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