E-Banking and Value Added Services

Started by ganeshbala, Apr 20, 2009, 03:41 PM

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E-Banking and Value Added Services

Electronic banking can offer customers an enhanced range of services at a very low cost. ATMs are expensive to own but are a much cheaper way of processing withdrawals than over the counter. The distribution infrastructure for mobile phone banking is already in existence. Electronic Banking promises to extend low-cost virtual bank accounts to a large number of currently un-banked individuals worldwide. Change is being driven by falling costs of technology, by competition and by the ability of electronic banking solutions to offer customers an enhanced range of services at a very low cost.

Electronic Banking Technology

There are a number of options facing institutions thinking about investing in electronic banking for the mass market. This article attempts to provide a detailed comparison of the different technical options. The options include the following.

Personal Digital Assistants (PDAs)

An increasing number of financial institutions are introducing personal digital assistants (PDAs). PDAs are small hand-held computers that can run specialized programmes to manage MFI and client records.

Automated Teller Machines (ATMs)

ATMs can be fully functional teller machines that accept deposits, dispense cash and can be programmed with other functions. Or they can be cash dispensers only. ATMs are expensive to own and operate but offer the financial institution a much cheaper way of processing a large volume of withdrawals than through over-the-counter operations.

Magstripe Cards

Debit cards, often based around magnetic stripe technology, allow customers online access to their accounts through a network of POS (point-of-sale) devices and ATMs. The principle advantages quoted by proponents of magstripe cards are low price and the requirement that transactions are performed online.

Smart cards

Smart cards have a machine-readable chip embedded in the card. This chip is able to store detailed transaction records offline and perform transactions without a link to the customer's account. In order to do this, value is stored on the chip by the customer and is periodically reloaded, over the counter, through ATM machines or through POS devices. The principle advantages quoted by proponents of the smart card are security and offline functionality. Biometric security allows a cardholder's picture and fingerprints to be stored on the card and used to identify the user.


Euro card, MasterCard and Visa

They are currently introducing a new standard (called EMV) whereby all Visa, MasterCard and Euro card branded cards will be issued with a magstripe and a smart chip. Whilst this offers security advantages, it could significantly increase the cost of any mass market solution that relies upon the Visa or MasterCard distribution network.

Mobile phone banking

The phenomenal expansion of mobile phone networks in Africa and other parts of the world provides an opportunity to operate virtual bank accounts through mobile phones, either through menu-driven systems or through SMS (short message service, or text messaging) technology which is already being used by millions. This option has the significant advantage that the distribution infrastructure is already in existence – through millions of mobile phones.

The customer perspective – the value proposition

An electronic banking solution must provide sufficient value to persuade the customer to move away from cash. However, cash is an incredibly versatile medium of exchange. It is universally recognized as a store of value, it is accessible, portable and divisible. The Significant factors that are valued by the customer include features, accessibility of the service, affordability and ease of use.

Features of E-Banking

Many early electronic banking initiatives were designed to reduce the cost of transactions for the financial institution as much as to deliver value to the customer. However, an electronic banking solution can be designed as a low-cost bank account on a card or telephone, with a number of features valuable to customers, such as cash withdrawals and cash-back transactions, deposits, payments and transfers. Added-value services can be provided such as loyalty programmes, person-to-person transfers, airtime top up for mobile phones and government payments.

Acceptability: Although there may be an age bias in the acceptability of e-banking solutions, practical experience has demonstrated that the bias towards paper-based record keeping in developing markets is far lower than might be expected.

Accessibility: E-banking has the potential to provide accessible, convenient financial services because it no longer requires a 'bricks and mortar' infrastructure, operated by the permanent staff of a financial institution. E-banking uses an electronic infrastructure and in many cases relies upon third parties to originate transactions. However, partners in an e-banking initiative differ in nature, in location, in accessibility for the poor and in the functionality they are able to provide. These factors are explored in Table 1.

Affordability: Customers on low incomes should find the transactions affordable. Charges need to be designed around a greater volume of low value transactions, probably charging customers a fee per transaction rather than a percentage per transaction, as is the case with Visa and MasterCard. For certain value-added transactions, like person-to-person money transfers, where alternatives are much more expensive.

pradeep prem

now a days more e-banking are used for easy transaction
this should transaction immediately with proper servies
and for shopping we use debit card for processing