Friday, May 05, 2006

Future of Internet Banking. Will credit cards be needed after say 15 years?

This is SHRI's Column

Credit card, as an instrument, needs huge overhaul. Lots of lacunas of credit cards can be listed

e.g.
-The cost of maintaining card
- killing rate of interest and penaulties
- complicated nature of card calculations
- Higher cost of processing credit cards by different participants.
- fear of loss (if not reported in specified time)
-fear of theft / physical coercive acts
-unfruitful negotiation with bankers involving financial hardships

Can world think of alterantive to credit cards; a customer friendly, less barbaric and easy to use. Can inernet banking resolve this? Can banks develop a new banking product such as "net based line-of-credit" for ordinary customers, which will not apply super-cumulative rates of interest of credit card? As it is, the extra-ordinary cost of processing credit cards restricts banks from reducing the recovery cost from the customer and in the bargain tend to gain superlatively in the revolving credit.

World has seen amazing rise of Internet Banking over past few years

- Forrester projects steady growth in online bill payment, either through banks or directly at vendors' Web sites, to 52 percent of online households, or 46.8 million households paying bills in USA online by 2010. Worldover trillions of people are operating through Internet Banking.
- 20 percent of U.S. households already bank online
- Year-on-year growth of 25% for Internet Banking
- The transaction cost of Internet banking much lesser than Branch, ATM
- Customers are more loyal over internet than the normal channel. Infact the customer attrition has reduced considerably due to net banking.
- A bank saves millions when they stop sending paper statements to the net customers

With all this factor above, it is very convinient for customer as well as corporate segment to transact on net.

If the security threats are resolved, world can experience radical growth of e-commerec. Internet Banking can be leader replacing various forms of currecies

1) Cash (actually difficult to replace this, but % of usage is dwindling fast)
2) Credit Card (Are you sure you need this instrument? Can it not be replaced by net banking comprehensively)
3) Check (usage is reducing fast though truncation laws such "check 21" is faciliting easy clearance
4) Drafts and Bank Transfer (all this is being slowly taken over by net transfers)


Net Banking can
-use it's available net infrastructure
-take the advantage of low cost processing
-additionally use services of credit card participants
-grow huge customer base
- involve the complete commerec food chain to adopt net banking
- Pass on the cost-lenefit to the consumers by lowers processing charges


The usage of this new baking product should benefit customer
-get new alterative source of borrowing and convinient e-commerce
-benefits of the developed infrastructure
-no fear of loss / theft of physical document
- extesive usage in all sectors of the e-commerce
-Cheaper source of borrowing


And I am sure many banks are trying very hard to ensure that security threats / hacking / pishing are being controlled optimally. Banks have introduced the second level of risk prevention program for net customers with add-ons such as security questions, identifying images etc.

By the way, Insurance comanies have strated insuring the internet banking transaction with specified terms with the bankers / customers.

Don't you feel there is a severe need to find cheaper source of transaction modes than ghostly credit card? Can it replaced over say next 15 years?

Shri

7 Comments:

Anonymous Anonymous said...

Hey Shri

This is good, provoking. But lot of thoughts needed going ahead

11:02 AM  
Anonymous Anonymous said...

Shri

not used Internet banking extensively. But definately want to run away from credit card. Suffered heavily

8:09 PM  
Anonymous Anonymous said...

Shri_2006

What you explain could be true, but need to talk on Biometrix and all that stuff

7:36 AM  
Anonymous Anonymous said...

Shri_2006

Excellent thoughts. Banks need to work on this to create security free environment. Will that make my life heaven or hell?

8:08 AM  
Anonymous Anonymous said...

Shree, you have done a good job of highlighting the problems of the current instruments. You have also shown hope that internet banking may find a much better universally accepted solution, and may replace the outdated and some "barbaric" instruments in 15 years.

I feel 15 years is too long time to wait in today's fast changing world. The solution may evolve much earlier than that.

I would like to read more about what efforts are being done world wide in internet banking areas to improve on the situation. There are a few areas I will like to read about- Improvements in---Security, ease of use, access without needing computer (e.g. mobile based applications), availability at day to day expenditure points as food supermarket, theatres, coffee shops, and why not "kaka" shops as well! What are the current efforts in this line? I am lookinf for a good article about this.

Arun Manohar

7:34 PM  
Blogger SRX said...

Elan2b

Thanks for youe comments.

In fact this type of argument is what I was waiting for and also expecting. In fact this blog is for creating consumer movement in the future years to get better terms from credit card and utilise the better facilities from Internet banking.

Infact we as customer of banking services have to unite and ensure that best deals are provided to the customer.

In future (& even now to some extent) there shall be no difference between the offerings of credit card and Internet Banking. Internet Banking can practically replace everypart which Credit card operates in future.

If the merchant's have card based gadgets today, they shall have internet based tomorrow (& many have posses this).

The credit card, as a product has been misutilised by the banks to suit own advantage and belive me working with internet banking (for every such deal done on credit cards) can be a norm of the future.

Can banks not develop credit-line for online customers? With more global networks and anywhere / anytime branch concepts, I envisage a fully built internet banking infrastructure in next 15 years (which is much much cheaper than credit card & consumers can get cheaper / reasonably priced services).

The only big issue to be resolved by net banking is about security. Once it does, there shall be no looking back.

Thanks for this comment elan2B.

Hope we talk more and get more advantage for ordinary customer.

3:16 AM  
Anonymous Anonymous said...

Good attempt on Future of Internet Banking.
After going through your website, it seems to be more focusing on Credit Card;
It would be nice if you can cover today's Internet Banking Pro's & Con's and its future.
Topic should be more elaborate and drill down in details which I was not able to find when I was going through your blog.

4:15 AM  

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