Lecture E-commerce and e-business for managers - Chapter 16: Online banking and investing

Chapter 16 - Online banking and investing. This chapter includes contents: Online banking services, online loans, how the web is changing the investment community, merging financial services, financial aggregation services, wireless banking and trading, financial planning online.

Chapter 16, Online Banking and Investing Outline 16.1 16.2  16.3  16.4 16.5 16.6  16.7  16.8   Introduction Online Banking Services 16.2.1  Hybrid Banks 16.2.2  Internet­Only Banks Online Loans How the Web Is Changing the Investment Community 16.4.1 Electronic Communication Networks (ECNs) 16.4.2 Online Trading 16.4.3 Online Bond Trading Merging Financial Services Financial Aggregation Services Wireless Banking and Trading Financial Planning Online  2001 Prentice Hall, Inc.  All rights reserved 16.1 Introduction • Topics of discussion  – – – – – – – – Online banking services provided by Internet­only banks Click­and­mortar banks The impact of the Internet on Wall Street  Online stock and bond trading Electronic communication networks (ECNs)  Financial aggregators  Online lending and mortgage services  Financial planning   2001 Prentice Hall, Inc.  All rights reserved 16.2 Online Banking Services • Brick­and­mortar banks have become click­and­ mortar • Internet­only banks lack the brand awareness and  recognition of the click­and­mortar banks • Internet banking services can reduce expenses • Online payment decreases the float – The time it takes for checks to clear after they have been sent  for payment or deposited  2001 Prentice Hall, Inc.  All rights reserved 16.2 Online Banking Services • Internet delivers payments faster than mail  – Frees up cash and decreases accounts receivable • The expected amount of payments owed to a company for  products and services sold to customers • Benefits to customers – – – – Can avoid buying stamps Do not have to send bills out early Account information available 24­by­7 Can view detailed account history at one time online instead  of listening to individual transactions over the phone • Risks – Security breaches – Office of the Currency (OCC) has warned people that sites  mimicking bank sites can scam them for account information  2001 Prentice Hall, Inc.  All rights reserved 16.2.1 Hybrid Banks • Hybrid bank model  – Brick­and­mortar banks offering online services – Prominence of brick­and­mortar brand names increase  customers’ comfort levels when banking online  • Customers can visit a physical branch – Physical presence includes the large network of ATMs • Some charge monthly fees to use online bill­ paying services  • Important to the survival and growth of small local  banks – By going online, small banks can offer competitive services  and attract national customers   2001 Prentice Hall, Inc.  All rights reserved 16.2.1 Wells Fargo Feature • Wells Fargo is a hybrid bank  • Services are broken into three main sectors – Personal finance, small business and commercial banking • Offers free bill­paying, checking­account  comparisons and specialized resource centers • Plans to offer a portal site providing financial  services, such as stock trading, news, weather and  financial aggregation – Allowing people to view information from all of their  financial accounts in one place on the Internet  2001 Prentice Hall, Inc.  All rights reserved 16.2.2 Internet­Only Banks • Internet­only banks  – Offer convenience and often lower fees and higher interest  rates to their customers as compared to traditional banks – Can lower costs of buildings and equipment and can  decrease payroll as traditional employee roles are eliminated – Must accept deposits by mail because lack of physical  branches  – Little brand recognition compared to brick­and­click banks – Insured by the FDIC • Some Internet­only banks are attempting to  establish a physical presence  2001 Prentice Hall, Inc.  All rights reserved 16.2.2 NetBank Feature • NetBank is the largest Internet­only bank  • Customer Online Services – – – – – Checking, savings and credit accounts Plan for retirement Conduct online trading Obtain mortgage, car and business loans Obtain a line of credit, free online bill payment and  presentment, ATM card and Visa credit card • Rates and calculators are available  2001 Prentice Hall, Inc.  All rights reserved 16.2.2 Internet­Only Banks Internet­Only Ba nks  BankAtlantic.com Desc rip tio n  Offers services in Spanish Provides trading services through ShareBuilder Offers customers personal, small-business and commercial banking CompuBank (www.compubank.com) Offers clickrewards (www.clickrewards.com), allowing customers to earn rewards for direct-deposit and check-card purchases Pays above-average interest on checking accounts and offers free online bill payment SFNB (www.sfnb.com) Offers its customers the Share the Wealth program, which rewards customers for referring new customers This bank also offers advice on managing your money and provides budget, savings and retirement calculations nBank (www.nbank.com) Provides personal and business banking Business services include merchant credit-card processing and business-credit inquiry nBank also offers Internet service to local areas in Atlanta and Georgia    2001 Prentice Hall, Inc.  All rights reserved 16.2.2 Internet­Only Banks Internet­Only Ba nks  everbank.com Desc rip tio n  Offers free online bill payment, mortgage services, the everCard Visa Platinum credit card with free credit-card management online and trading services through EverTrade Direct Brokerage, Inc Gomez.com Evaluates e-commerce customer experiences Coverage includes banks, brokers, credit cards, home buying, travel and shopping services and health sites This site provides its opinion of the best online banks and allows visitors to rate and review the banks CyberInvest.com Offers information on and evaluations of different financial service providers Visitors can check out sections such as the Bond Center, Brokerage Center, Educational Center, Mortgage Center and Global Investing Center bankonline.com Helps visitors find institutions that offer online banking, insurance comparison shopping, financial planning and loan and credit applications Internet­only banks and online banking information sites.       2001 Prentice Hall, Inc.  All rights reserved 16.4.2 Online Trading • Trading on margin – When an investor buys stock and borrows money from the  broker to invest in the stock – Opening a margin account online requires a relatively low  minimum balance, answering a questionnaire (which  sometimes replaces a credit check) and being qualified  electronically, with no assessment made by a human broker • Potentially, a stock’s value could fall to a price  that, when sold at the market price, will not cover  the loan – The broker can issue a margin call—the broker requires the  investor to invest more cash or securities or sell the stock to  pay back the loan  2001 Prentice Hall, Inc.  All rights reserved 16.4.2 Online Trading • Day trading – Making short­term trades in an attempt to profit off of  market inefficiencies (e.g. news affecting the market,  disproportionate risk to price value of a stock or arbitrage,  wherein someone profits by converting money from one  currency to another) – Easier on Internet – Transactions limited by modem speed and server­side  transaction speed – Fees can be expensive  – Day traders still bear the same risks as other traders – CareerDayTrader.com, DayTradingOnline.com and  OnlineTradingAcademy.com  2001 Prentice Hall, Inc.  All rights reserved 16.4.2 Online Trading • Federal Trade Commission, the Commodity  Futures Trading Commission and the Securities  and Exchange Commission warn traders about the  exaggerations and counter factual claims made by  some online trading firms – Online trading does not reduce stock market risk • Foreign­exchange banks have begun to move their  services to the Internet to remain competitive – Foreign exchange systems allow traders to find the best  deals on foreign currency • The Internet facilitates trading commodities  globally  – EnronOnline  2001 Prentice Hall, Inc.  All rights reserved 16.4.3 Online Bond Trading • Bond – A written promise that an entity will repay a debt that is sold  to an investor (investor receives original investments and a  dividend for a certain period of time) • Traditionally, someone would check the  newspapers and call different institutions to buy or  sell a bond • Online companies offer bond trading with the  claim that the process is easier and cheaper – Tradebonds.com, bondsonline and MuniDirect   • The Internet can cut the cost of issuing bonds • Need for a standardized system for the bond sales  process  2001 Prentice Hall, Inc.  All rights reserved 16.4.3 Online Bond Trading Tradebonds.com’s zero coupon bond query (Courtesy of Tradebonds.com.)  2001 Prentice Hall, Inc.  All rights reserved 16.5 Merging Financial Services • Glass–Steagle Act – Prohibited financial institutions from engaging in multiple  financial operations (i.e.,one institution offering banking  services and trading services)  – Since repeal, banks, brokerages and insurance companies are  permitted to offer a wide range of financial services • Most online financial services offer electronic bill  presentment and payment (EBPP)  • It is crucial for financial institutions to offer a  wide variety of services to remain competitive – Prudential  2001 Prentice Hall, Inc.  All rights reserved 16.6 Financial Aggregation Services • Online aggregation services give users the option  of keeping all their financial information in one  location on the Internet • Aggregation services use screen scraping – A process whereby the aggregator visits the sites that have  your financial information and services and uses your  usernames and passwords to log in, download the  information and store it in one place, where the user can  access it – Many banks do not authorize screen scraping, although the  aggregators are not required to have authorization • VerticalOne, ebalance, 1View Network, ezlogin  and GainsKeeper  2001 Prentice Hall, Inc.  All rights reserved 16.6 Financial Aggregation Services • Financial Services Technology Consortium  (FSTC)  – Trying to stop the screen­scraping process and implement  another form of gathering information to create a standard • Privacy and security concerns • Not regulated by the federal government  – Aggregators are not required to compensate users if security  is compromised by a hacker • Pose a threat to traffic at online banking and  investing sites – Banks have reacted by implementing these services on their  sites  2001 Prentice Hall, Inc.  All rights reserved 16.6 Yodlee Feature • Yodlee is a financial aggregator • Allows transactions through partnerships with  financial institutions and providers  • Offers aggregation of non­financial content such  as travel reservations, e­mail, news, shopping  accounts, frequent­flyer and reward programs, etc.  • Access Yodlee’s services from one of Yodlee’s  partners, including AltaVista, AOL, Citibank,  Chase Manhattan Bank and  Morgan Stanley Dean Witter  2001 Prentice Hall, Inc.  All rights reserved 16.6 Yodlee Feature Example of Yodlee’s service through Citibank’s myciti (Courtesy of Yodlee, Inc.)  2001 Prentice Hall, Inc.  All rights reserved 16.6 Yodlee Feature • The company’s personalized aggregation solution  can be delivered over the Web, personal digital  assistants (PDAs) and Web­enabled wireless  phones – Yodlee2Go allows users to access real­time personal account  information, including investments, banking and e­mail, on  their wireless phones and PDAs • Provides customers with personalized alerts • Can track and chart account activity  2001 Prentice Hall, Inc.  All rights reserved 16.6 Yodlee Feature Example of Yodlee’s charting capability (Courtesy of Yodlee, Inc.)  2001 Prentice Hall, Inc.  All rights reserved 16.7 Wireless Banking and Trading • Companies can use wireless technology to offer  their customers a value­added service • Wireless banking  – Allows users to pay bills from anywhere – Transfer funds between accounts  – Check account activity • TD Bank Financial Group and Netbank  2001 Prentice Hall, Inc.  All rights reserved 16.7 Wireless Banking and Trading • While the market may be adopting wireless  banking slowly, wireless securities trading is  growing rapidly – Traders can receive important information and news about  the market or their investments and make trades immediately • Companies offering wireless trading services – Ameritrade, DLJ Direct, SureTrade.com,  Morgan Stanley Dean Witter Online, Fidelity Investments  and Trade.com • Wireless access to financial information may grow  more slowly in the United States than in Europe  and Asia, because the United States has more  technical standards and wireless devices in use  2001 Prentice Hall, Inc.  All rights reserved 16.8 Financial Planning Online • The Internet has made financial planning easier  for service providers and customers – People can educate themselves about financial­planning  options • Companies can offer online applications, account  histories, new­product offerings, investment  tracking and other services  – 401kafe offers information regarding 401(k) plans— investing vehicles for employee retirement – mPower offers retirement­planning advice to employees of  member companies that sign up for the subscription­based  service – ihatefinancialplanning.com provides information  on all financial­planning topics  2001 Prentice Hall, Inc.  All rights reserved ... personal, small-business and commercial banking CompuBank (www.compubank.com) Offers clickrewards (www.clickrewards.com), allowing customers to earn rewards for direct-deposit and check-card purchases... money and provides budget, savings and retirement calculations nBank (www.nbank.com) Provides personal and business banking Business services include merchant credit-card processing and business-credit... travel and shopping services and health sites This site provides its opinion of the best online banks and allows visitors to rate and review the banks CyberInvest.com Offers information on and evaluations