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Banking Services and Payment Systems SELECTED PROBLEMS OF E-ECONOMY IN BANKING 1 Jacek Binda Wyższa Szkoła Bankowości i Finansów ul. Tańskiego Bielsko-Biała Poland tel , fax
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Banking Services and Payment Systems SELECTED PROBLEMS OF E-ECONOMY IN BANKING 1 Jacek Binda Wyższa Szkoła Bankowości i Finansów ul. Tańskiego Bielsko-Biała Poland tel , fax Keywords: e-economy, financial services, electronic banking, information and communication technologies, artifical intelligence, distribution channels 1. Introduction The future of banking sector belongs to companies which can not only offer products and services fallen with needs of an individual client, but can provide them at any time and anywhere as well Tom Peterson An increase in social expectations in relation to subjects rendering financial services, dissemination of new technologies, more developing technical culture of society, an increase in importance on information technology in economy, business globalization, consolidation of banks and an increase in competitiveness are only a few reasons which had an influence on a type and quality of services rendered by banks. An abstract feature of financial products, which undergo dematerialization rather easily, possibility of their connection with information exchange (due to the developing market of new technologies) and an introduction of the electronic signature influenced significantly 1 Paper is published due to the Czech Grant Agency support (grant GAČR No. 402/05/2758 Integration of the financial sector of the new EU member countries into the EMU). 1494 easiness of reaching wide ranges of targeted groups and increasing the distribution of financial services. The work deals with new possibilities of the distribution of financial services by banks on basis of selected channels internet banking and virtual banking, which are especially important problem during integration of the financial sector of the new EU member countries and their way into the EMU. 2. New economy and its dimensions The new economy, also called e-economy, is the most frequently used term in economic and technical literature, discussions of scientists, businessmen and politicians beside globalization and information technology society. Three planes of understanding of the new economy can be distinguished: - as a system of new principles explaining how economic subjects function on the market; - as activities of economic subjects in the strongly changed conditions. Owing to the dynamic development of technical progress, especially in information technology economic subjects change completely strategy of their activities many times. Information and knowledge as main economic categories, which are the basis of the contemporary business, are the foundation of activity. Another term is assigned to this understanding, namely knowledge-based-economy. - new economy treated as a subject, namely determining activities of an enterprise in the IT sector. Considering economy as knowledge-based is the most adequate to the contemporary trends in the economic processes. Innovations in the advanced technology and globalization of worlds markets changed our economy to such extent that we are forced to think and act in a different way in it. It is connected with searching for new sources of quick growth, making structural changes in the development of information technologies, and above all, quick commercialization of the Internet. Owing to new technologies, and particularly the Internet network, the economy is characterized by high degree of transparency, there is a technical possibility to compare economic results, competition results and prices of products with ease. In fact, three channels of influence of those technologies on the economy can be distinguished: 1495 - accelerating an increase in work productivity in sectors manufacturing equipment of new technologies and an increase of their share in the National Gross Product; - fall in prices and an increase in demand for this type of equipment, what results in an increase in investment level and the National Gross Product; - changes in a way enterprises function in new market conditions and accelerating work efficiency and capital productivity. Therefore, the new economy, also called cyber- economy, constitutes a new paradigm of business. On this virtual market E-business is a new form of an exchange of resources by means of information technology systems and internet technologies, conducted on-line through electronic connections and an information exchange by use of electronic multimedia such as Internet, cable and satellite television, telephony, electronic cards, Intra and Extranet at the national and international level. It consists of electronic trading, business intelligence and technological capacities to self-service business processes conducted. For that reason e-business is a new source of speed, innovation initiatives, efficiency and new ways to create values in the organization, Fig.1 Figure1 Relationships between e-business and electronic trading e-busines using electronic information to improve company's activity functioning to create relations between market players Elektronic trading Sales marketing and purchasing products and services by use of the Internet channel elektronic banking Source: our own work It contains three areas of activities: - involvement, namely needs to create cost effective commercial websites and applications, directed at marketing, network advertising and promotion tools; - trading, conducting on-line business with safe and measurable execution of orders; 1496 - analysis, concerning understanding of attitudes of customers and motives directing purchases and use of this knowledge to improve quality of services rendered. Transactions on the electronic market are performed in the following relations: - business-to-business, B2B, it refers to the co-operation between companies (e.g. transactions between companies), distribution of information, goods and services and relations between commercial companies and public administrations institutions (e.g. paying taxes) ; - business-to-customer, B2C, co-operation between companies and customers in a scope of retail sales of products and services (e.g. banks, internet shops) and between customers and public administration institutions (e.g. making payments to treasury offices, city halls etc.); - customer-to-customer, C2C,it concerns transactions concluded between private persons (e.g. auctions, electronic notice boards ); - customer-to-business, C2B, concerning transactions concluded by customers directly with firms. Prices of products are determined by customers, a firm can accept them, or reject e.g. potential customers offer a price which they are ready to pay for a flight, whereas the airlines can accept it, or turn down the offer. This type of market has not achieved that level of development as B2B, B2C or C2C yet; - business-to-administration,b2a, it concerns relations between a company and the state administration. Companies via the Internet can participate in public tenders, pay taxes and other dues to the state. Whereas in the opposite direction subsidies or returning of taxes reach a company; - customer-to-administration, C2A, instead of business parties there are consumers, who via the Internet settle taxes with the Treasury Office, receive tax refunds, compensations or allowances. The development of electronic business takes place in phases. In the first phase the Internet is web enabled to conduct activity, whereas in the second one business is web based totally. The fact to which phase countries belong to depends on the internet infrastructure and communication channels they have. Europe comparing to the USA is backward about two years and it is still in the phase of building infrastructure. 1497 3. Electronic banking as an element of e-business Electronic business is a complex and dynamically developing sector. It is not only limited to access to World Wide Web and information exchange. In order to achieve success in it, different requirements must be met, and they are such as: safe information processing concerning transactions, winning customer s trust, skillful management of intangible products.electronic business is of particular importance in the finance sector. It comprises both a scope of customer service and a transfer of funds and mutual co-operation of institutions. Necessity to introduce comprehensive electronic business results from, among others, a level and scope of competition present on world financial markets nowadays. Banks wanting to maintain an appropriate position on the market face challenges which force them to use solutions increasing effectiveness of their activities. In this system of market forces even commercial networks offering their own credit cards and financial institutions not having a status of a bank, but offering less expensive services of the same kind constitute a threat and competition for banks. Financial sector activity, including banks, is not connected with manufacturing physical products, but it is business based on information using telecommunication and information technology achievements on a wide scale. Management of finances becomes more and more management of information about creditability, purchasing power and financial position of persons and institutions [ 9 ]. New technologies are directed to manage relations with customers, to improve internal integration of systems and internal operations of banks, but not as in the previous period to increase inner efficiency and development of distribution channels. Those factors cause that the bank sector is prepared best to function in the electronic environment and develop electronic economy. Information and communication technologies (ICT) can be used in any type of bank activity and they are the main factor of changes in the whole sector of financial services.in that economic situation only those banks, which will use different distribution channels and variety of services and modern technological solutions will be basis of their long-term strategy, will achieve success. Problems of electronic economy became a key element of initiatives undertaken by European Union within the framework of the Lisbon Strategy. The main aim of the Lisbon Strategy, within the e-europe initiative accepted in Seville in July 2002, is to transform the European economy to 2010 into the most competitive world s knowledge-based economy. One of the assumptions of the strategy is to make electronic banking development more dynamic a fundamental factor to create an integrated European market of 1498 financial services. It is possible due to liberalization of the telecommunication services market, what will have an advantageous influence both on development of this sector and development of electronic services rendered by the banking sector. For that reasons the Lisbon Strategy emphasizes the market liberalization, development of the telecommunication sector and it defines clearly a role and place of financial institutions and capital market in UE. The Polish banking sector has been obliged to undertake activities aiming at creating an integrated market of financial services until Detailed activities are included in the document Financial Service Action Plan (SAP). 4. Artificial intelligence in e-banking The growth of the accessibility of the new e-banking solutions, new banking tools (for instance card to buy in the internet, EMV card - Europay- Matercard-Visa) is the result of building bank position on the market and competitive superiority. This can be seen in the methods of the access to the financial means on the account proposed by the bank, the way of using bank tools as well as their new functions, using mobile solutions (for instance m- banking) and lowering bank commission for its service. These actions may encourage new clients to use the service of the certain bank and gained clients to stay with their choice, on the other hand it should enlarge competitive position of the bank. To achieve the planned goals by the banks may be possible by making the society aware of benefits related to new bank solutions, constant growing of technical culture of the society as well as the most favorable decision making on the highest managing level. The main influence on the achievement of competitive advantage by the banks have advanced information systems which rise the bank services for the corporate and individual clients. It is necessary to mention that the usage of new technologies in not a must related to the current trends but it is important tool in bank strategy, which cause its rising position. If the bank lacks the vision of supplies for new services then the most advanced investments in new technology will be only the serious cost not the profits for the bank. It is important to use the golden rule of the new economy, market position and competitive advantages, which says that commonness of the solution does not cause long-term and stable position of the enterprise on the market. That is why the usage of the new information technologies in the bank in the essential component of banking e-business. The matter of this issue is of great importance because in the age of necessity of processing 1499 large information data and making decision based on them, current banking systems are not enough, Fig.2. Figure 2. The changes of the intelligence level of information managing systems 2 Systems Intelligence growth Years It is the most important in the field of supporting the essential decisions which are at the same time the most difficult, strategic related to banking Top Management. Traditional information systems which support the process of managing are related to gaining from the computer concrete answers to the given questions and nowadays they become less effective. The difficulty is in the proper explicitness of the question on the basis of large amount of possessed information, often uncertain and unclear. We do not know which features will cause success or failure of the concrete business strategies. The mentioned features cause that the typical tools of information support of process support decisions are less effective. That is why it is necessary to use different techniques and tools of artificial intelligence such as expert, neuronal systems of processing natural language. In the literature of this subject there are different terms of this issue such as AI is the part of information technology related to designing intelligent computer systems [E. Faigenbaum], AI is the system which 2 SET List- & Transactional Systems; SID Informative and Decision Systems; SWD Decision Support Systems; SE Evaluation Systems (macro- & micro- economical models); SIK Executive Information Systems; SSI Computer Network Systems, ZSI Computer Integrated Systems 1500 demonstrates the abilities of understanding similar to those of a human in order to improve life conditions and economy competitiveness [Japan AI Centre] 3. Other definition of this issue points out on the problem solving related to natural action and cognitive processes of human beings by means of computer programmes which stimulate them [Encyclopaedia PWN]. There are two different approached to AI in the literature of the subject: Symbolic one where the systems are based on logic( PROLOG) as well as the systems with the base of knowledge (expertise); Computational one where neuron net, evolution system, systems with unclear logic as well as intelligence without presentation are used (Project COG). 5. Distribution channels of the products and e- services in e- banking In new economy conditions managing financial institutions is connected with the change of the ways of services selling, providing information to clients as well as with the change of their function and noticing the key competence. The standard of work in banking area has been related to the usage of solutions based on information, knowledge and new technologies which give the clients access to financial means collected on the bank accounts and the possibility to make different transaction there. It has led to distinguishing great variety of e-banking channels such as: Cash dispensers, Phone banking; Banking based on separate network - home banking ( Corporate banking), Call Centre, Voice-IVR, Internet banking (with the type, limited to virtual sphere, virtual banking), Mobile banking (SMS banking make possible to manage the bank account by means of textual news SMS as well as WAP banking allowing for interactive contact of the client with the bank by means of mobile phone using protocol WAP 4 ), 3 VIII Forum bankowości elektronicznej, Warszawa WAP (ang. Wireless Application protocol). 1501 TV-banking allowing access to the bank account by means of TV set and telephone Multimedia kiosk. The usage of these channels in the banking sector vary and depend on the level of entanglement of the services offered by them, offer of banking financial tools as well as strategies used by the banks. Cash dispensers are the most popular channels. It results from the easiest way of operating and the possibility of doing different services by these machines. In Poland the network of ATM is constantly developing. In items have been installed (Fig.3), 107 million transactions have been made (Fig. 4) and their value has been on 32 milliard zloty, Fig. 5. Figure 3 Changes of the number of ATM in Poland in The number of Autmated Teller Machines Figure 4 Changes in the number of transaction in cash dispensers in million items million of items Figure 5 Changes of value of transactions in cash dispensers in milliard zł mld PLN Nowadays many of the cash dispensers functioning on the Polish market are the multi functioning machines and the owners of the cards can use them 24 hours. In spite of the fact that year by year there is a growth of 1503 cash dispensers their location is not steady. Further growth of the popularity of this banking channel will be possible when the financial tool such as chip cards EMV will become more common. The internet becomes the e-channel which is developing very fast these days. Its advantages as the channel for distributing the products and services in e-banking were used in 1995 by SFNB bank (Security First Network Bank) 5. Despite the e-banking leads to segmentation of the market, products and services (this may derive from the level of service complication, its value and the security of transactions), it allows to enlarge the receivers. It is caused by: Conducting simultaneous and fast bank service for large number of clients, Individualisation of bank offers, creating of individual client wallet on the basis of information gained about him for instance preferences. Conducting service of client by the bank 7 days a week as well as 24 hours (without time limit), Enlarging geographical reach bank without borders (borderless bank), which allows to realise the order from different place (without space limit), Enlarging market research, Realisation of the orders on-line, Quick support of bank workers in case of emergency, Lowering the cost of single transactions and commission for the services, Enlarging client satisfaction this can lead to the growth of his loyalty towards the bank. Enlarging the competitiveness of the bank on the market of bank services. The growth of the interests in services offered by this channel was the reason of creating by the banks, in terms of their structures, internet brunches which are mainly responsible for the development of e-services, Table 1. The success of the internet brunches have been gained by traditional banks with strong and stable position on the financial market and with wide consumers base. It resulted from the compromise between the habits of clients to traditional form of transaction realisation in the bank and the solutions of 21 st century standards (internet channels). 5 In the process of communication between the client and the bank the protocol http lub https was used. 1504 Table 1 Internet branches of the biggest financial institution i
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