SOME OF MY ANSWERS TO VIEWRES COMMENTS : Future of Internet Banking. Will credit cards be needed after say 15 years?

Friends, I request you to read my original blog below so that you can get better idea on this topic.

Thanks for amazing comments I got from this blog. Many of my friends / reader had expressed amusement at the concept which I presented. Some of my friends had heated debate with me on this topic, whereas some were merely passive listener, being victim of my passion on online banking. Some of the readers requested me to explain more about this concept. Overall I sincerely thank all the readers of my article, whose questions have forced me to create structured contents within this blog.





Many questions came up during this discussion

· How this overall “on-line banking credit” process shall work where no credit card is involved?
·Do you want to actually replace / discard credit cards? Do you hate credit cards? How many credit cards you have and do you use them extensively?
·How does this "on-line credit" from Banks work?
·How can "on-line credit" facility help customers who want to get rid of credit cards or finding cheaper alternative solutions?
·Can online banking serve each of the functionality that credit card currently provide?
·What are the benefits of using Internet banking over credit cards?
·How can everyone e.g. small convenience or corner shops (KAKA shop as referred by my reader Arun_Manohar) which typically does not use credit cards, can use this facility
·What about security threats in Internet Banking?

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· How this overall “on-line banking credit” process shall work where no credit card is involved?

Shri Answers: -

Offline / street shopping
Customer goes to the shop.
Customer buys the products.
Shopkeeper has a new Internet Banking box or uses PC where he asks buyer to log his online credit / Internet Banking PIN.
If customer and shopkeeper are connected via common bank or connected banks, approval is generated online.
If customer and shopkeeper are not connected via common bank or connected banks, an intermediate organization facilitates this transaction

Online or e-shopping
Customer goes to the online shop.
Customer intends to buy the products.
He offers his Internet banking / On-line credit PIN.
If customer and on-line shop are connected via common bank or connected banks, approval is generated online.
If customer and on-line shop are not connected via common bank or connected banks, an intermediate organization facilitates this transaction.



Why do you need intermediate organization for processing this transaction?

When customer and shopkeeper are not connected via common bank or connected banks, an intermediate organization will be necessary to facilitate this transaction


Who can be Intermediary organization?
·Visa / master network
·Any large organization who is involved in global fund transfer

This can be considered as an extra burden, but believe me, in today’s scenario everything is possible if someone makes money or saves money at the end of the day. It will be much cheaper to establish new network from existing large institutions who will be happy to come together for alternative revenue generations.

Is it necessary for Banks to offer online banking?
Ideally banks would like to create online banking in the current context for web or online environment, but some intermediate organizations offering funds transfer can help them to work off-line. This will be similar to assistance offered by Visa / Master card network in the credit card environment since the time when banks did not have robust and extensive infrastructure.
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Question: -Do you want to actually replace / discard credit cards? Do you hate credit cards? How many credit cards you have and do you use them extensively

Shri Answers: - No. Credit card is certainly an amazing product and has served millions of people over many generations now. I do not hate credit cards. I did have 5 credit cards sometime before and use to extensively used this cards before, but some bitter experiences (not necessarily from the credit card companies) I decided to reduce my credit cards usage. I am not necessarily advocating complete extinction of credit cards (though theoretically this is possible), but I am talking about creating new and improved mechanism over Internet working parallel to the credit cards. At the end, Consumer should be benefited with new Internet based products, giving existing bigwigs - a run for their money. Credit card concept has served great help to global community, but in order to rip maximum benefits some of the banks of wrongfully used credit card by creating abnormal interest, penalties and charges. Therefore I am talking about creating a parallel movement for the benefit of the consumers

Question: -How does this "on-line credit" from Banks work?
Shri Answers: - This is a very simple concept where banks and financial institutions offer facility to consumer for borrowing over Internet. Within this concept customer does not have to necessarily go through the paper documents, but gets a convenient online borrowing facility sitting (mostly) from remote location / home.

This loan need not be a single purpose loan such as Vehicle loan or Personal finance. This can be line of credit given by banks to it’s customer to combine following;
·Bill payment facility on credit
·Financing the purchases for online shopping
·Personal Loans
·Overdraft / Cash credit
·Special purpose loans (e.g. vehicle)
·Any other loans not covered above

While I created this blog, One of the financial house in Australia called Acreis has already started this facility, http://www.acreis.com/offering.html

Interestingly they offer bill payment over net and give a credit facility of 45 days similar to credit cards, while they take care of payment to services providers. This is not necessarily similar to what I am advocating, but atleast somewhat close to online credit and alternate to credit card as suggested by me.


Question: -How can "on-line credit" facility help customers who want to get rid of credit cards or finding cheaper alternative solutions?
Shri Answers: - This is a concept where on-line credit facility is provided to the individuals over Internet, similar to what is given in offline environment. The difference is that banks can now combine different types of loans as a all-inclusive package suiting to the needs of the customers. In case banks want to finance credit of purchases specifically for on-line shopping, banks can actually do it. In case customer does not want to use on-line credit given by banks, he can continue to use online banking similar to debit card.


Question: -Can online banking serve each of the functionality that credit card currently provide?
Shri Answers: - Not necessarily e.g. one can also withdraw from Credit card over ATM, which cannot be replaced. Anyhow credit card is not very ideal to provide withdrawal facility, as the interest rates are exorbitant in most cases. Therefore I do not find cash withdrawal as credit card’s USP (unique selling proposition).

Question: -What are the benefits of using Internet banking over credit cards?
Shri Answers: - Various benefits will arise due to few obvious reasons
1)Maintaining credit card network is inherently expensive. There are multiple parties involved such as Issuing Bank, Authoring Bank, Clearing organizations, processing intermediaries, physical card creators and so on. All this cost involved has to be recouped from the customers. Internet banking can avoid a lot of that work which goes behind and come out paperless
2)All that credit card approval mechanism done by the card companies / banks can be replicated for “On-line credit” or banks can extend their existing process of online loan approval for this new banking product created. This will reduce a lot of cost for banks as no major new expenses may be necessary in comparison to setting up new product infrastructure.
3)The interest rates mechanism created by credit cards is complex and not suiting to the innocent or ignorant customer who gets squeezed into the compounding process. Parallel network from very beginning ensure that woes created by credit card mechanism shall not be repeated. Various consumer associations in the world can ensure that while this new baby of online credit is less irritating, more customer-friendly, and cheaper to operate.
4)Customer need not carry a physical card, which has a threat of loss, burglary, coercion etc.
5)Lot of new technological advancement e.g. bio-matrix, human interactive login, GIS / GRS / GPRS can be in-built in this product segment, so as to finally help user to get convenience.



Question: -How can everyone e.g. small convenience or corner shops (KAKA shop as referred by my reader ArunManohar) which typically does not use credit cards, can use this facility?
Shri Answers: - This product may not help those who do not use any technology in their current business. If these shops do not use credit cards / PC etc, I do not foresee much to change for them. The only problems will be for those small shops, which have invested in card-based infrastructure, and shall require PC or additional gadgets to work for alternative Internet based infrastructure.
However in this era of dynamically changing world, only “change” is a constant feature. If one is not proactive in responding to the new updates / skills / infrastructure, one tends to lose in the long run.
e.g. after all in last 10 to 15 years, Video libraries had to undergo massive change as the technology has been changing consistently say from VCR to CD to DVD to MP3 …. and this list is endless.




Question: -What about security threats in Internet Banking?
Shri Answers: - Security threat in Internet Banking is no less or more than the credit card used over internet. However some of the banks are trying very hard to ensure that customer’s rights are protected.

Some of these attempts can be refered over this site
http://www.finextra.com/fullstory.asp?id=14482
http://www.finextra.com/finchannel.asp?topic=internet

A lot need to be added in this topic, but I am sure anything I provide here will be short of description.

In this year of 2006, not every bank offers insurance for online banking. Believe me, we as customer of internet banking can force banks to offer insurance facility for all our banking transactions happening over Internet.