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Article by Mohan Babu


E-finance: For faster, efficient and cheaper transactions

Financial companies and banking giants in the US are capitalising on the economies of scale provided by Web-based systems. This could be just the beginning of the e-finance era, predicts Mohan Babu

From the early days of Internet and e-commerce, I have been a keen observer of the trends and happenings. Like most of my peers from the IT sector in the US, I had an opportunity to get an excellent ringside view of the upswing and downturn of the dotcom era. It has been over a year since the major shakeouts are over, the dust has all but settled in the dotcom world and a surprising few winners who have survived the downturn are poised to leverage their strength moving forward. and Ebay are case studies unto themselves. So are a few other smaller players in the marketplace. After going through a phase of rapid development, the novelty of the Web is giving way to a mature and measured growth. Of all the business models that had promised to make the Web a better place, use of the Internet to handle one’s personal finances holds most promise.

People are becoming comfortable using the Web to do myriad things, including booking airline tickets, planning holidays, trading stocks, reading the day’s headlines, chatting with friends, sending e-mails, etc. Many in the US are also quite comfortable taking care of their finances on the Web. Personally, I for one prefer taking care of most of my banking transactions over the Web. I pay most of my bills and other regular payments like credit card bills using my online account. Of course, I also verify the deposit of my bi-monthly paychecks online. The online service provided by my bank also allows me to schedule payments, shift from one account to the other, etc, and best of all, there is no charge towards the use of the Internet account. Apparently I am not the only one using online services. Business Week in a recent article titled “Online finance hits its stride”, talks about a number of areas where online systems have been making great strides:

Mortgages: About $160 billion in mortgages were processed online last year alone. Web-lender IndyMac charges rates as much as 0.375 percent below market rate because processing costs are low, saving customers about $50 per month on a $200,000 30-year mortgage.

Billing: Fifteen million people paid bills on the Net last year, up 60 percent from 2000. Growth took off when credit card companies started promoting monthly online billing.

Banking: 16 million US households used online access to checking or savings accounts last year. Customers like having no lines and 24-hour access.

Other big financial applications include online stock trading and tax preparation systems.

The recent growth in movement of financial systems to the Web is different from the one we saw during the dotcom boom for one primary reason—the push is coming from financial companies and banking giants who want to capitalise on the economies of scale provided by Web-based systems.

Earlier, the push was coming from online companies wishing to enter the financial sector without regard to a real demand from either financial institutions or for that matter the customers. As the

Web matures and encryption technology becomes more sophisticated, customers are becoming more comfortable with providing their personal information on the Web, especially to trusted sources.

Banks and credit card companies realise that paper-based billing that costs five to ten dollars per transaction can be reduced to about fifty cents per transaction online. This move to online billing would save a big bank or financial institution millions of dollars. Similarly, processing transactions purely on the Web avoids the cost of having customers drive up to a teller or a physical location. For example, ING Direct, a large financial house has modeled its bank into a purely Web-based system. Entirely bypassing the need to have physical branches, the bank encourages customers to complete all their transactions (including deposits, money transfer and withdrawal). Customers have the option of calling a toll-free number and talking to a representative or transacting on the Web, with most people taking the latter route. Similarly, Web-only mortgage companies, online trading sites and other financial companies are poised to reap the rewards of a speedier, efficient and cheap system. Most regular big banks and financial houses in the US too provide online interfaces to their customers.

Does the success of personal financial applications hold any lessons for Indians? You bet! The market for online banking along with a pent-up dissatisfaction with the existing archaic banking and financial systems is huge. This is especially true for the over million Non Resident Indians (NRIs) who would like nothing better than the convenience of banking and transferring money from their desktops sitting in New York, Colorado or London. Many NRIs find the rate of returns on Indian accounts attractive, but balk at depositing with Indian banks because of the archaic systems and paperwork required. Online banking would not only alleviate the process (of dealing with Indian bankers), but also help attract and retain new customers. Added to this is the convenience of banking from anywhere in the world. There are a number of other financial applications including stock-trading systems and processing of loans that are still at a nascent stage in India. These could take off in a big way if the marketers can visualise a demand for it and create user-friendly systems.




About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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