Further improvements are needed for internet banking to be as operationally comprehensive as branch transactions, as there are many transactions that still cannot be currently accomplished electronically
There is little doubt that the internet has revolutionised the entire communication system. Banking, particularly for expatriates, relies on communication in one form or another; offshore banks have therefore been quick in joining the communication bandwagon.
Banking is an industry that is based on intensive information, and transactions can normally be undertaken without any physical exchange. These components have made banking an ideal passenger for the internet. However, internet banking has had to go through hard times and failures and, as with any new venture, there have been setbacks with issues such as security and costs.
There are three types of internet banking currently being employed in the market place - information, communication and transactional.
Information is the most basic level of internet banking using web pages to provide information on the products and services available to clients. All providers now have comprehensive websites promoting their wares.
Communication allows interaction between the bank's systems and the customer. It may be limited to account enquiry, loan applications, or static file updates. Often these halfway house systems are installed in advance of transactional systems.
Transactional banking gives clients access to the funds within their accounts, and enables them to execute transactions. There are two levels of transactional: internal and external. With internal, clients can make transactions between accounts within the same organisation, for example, account to account, however, a fully transactional service like Singer & Friedlanders' offers clients the ability to make transfers to other banks. It is this form of internet banking that is most important to international expatriate clients who may use a number of different providers located in different jurisdictions to meet their international banking requirements. It gives them direct access to their financial affairs, which makes life much easier, especially for expatriates and overseas clients who may be managing their accounts from a different time zone.
Online banking became broadly available in the late 1990s and it has snowballed since then. At the time, major banks only were launching their own limited online facilities. From an Isle of Man perspective, the first headline event was the launch of fSharp - the world's first online bank - in September 1999. A few years later, however, this 'virtual' bank was integrated into its parent company's system as take-up rates were not as expected.
Since those early days, offshore online banking has been seen only as an additional product, one to complement the existing banking services, a channel for communication and distribution as opposed to an entity in itself. While the major banks have gone down the route of operating call centres, pushing clients online to improve efficiencies, smaller traditional private banks have committed themselves to personal banking and ensured that clients do not feel the pressure to take up online facilities. Customers still need personal back-up that they can rely on, not just for transactions but also for enquiries and advice, for example, even if full internet services are available for the more routine transactions.
The task ahead
Although in relative terms it is still early days for online banking, further efficiencies in administration should be expected. Internet banking should continue to reduce the amount of customer administration in dealing with different banking services such as setting up or changing standing orders or ordering cheque books. More importantly, for the expatriates themselves it is very valuable to be able to bank instantly without being worried about sending letters or faxes. Ultimately, the aim must be to reduce the administrative burden across the board.
Online banking can and must develop further. The internet as it is now is very much in its infancy compared to what we can expect in a couple of years time. The obvious problems moving forward relate to anti-money laundering and know-your-customer requirements. Government and regulatory authorities have an enormous task ahead when examining these issues and each financial institution has to recognise possible pitfalls relating to transactions over the internet. Precisely because of this, accounts cannot be accepted online. Banks continue to have to follow know-your-customer procedures in order to open an account. However, in the next few years banking transactions over the internet will increase substantially. Consequently, subject to the introduction of a suitable legislative and regulatory framework, clients will be able to open accounts over the internet, once their digital identity has been verified.
The Isle of Man government has already approved legislation governing digital signatures so online transactions have the same legal footing as paper documents. However, legislation satisfying know-your-customer issues need to be put in place before digital signatures can be fully utilised.
In the future, there are plans to develop further a system called Public Key Infrastructure (PKI). PKI is a system of digital certificates, certificate authorities, and other registration authorities that enable two parties to verify and authenticate the validity of each party involved in an internet transaction. PKIs are currently evolving and there is no single PKI, nor even a single agreed upon standard, for setting up a PKI. However, reliable PKIs are necessary before electronic commerce can become widespread.
Moving forward, banking will probably evolve with two parallel moves of communication - by established means, for example, letter, fax, phone and through electronic format. However, with the right regulatory environment, enhanced security and system improvements, expatriates should be able to conduct all their banking business over the internet, at any hour of the day or night.
When integrated with other channels, internet banking is a powerful tool for improving customer satisfaction and increasing cross-selling opportunities. But at the same time banks must keep in mind that every electronic channel including the internet has shortfalls that can have major consequences. Keeping track of the ever-changing banking industry and the latest update in internet technology, banks need to equip themselves for the competition. Even though there are enormous opportunities and virtual banks are on the rise 'bricks and mortar' banks and transactions should not be relegated to the sidelines. This is because there are numerous aspects of banking which cannot be currently accomplished electronically.
The internet appears to be the way forward for the banking community but there is a long way to go before we arrive at the final destination. That destination will, in any event, keep changing as the internet continues to develop.
Internet banking should continue to reduce the amount of customer administration in dealing with different banking services.
The obvious problems moving forward relate to anti-money laundering and know-your-customer requirements.
Internet banking has still far from reached its full potential.
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