic changes have altered the way people value their time and money The companies that take advantage of this opportunity by targeting the appropriate customers with appropriate products and services will have a lasting competitive advantage

10. Regulatory Reform Banks occupy a unique strategic position as they act as intermediaries in redistributing capital from areas of excess to areas of scarcity This role has made the financial services a closely watched and regulated industry, as governments are interested in the control and stability of this redistribution

11. Technology-Based Financial Services Products The growing importance of computer technology is another factor complicating predictions about the future structure of banking Some observers believe that additional development of electronic cash, such as smart cards, could stimulate further banking consolidation In contrast, the development of electronic banking might actually increase competition in banking markets and lower bank operating costs