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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. Amazon.com
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.
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