E-commerce is a relatively new area for business and presents tremendous potential for organisation to exploit opportunities on the Internet



Feb 07 - 13, 2005



Banking is governed by the growing demands of customers in terms of efficiency and technology. Technological developments have allowed banking to be supplemented by services such as telephone and PC banking, allowing customers to manage their accounts from home. There is intense competition and in order to deep up with its rivals, each bank is trying to match the other terms of product and service. Internet banking is the latest innovation to these banking services.

The primary reason for writing this article is that e-commerce is a relatively new area for business and presents tremendous potential for organisation to exploit opportunities on the Internet. This article will give an overview of the general Internet banking industry and will try to answer whether Internet banking is a useful tool in terms of marketing and gaining customers for the banks in their war of competition. The main aims of this research are to answer whether Internet banking services and products are worthwhile for the customer, how organisations are marketing their products, what qualities are required to be a market leader and most important of all if Internet banking is worthwhile.


1. Critically analyze how the Internet is used as a development tool for Internet banking by looking at the benefits and pitfalls. Greater emphasis will be placed on the pitfalls and possible ways in which banks can overcome them.

2. To identify how customer loyalty can maintain by Internet banks. Analyze and recommend the different customer retention methods which organisation are doing or could do to build customer loyalty.

3. Analyze the marketing techniques and strategies which banks employ to promote their services. It is hoped that clear patterns will emerge from this objective showing similar traits amongst the bank. It would be therefore possible to explain what qualities are required to become a market leader in the area of Internet banking. Examine whether Internet banking is worthy by looking at all the evidence presented in this article.

In the last year, the number of banks offering Internet-based services have increased dramatically. There are many advantages in using Internet banking service, the primary reason being for Internet banking can be accessed from any PC with Internet access. Other advantages for customers using Internet banking is that it is largely free, users only pay for the phone line. Internet banking is convenient if there is no delay like waiting in a queue, and one can access their account 24 hours a day. There are also advantages for the organisation that there is lower cost of operation because of no physical branch and the organisation can capture detailed information about the customer's lifestyle based on their activity on the web site.


The power definitely lies with the customer. The Internet allows the customer to shop around and look for the best offer of products and services available. At the click of a mouse, customers can shop around instead of going to the local high and stand in queues. The Internet allows customers convenience and control over their finances. Customer loyalty to a particular bank cannot be guaranteed anymore. However, the Internet will allow the banks to track the movements of their customers and target tailored products for their customers and this could infect increase loyalty.

More and more financial information is available on the Internet and customers don't have to rely on bank employees to advise them what to do with their finances. The Internet allows for more transparency in assessing products where customers can use their screens for the best products, services and pricing for their banking needs.


Due to Internet, the power of the banks has decreased. Recent changes in financial laws have also decreased the power.

As more Internet banks enter the industry it will be seen that the power of the Internet banks will further decrease. Internet banking doesn't guarantee customer loyalty because of various reasons like choice and convenience. Banks will have to extremely well thought out marketing strategies in order to attract customers.


In future, there might be electronic money. Life without banknotes and coins might be a problem for banks to operate at all. Some people think if there was no need for physical money, banks would have very little to offer. Everything transfers, payments, even loading up electronic purses could be done on a computer. Having money stored on smart cards is another possibility in the near future as a substitute to Internet banking.


One of the main strengths of Internet banking is ease of convenience, customers can get 24-hour access to up to date information.

Internet banking is a source for containing cost for banks. Research has shown that it is cheaper to carry out a transaction via the Internet than it is via a branch.

The image of banks is improved by having an online banking site. It is another form of marketing, it indicates to the consumer that the bank is up to date and is technologically advance. Internet banking will allow the banks to have global reach.

Customers can get access to Internet banking anywhere in the world, they just need an Internet connection.

Advantage over telephone banking is that customers get visualize. There is an opportunity to view tables and figures.

Even though there is a threat of fraud, online banking is relatively safe, customers are protected from hacking by encryption.

A further advantage of Internet banking is that it can be accessed via any terminal. Internet banking has allowed banks to contain costs to an extent. The main weaknesses are fear of security, customer loyalty being affected, virus affecting the web sites and also lack of personal communication between bank and customer.


The main purpose of Internet banking is a means of providing convenience to the customer. The bank said that 24-hour access is the main benefit for customer using Internet banking and the reason why they provide Internet banking is to give an alternative method of banking which provides convenience. Customer also said that Internet banking saves them time compared with high street banking and 88% of customer said that 24 hours access is an important feature of Internet banking. Most of the Internet banking customers are professionals who don't' have time to visit a local branch. They require a service which is convenient, easy to use and with almost the same product range and service of a high street bank. Providing 24 hours access 7 days a week provides convenience to the customer.

The benefit which the banks get include enhanced publicity, increased revenue and enhanced reputation. However, if there is a problem with Internet banking, the bank could encounter negative publicity.

Pricing is an important issue in Internet banking. 53% of customer said they were attracted to the bank because of its attractive rates. Generally pricing is far better than street banks. The rates for savings account are about twenty times better in Internet banks than high street bank.



Customer service is generally poor even though the banks regarded it as being important and unchanged. Customers miss out on the human element found in high street banking. They have to find information themselves and don't have any representative to help them or give them advice. E-mail and call centres are there for the customer and do have an effective reply time or answer customer inquiries, however, customer still perceive customer service being poor in Internet banking.

Advertising and promotion play a major role in bringing awareness of the products and service and are vital. The majority of customers had seen some sort of advertising or promotion given by the banks. The most effective medium for bringing awareness was the television, not surprising as it reaches out to a greater number of people.

Customer loyalty is an important feature for retaining customers. Personalizing products or services to a customer's needs is another effective method for increasing customer retention.


Both banks and customers were unanimous in saying that possible problem in Internet security was the main disadvantage. The main worries users concerning with the security was that of credit card fraud and hackers getting access to account details. This is shown by the large percentage showing 785 and 69% respectively. Credit card fraud has been a publicized crime, which costs the credit card industry millions of money every year. With credit card details being sent over the Internet there is no signature authorization, therefore anyone who gets hold of a customer's credit card details can use it for online theft. Therefore, it is understandable why credit card fraud is a major worry for Internet users. However, it is still a rate to encounter to have such problems. Banks have encountered problems in the past.

The primary research was done to find out if Internet banking is worthwhile for the customer. 92% customers said that Internet banking is worthwhile. There was a strong agreement amongst individuals as to Internet banking being overall worthwhile. It would be fair to say that disadvantages put aside, Internet banking does cater for most of the needs of its subscribers. Because most customers perceive that the greatest benefit of Internet banking is providing convenience, they use the Internet banking service mostly to resolve issues which saves them time from going into a branch. Internet does save time for the customers. Both questionnaires show that Internet banking is convenient, so because of this it is not surprising that customers think that Internet banking is worthwhile.


A book titled Advertising on the Internet by N. Barrett and a magazine called e-business provided information on the origin of the Internet. It gave details on how it was developed by US government funded research agency nearly 30 years ago for use to linking universities and research establishments and how it has expanded to the worldwide web.

E-business was a very useful magazine in providing information on the overview of the Internet. It contained an interesting article by J. Nunn on how Internet has evolved and how it has become relevant to modern business. The article told how companies are starting to realize the opportunities the Internet offers them. This is due to the growth of people online. "The Internet is still experiencing rapid growth. According to analysts Data monitor, over 100 million people and organisation are closely connected to the Internet across the globe, and in the UK nearly 11,000 are joining the Internet everyday." J. Nunn goes on to add the benefits of the Internet. "At a time where many are trying to be consumer-oriented, the Internet allows a one-to-one relationship with the customer. Companies can track the behavior of their visitors at the web site enabling them to build a customer profile of the customer behavior." Other benefits mentioned were that companies are using the Internet to cut out elements that do not add value.

Another great source for information concerned Internet banking, the book consulted was Cyber marketing. The book was used to have information on how Internet marketing is different from conventional marketing. Marketing on the Internet has many similarities to traditional marketing, such as knowing your market and targeting your marketing materials to that market but here are a few differences.

A number of articles gave useful information related to Internet banking. Internet banking was first mentioned in the Banker in 1995, when it covered the opening of the first Internet Bank in the world, Security First Network Bank (SFNB) launched in October 1995. Within the first week of operation more than 500 accounts, and that number continues to grow. Accounts had been opened for customers in 32 states across the US. SFNB's customers are provided with current accounts, a Visa card, and electronic bill payment facilities.

The "Dawn of a new e-economy" was an article from The Banker (July 2001) and was written by E.R. Baldock. He mentioned in the paper that e-commerce is not just about having a web site, it creates a whole new economy that gives the power to the customer. Just having a presence on the Internet with basic customer services is not enough to woo customers. Before the e-economy, consumers waiting to shop around for the best deal had to search the high street, make a lot of telephone calls but the Internet has e-economy is fundamentally different to the economic model that has dominated the industrial revolution.

A book titled "The banking revolution" by M. Carrington, P. Langguth & T. Steiner contained an analysis of the future of the banking. It gave an overview of high street banking, telephone banking services, PC banking and Internet banking. There were useful case studies on various banks like Royal Bank of Scotland, Nationwide and First Direct.

The Internet also had articles concerning Internet banking. The Journal of Internet and commerce is available only on the Internet and there were useful articles obtained from it. One such article concerned Customer retention and was written by Dr. G Wiegran and H. Koth (1). The authors said that building customer retention requires three elements: Customer loyalty, share of wallet and product margin.

Newspapers like the Financial Times and the Times were also consulted, they contained introductory information on the Internet.