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Introduction

In the United States of America and other countries in the world, banking over the internet has been seen to attract an increased attention from various financial industry participants, bankers, regulators, law makers and business press. Among the reasons for the attention towards online banking is the notion that the electronic banking and payment will undergo rapid growth with the proliferating electronic business, some vexing public policy issues and the industrial projections that online banking will reduce the costs of the financial institutions, increase the revenue of the institutions and make them more convenient for the customers. The main purpose of this paper is to help fill significant gaps in existing knowledge about the Internet banking landscape.

Online banking

This is the outgrowth of personal computer banking that uses the internet as a channel of conducting various banking activities such as paying of bills, paying of mortgages, checking the account balances, transferring of funds among different accounts and purchasing various financial instruments. In online banking, the customer uses software that runs the internet banking programs resident on the bank's web server. In the united states of America, the customers who already have bank account at the brick and mortar banks and wishes to use the online banking services asks their respective institutions for the relevant software and personal passwords which allows them to access their accounts at the banks.

There are two major ways through which the banks offer online banking. First, an existing bank with offices establishes a web site which is an additional to the existing delivery channels. Second, the virtual, branchless or internet only bank is established. Here, the computer server may be put in an office that is used to serve as a legal address of such bank. The new customers can start using the services by completing and mailing the application forms to the financial institutions that offer such services or apply through the institutions' websites. In online banking, the physical interface between the financial institution and the customers is not required (Insley, R & Al-Abed, H.).

History of online banking and its future projection

The concept of internet banking started in 1980s when it was envisioned and experimented. On 6th October 1995, the Presidential Savings Bank announced the online banking facility for regular customer use. This idea was taken by other banks such as Chase Manhattan, Security First Network and Wells Fargo. Nowadays, some banks carry out their operations solely through the internet. Earlier, the inventors of online banking predicted that the conventional kind would be replaced by online banking with time. This assessment was wrong because many customers have an inherent distrust in the process due to some factors such as inability to utilize the online services and fraud. In the year 2010, about 55 million American families were active users of the internet banking services and the future of the internet banking promises to be more secure (Bainbridge, R).

Advantages of online banking

First, the internet banking is much convenient. For instance, it allows the customers to perform their transactions and check their balances all the time. The banks are not virtually closed. No matter where the customers are, they can be able to visit their online banks and handle their financial matters. The customers are able to arrange their schedules of making payments to many payees earlier rather than waiting and keeping up with the paper bills. On behalf of the customers, the banks send the payments automatically on the dates and in amounts specified by the customers (Russel, M).

Secondly, the internet banking is efficient, fast and effective. For instance, various financial transactions are carried out and executed very fast as compared to the ATM's. Further, the online banks give the customers the ability of handling multiple bank accounts from a single site. Many banking sites are compatible with some programs such as Microsoft money which allows the customers to manage their finance and asset more effectively (Russel, M).

Thirdly, online banking has several useful features a part from the usual transactions. For example, the customers can manage investments, apply for credit cards and pay bills through their online account portal. They can also easily order for new checks and report for stolen and lost debit cards. Finally, the customers can be given better investment rates for banking services such as the certificates of deposit and savings accounts. Recently, the internet banks such as ING Direct are offering high yield savings account with favorable rates as compared to the ones in other banks. This is achievable because online banks can avoid many overhead expenses that are incurred by the brick-mortar-banks which lead to more profits for the depositors (Karlonia.com).

Disadvantages of online banking

When the banks have online operations only without branch offices in local areas, the customers are not able to reach the bank representatives when they want to discuss some issues related to the account. Sometimes, communication with the representatives proves to be more problematic especially when the customers have very serious issues that cannot be resolved easily. Secondly, some banking services are difficult to offer through the internet or they are not available in the internet. An example is the problem that is experienced when the customers try to deposit pennies. Normally, this is never done directly through the internet. The sending of paper checks through the snail mail delays the deposits and incurs some risks especially the risk of losing them before being processed at the bank.

Thirdly, theft and identity fraud possibly occurs even if online banking is secure and they occur when the customers fall victims to phishing site or otherwise have their information of the account compromised. However, this can be avoided by not clicking on suspicious links that originates from the spam mails and ensuring that the accounts login pages are from correct domain of the banking sites. In addition, not all the online bank transactions are immediate. This always happens in case of money orders and some transfers takes long time before they are settled in order to make the money available in the bank accounts. Lastly, online banking requires some computer literacy and knowledge of using the internet. Therefore, the people with technophobia do not have experience thus they are not able to use online banking services while other people are suspicious of using the internet because it is not within their comfort zone (Karlonia.com).

Online banking challenges

Online banking presents various challenges to the customers' personal privacy and financial security and this is done by phishing attacks, malware and pharming (Banking Security Online).

i. Phishing attacks

They make use of fake email from people who pretend to be representatives of online banks or financial institutions. These emails ask the bank customers to give sensitive details such as their names, account numbers and passwords. When the customers follows the links that are sent to them, the intruders gains access to their finances and personal information (Banking Security Online).

ii. Malware challenges

Malwares are malicious software codes that are designed to enable the intruders to fool the customers that they are protecting them during their transactions. The malware attacks happen to be a factor in internet financial crimes because they perform account information theft, fake web site substitution and hijacking of the accounts.

iii. Pharming

This involves the installation of malicious codes on the customers' computers which can be done when the customers opens the emails containing a malicious attachment which installs itself on the computers. When the customers open their webs, they get directed to fake web pages that resemble their financial institutions or banks (Banking Security Online).

Bank performance and internet experience

The combination of being a new bank offerins online banking services results to relatively poor performance. There is a possibility that poor performance of small online banks versus brick-and - mortar banks is the outcome of the short run costs of investing in online banking, the one that could be expected to give substantial gains in the long run. Because there are very few banks that have offered online banking for many years, it is not easy to determine what the long run is as for as online banking is concerned (Sullivan, J. R).

Conclusion

In conclusion, relatively low percentage of customers using online banking as well as the modest cost of setting up an online banking web site makes it not to belief that online banking has sizable impacts on the bottom line of several financial institutions or banks.

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