Challenges to Internet e-banking

The extension of money and banking to the cyberspace is an inevitable development in the information age. Over the past few years, many financial institutions have launched e-retail banking over the Internet. Given the requirements of matching marginal gains against marginal costs, evaluating the profitability of market development along specific dimensions and segments, and determining whether the new technology would be accepted, it is imperative that this decision is continually re-evaluated. Commercial banks face significant challenges on both the supply side and demand side, associated in particular with competition, product-service quality and differentiation, transaction security, cost efficiency, and demographic change. As is generally the case in financial innovation, competition is the driving force behind the introduction of Internet e-retail banking. Primarily, commercial banks viewed it as a competitive strategy to retain existing customers, attract additional business, increase market share, and support business re-engineering. Since many of the products and services are newly emerged from R&D departments, supply must be adapted to demand and consumer acceptance. In oligopolistic markets, it is necessary for the e-bank to compete in the first place through the sub-strategy of product-service differentiation. The financial products and services supplied over the Internet must not only be tailored to fulfill wants, preferences, and quality expectations at the present time, but are also required to induce consumers to demand their technological progeny in the future. Expertise in marketing and the ability to anticipate changes in market conditions are therefore crucial to the success of Internet e-retail banking. In particular, strategic priority must be assigned to the establishment of brand name and brand identification. The Internet is exploited as a channel to build, maintain, and develop long-term client relationships through ready access to a broad and increasing array of products, services and low-cost financial shopping, rapid response to customer inquiries, and personalized product-service innovation. Success in this endeavor would enhance product-service differentiation, which would in turn strengthen customer loyalty, promote cross-selling, increase repeated purchases, and attract new business. An