Registration of your site
Here is a Institutional Perspective on Electronic Banking Solutions, courtesy FINO. The electronic banking solution should increase profitability. This requires careful consideration of
- Functionality
- Building volume through segmentation
- Fees and charges
- Efficiency
- Controlling
- Development costs
- Distribution channels
- Partnerships and
- Developing multiple business cases.
1.Functionality.
"One debate is then whether to provide a low-cost, lower-featured product to prevent cannibalization of services targeted to the high-value market, or whether to provide a feature-rich product whose profits are driven by lower fees but relatively higher transaction volumes."
There is a continuing debate over the level of functionality that should be provided by electronic banking solutions. Established commercial banks have an incentive to maintain the status quo. it is the newer banks with a lower investment in physical infrastructure who stand to benefit more from falling development costs for back office systems and the rapidly reducing cost of communications, of ATMs and of POS devices. One of the key features is that it will be accessed through a card which can be used on any of the ATMs of any of the participating banks, using the same pricing, i.e., no additional switching costs. The assumption of the big banks is that one cannot profitably provide a cheap product with high functionality to the low-income market.
2. Segmentation.
Segmentation within an e-banking initiative is a key to profitability. Segmentation implies using the e-banking platform to sell differentiated services to different groups of customers. Segmentation allows financial institutions to match customers with optimal products and delivery channels. Have a look at the table below.
Some of the most obvious segments include:
- Own customers. An existing customer base is the most obvious market segment for electronic banking. Clearly, extending electronic services to existing customers risks cannibalizing existing products and services. Against this, is the expected benefit to be gained from decongesting banking halls and processing transactions at lower cost.
- Distributors. Business-to-business use of electronic banking allows the transfer of value between distributors and their customers, without the physical transfer of cash. This considerably reduces the risk to distributors.
- Loyalty cards. Fuel companies are the most obvious customers for loyalty cards. The fuel card is usually either co-branded with the financial institution, or simply branded by the fuel company. The fuel company is normally the issuer of the card to the public. The e-banking platform is also used to transfer funds between the fuel company and its distributors as each fuel delivery is made.
- Government. Governments make a number of transfer payments, e.g. pension and benefit payments. In South Africa and many other countries including India, pensions are already being paid to more than 5 million clients through smart cards.
- Corporate salary payments. Given falling ATM prices, employers in Africa are being targeted for a new service – on-site payroll processing through ATM machines.
- Community phones. Community phones take mobile phone technology into communities, usually under the brand of the mobile telephone company. For example, mobile franchisee kiosk operators can deposit funds in their ABC Bank-Card accounts in Post Offices, ABC bank branches and major supermarket chains and can top up their airtime at any time.
- Microfinance/Credit Union Cards. Microfinance programs or credit unions can operate an advanced electronic solution through partnership with a financial institution, or through a collective approach which is being actively pursued in India by Banks.
3. Fees and charges.
Modeling the success of an e-banking product depends on accurately predicting the behavior of customers towards the product. Assumptions must be made by each segment for ATM usage, POS transactions, the percentage of transactions that are on our network, that are off our network, etc. (see Table 3). The challenge is that many variables are difficult to predict before the solution is in operation, at which time considerable sunk costs have been invested.
