Advancement in information technologies and improvement of the Internet access have not only changed the way businesses are being conducted, but have also resulted in cutthroat competition on the global market. As a consequence, strategic companies have incorporated and integrated information technologies in their operations to create competitive advantages and to sustain their existing competitive advantage. The banking industry has incorporated web-based information technologies to synchronize with the market trends. Precisely, banks have adopted electronic commerce (e-commerce) products and services in a move to keep in touch with the globalized economy and ongoing migration of people, entities, and businesses to the cyberspace. Both Business-to-Consumer (B2C) Ecommerce model and Business-to-Business (B2B) Ecommerce model are implemented by banks to sustain their competitive advantage; to eliminate traffic in banking halls; to improve customer experience; to reduce operating costs; as well as to increase their market share within the banking industry. However, high implementation costs, compatibility issues with legacy systems, privacy concerns, and security risks challenge full adoption and usability of ecommerce products and services in banking.
E-commerce is not only a promising area in the information technology (IT) industry, but also a shining point in the direction of progress of banking in the 21st century. As global competition and demand for innovative financial services increase, adoption and implementation of e-commerce have been a strategic initiative for banks. Based on this observation, this paper explores how e-commerce has eased banking. Therefore, the paper introduces the concept of e-commerce and then examines benefits and challenges of adoption and implementation of electronic commerce products and services in the banking industry.
E-commerce in Banking
According to Campbell, Edgar, and Stonehouse (2011), e-commerce refers to the utilization of the internet as a distribution channel to sell banking products and services to either existing or potential customers. Campbell, Edgar, and Stonehouse’s (2011) definition captures only internet commerce. From a broader perspective, e-commerce involves electronic exchange of products (mainly services), information, and payments. It also entails establishment and sustenance of web-based relations, which can be B2B, B2C, or business-to-government. In other words, commerce in the banking sector goes beyond intranets, extranets, internet, and electronic data interchanges. Examples of e-commerce activities in the banking sector include online banking (making deposits and withdrawal online); online loan applications; online access to bank statements; inter and intra banks settlements; salary processing; international transfers; and use of social media networks to increase awareness, market share, and for public relations. E-banking also includes electronic Funds Transfer (EFT) Systems, Bill Paying Service, Shopping, Credit Cards, and Debit Cards.
E-commerce consists of two broad models: Business-to-Business (B2B) and Business-to-Customer (B2C). According to Laudon and Traver (2007), B2B is designed to increase businesses interactions between companies while reducing the cost of transactions. In turn, the B2C model is designed to increase the sale of goods and services while improving customer experience or satisfaction at reasonable costs (Laudon & Traver, 2007). Despite the fact that banks transact or offer financial services to other business entities, customers are given much attention because they are the pillar of the banking industry. It follows that the business-to-consumer model is at the center of banking profits. However, as of this writing, banks were extending the two e-commerce models so as to synchronize with technological advancement ever fluctuating demand patterns in the present globalized and digitized markets. Some of the noted technological progress or disruptive technologies include cloud computing, proliferation of handheld devices, and growing demand for high-speed internet access (Laudon & Traver, 2007; Mandiant, 2013). Primarily, e-commerce relies on the internet. Therefore, the section that follows discusses benefits of internet-based (e-commerce) transactions within the banking sector.
Benefits of E-commerce
E-commerce is continuing to enable entities within the banking industry to achieve their objectives by utilizing information technologies and the Internet to transform or enhance their business processes (Campbell, Edgar, & Stonehouse, 2011). Consumer trends in the present globalized economies have raised the bar of service marketing and service delivery in the banking sector. In fact, customer expectations have grown like never before. Customers expect to receive services anywhere and at any time. This has been made possible by improved Internet accessibility and proliferation of Internet-enabled mobile devices. The traditional process of queuing in banking halls has been virtualized and automated in a way that withdrawals can be made remotely or payments can be settled remotely without the need to access banks physically. Entities within the banking industry have an important goal to adopt the conduct of business online. The basic objective of making profit by offering banking services and the rationale of marketing or selling to deliver products or services and receive payment stay put. A significant change emanates in how services are provided, payments are made, and high performance and profitability are achieved. These changes can be well understood by highlighting benefits of e-commerce in banking.
Improved Customer Experience
More consumers of banking services have been attracted to online or mobile banking because of the desire to save time and access more information during transactions rather than just saving money (Ngai & Gunasekaran, 2007). Financial sites provide more information than ever, thus shifting power to consumers in terms of selecting services offered by a bank. Before a buyer applies for a loan facility or a mortgage, he or she can make online comparisons, hence making strategic and informed decisions. From the banks’ perspective, the bank is alleviated the duty to explain to or inform the customer about available services through a face-to-face platform (Laudon & Traver, 2007). In other words, the bank enjoys reduced marketing costs. In the same line, sales representatives benefit from the fact they have extra time to work on something different from their usual chores, hence increasing their morale and productivity. Motivation and productivity can also be translated to better business and customer relations, in turn improving customer experience.
Accelerated Storage and Access to Funds
E-commerce has also improved banking operations by accelerating storage and access to funds. Movement of funds has been sped up by banks and credit card firms. As noted by Gonzalez (2014), each new technology improves connectivity of people and business entities on a global scale. Devices such as smart cards, wireless devices, biometric devices, as well as extended networks (wide area networks) enhance storage and transfer of raw data and processed information at higher rates. As it stands, customers or clients can complete almost all transactions through handheld gadgets worldwide (González, 2014). In the same line, technological advancements (e-commerce) have enabled banks to mediate all commercial or financial transactions of their clients.
Reduced Traffic in the Banking Hall
As more and more customers migrate online, the number of face-to-face transactions is reduced. Consequentially, the number of direct transactions characterized by banking halls a decade ago is minimized (Campbell, Edgar, & Stonehouse, 2011). With introduction of mobile banking services, customers can make online payments or electronic transfers using their internet-enabled mobile devices, including Smartphone and notebooks to transact remotely instead of going to banks physically (Ngai & Gunasekaran, 2007). This does not only save customers or clients the cost of being physically present at the bank, but also saves their time, which is channeled to other business or private activities. For example, a new customer can open accounts either by completing e-forms or by mailing duly completed forms to institutions offering the service. In either instance, the new client can fund opening of a new account by wire transfer, check, or another form of electronic payment. It follows that with the adoption of e-commerce no physical interface between a potential customer and a bank is needed. In the same environment, the bank translates the time to critical business activities.
Reduced Operating Costs
Fundamentally, e-commerce is a cheap approach to doing business in the current globalized banking industry. Laudon and Traver (2007) note that direct cost of servicing an electronic transfer or a loan from a bank’s website is comparatively lower than maintaining the same transaction through a traditional paper-based system. Web-based electronic document management systems (EDMS) automate processing of loans, keeping track of records from their creation to the end of their lifecycle (Office Gemini, 2014). To that end, the processing process is improved and security of a document is enhanced because the EDMS ensures security through authentication and authorization mechanisms. Further, such systems archive processed documents for future use. E-commerce websites also reduce operating costs in the sense that much of the work is automated, thereby reducing the cost of hiring more human capital. Additionally, electronic transactions eliminate losses attributed to human processing errors. Most importantly, transactions are moved faster and more conveniently for new users.
Laudon and Traver (2007) point out that operational benefits that emanate from adopting e-commerce include reducing both personnel and time required to complete routine business processes, in turn reducing pressure on other resources. From a consumer’s point of view, e-commerce also offers significant benefits, including better customer decision, increased opportunity to buy alternative products (such as loan and mortgages), and less time in resolving payment discrepancies (Rayport & Jaworski, 2003). The strategic benefit of adopting e-commerce in banks is that it assists in reducing misuse of resources, delivery time, and high costs incurred in several areas, including document preparation, telephone marketing, overtime, data entry, supervision expenses, mail preparation, public relations, and error detection and correction (Laudon & Traver, 2007; Rayport & Jaworski, 2003). Based on these advantages, it is arguable that the power of e-commerce has been harnessed to convert banking services to electronic banking by using innovative e-commerce solutions made available by the Internet and telecommunication services.
Challenges in the Implementation of E-commerce within the Banking Industry
In spite of numerous opportunities or benefits presented by e-commerce in the banking industry, there are several challenges coupled by digitization of generic banking operations. Key challenges facing banks as they adopt and implement e-commerce include privacy concerns, security risk, high cost of restructuring, and compatibility challenges (Campbell, Edgar, & Stonehouse, 2011; Rayport & Jaworski, 2003). Delaying to implement the B2C model in the banking industry may expose a bank to stiff competition, ending up trailing aggressive rivals that are often focusing on cutting operating costs while improving customer convenience, customer loyalty, and profit margins (Casaló, Flavián, & Guinalíu, 2008). As new technologies and devices emerge, banks are required to increase capacities or scalability of their communications networks, which is often a costly endeavor (González, 2014). Further, banks are forced to restructure their business to cope with interrelations that arise in the financial or banking environment: bank-to-business and bank-to-customer.
Technology and security concerns are of significance because the entire base of e-commerce rests on them (Keivani, Jouzbarkand, Khodadadi, & Sourkouhi, 2012; Mandiant, 2013). In other words, if security and technology standards are inadequate, then e-commerce will not provide intended results and will ultimately collapse. With increased proliferation of mobile devices from different vendors, cyber intrusion threats are also on the rise because these devices open a loophole for attack. Most banking systems employ Intrusion Detection Systems (IDS) and Intrusion Prevention Systems (IPS) to protect their networks (Mandiant, 2013). Typically, these systems are based on known threat signatures and vulnerabilities. Therefore, proliferation of new devices and technologies exposes e-commerce platforms to identity theft, fraud, and other cyber crimes in the banking industry. Privacy is one of the most debatable topics because clients and customers present their personal information to banking institutions, which have time and again reported intrusions and theft of private information (Mandiant, 2013). The privacy debate also extends to who and under what circumstances can private information be accessed by a third party other than a bank, such as security agencies.
Legal issues and disputes are bound to occur as banks adopt and switch their operations to the internet because existing laws are not compatible with the switchover or the rapid change in technologies (Laudon & Traver, 2007). Lastly, regulation and supervisory issues are bound to emerge because banks operate in real space, but virtual environment has not been fully incorporated by regulatory and supervisory institutions.
E-commerce has enabled banks and related entities to achieve their business goals by using information technology to transform or improve their business processes. E-commerce has digitized banking transactions through electronic banking. Electronic banking is a general term referring to processes by which clients or customers perform banking transactions electronically without physical presence at the banking institution. There are several variants of electronic banking, including mobile banking (use of mobile devices) and online banking (financial websites). Electronic banking provides a variety of benefits for remote access, including global connectivity, availability of transaction services 24hrs a day, ease of access to current and historical transaction data, and customer control of his or her funds without arbitration of third party financial institutions. From the literature presented above, it is apparent that e-commerce is very valuable in the banking industry in the sense that it improves customer experience or satisfaction, increases market share, reduces operating cost, and reduces queues in banking halls. Despite numerous benefits that come with adoption and implementation of e-commerce in banking, there are several challenges faced by entities within the industry. These include compatibility with existing generic systems, security, and privacy concerns, as well as high cost of implementation. Based on the banking industry trends and recent research findings, adoption of e-commerce in the banking processes is projected to continue growing and banks will obtain more benefits.