Impacts of E-marketing on Banking Industry

Since the invention of electronic products from past decade, and the inventions of internet, globalization and liberalization occur has major impact on banking industry. There are several impacts of electronic marketing on banking industry in Malaysia and it can be categorized into technology, economy, politic, culture, and social.

Technology

The Internet has made significant changes to the ways companies are managed and operated and has also diminished entry barriers in many industries. New technological forces created and fueled by the Internet and new wireless communications, such as the wireless access protocol (WAP), have been exploited to reduce time-to-market and distances between buyers and sellers of goods and services.

Since its independence in 1957, Malaysia’s banking industry has gone through tremendous changes. The e-marketing impacts started in 1970’s where the gradual deregulation of the financial sector and the computerization of financial institutions had introduced. With the onset of computerization, there had been an explosion of alternative delivery channels.

Then in the early 1980s, automated teller machines (ATMs) were introduced to the local banking scene. It helps and release banks from the constraints of time and geographical location, furthermore banking hours extended beyond office hours. Additional, it provided banks with a more economical substitute for normal brick and mortar branches.

Follow with the technological developments in telecommunications, phone banking was introduced in the early 1990’s. Its provides another alternative delivery channel for banks as it was able to perform most of the functions available on the ATMs, except for withdrawal and depositing of cash.

Subsequently, PC-banking was introduced as a new alternative delivery channel for products and services provided by banks. Its virtually established bank branches at the customer’s premises via the usage of Intranet proprietary desktop electronic package and allowed the customer to perform account receivables, account payables and cash management.

Past few years the automated banking centers (ABC) was introduced. An automated banking center is an electronic banking hall that incorporates an information counter, an ATM and phone banking facilities. Lastly, with the advent of Internet, Internet banking was introduced and it not only provides an alternative to the conventional distribution channel for banks, but also has a more economical transaction cost.

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From the history, we understand the e-marketing had large impact on banking industry which from paper to computerize, and now to wireless. It changed from traditional marketing to e-marketing, which ATM, phone banking, PC-banking, automated banking center (ABC), and Internet banking. It is the requirement for our banking industry to improve competitiveness and customer centricity as it is entering an exciting era that comes hand in hand with globalization and market liberalization.

Politics

With the no-branching rule imposed on the locally-incorporated foreign banks and the definition of branches that includes electronic terminal, the ...

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Politics

With the no-branching rule imposed on the locally-incorporated foreign banks and the definition of branches that includes electronic terminal, the domestic banking institutions, excluding the discount houses, control about 75% of banking sector’s market share, in terms of total assets and total deposits.

The reason of the no-branching rule imposed is because there are significant gaps between foreign and domestic institutions, which need to narrow to achieve the orderly development of a viable and effective domestic banking sector. The gaps are due to the better financial performance of foreign banking institutions.

As at end-2000, there were 31 commercial banks, which include of 14 fully foreign owned, 19 finance companies, 12 merchant banks and 7 discount houses. Upon completion of the merger program among domestic banking institutions, the number of domestic banking institutions reduced to 10 domestic banking groups consisting of 10 commercial banks, 10 finance companies and 9 merchant banks, in order to compete with foreign banking institutions because the Malaysian financial industry is poised to open its doors to foreign banks by 2005.

On the first of June 2000, the Central Bank of Malaysia, Bank Negara Malaysia, has approved domestic banks to leap into the cyber wagon. With effect from June 1, 2000, local domestic banks were allowed to offer a full range of products and services over the Internet.

On the other hand, foreign banks were only allowed to set up communications websites with effect from January 1, 2001 and transactional websites from January 1, 2002. The idea was to enable domestic banks to have a head start before the entry of local incorporated foreign banks, which are comparatively more experienced and more technology savvy in terms of services and products.

Economic

E-marketing has played an important role in banking industry to support economy growth. When the ATMs was introduced, there are 278 ATMs available in 1985 and has been increased to 3379 ATMs in 2001. Following the alternative channel, tools, and technology being introduced, the financial performance had been improved.

In 2000, the performance of the banking industry had improved compared to 1999 in tandem with the overall economic growth.

As bank sector under services sector category

Social and Culture

First of all, the impact on the banking industry is the office hours. In the past, the working hours are based on office hours, but now it extended become 24 hours everyday. This is because the Internet operates 24 hours everyday. They require more staffs to provide the goods and services to consumers.

On the other hand, the working environment in banking industry is more competitive than the past. The operations become transparent due to the advance technology, and banking operation had shifted from traditional banking to customer centric banking. Better performance, high quality of goods and services, and efficiency and effectiveness are requiring in the new era of globalization. Additional, under BNM policy, remuneration are based on performance rather than position also one factor that increase competitive in banking industry.

In Malaysia, the estimates of Internet subscribers until March 2000 was 1.3 million, this is approximately 7 percent of the Malaysian population. Some of the major psychological and behavioral factors going online include consumer awareness, ease of use, security, accessibility, techno phobia or simply reluctance to change, preference for personalized services and cost of adopting the innovation.

Due to the Internet, the online consumer increase due to the increase of population and standard of living in Malaysia. Wireless technology was introduced in capital city of Malaysia as to follow the trend and to compete with neighbor countries.

Competitions

Due to the e-banking being popular in the globe, the goods and services offered are similar to each others, and the operation become transparent. This will increase the competitive among domestic banking and foreign banking institutions. Each and every banking institution offers the similar products and need to be innovative to attract consumer in order to increase their market share.

The availabilities of tools and technology are the same for the banking institutions, and the only different is their financial performance. The better performance has the opportunities to invest in the technology, training, etc, in order to provide effective and efficient goods and services.

Additional, due to the advance technology, an increasing competition from non-banks and new players like technology companies into marketplace. They provide online bill payments, summon, and so on, which approve by the government. This can reduce the revenue of the bank in terms of payment.

Advantages of E-banking

It has been more than four years since Bank Negara Malaysia gave its endorsement on Internet banking in Malaysia. The more recent introducers of Internet banking are more involved in low complexity electronic information products or outbound-only information flow. Some of these activities include displaying interest-rate sheets, loan descriptions, product information, company accounts, company backgrounds, job opportunities, press releases and information on the address of the bank’s branches around the country. This serves as an informative site in promoting the banks as well as increasing awareness to consumers of their current products by building brand preferences.

Online banking can reduce costs by giving customers another means of accessing their accounts without talking to a bank employee. Additional it can attract high-quality, higher-income clients who required less hand-holding.

Online banking reduces customer churn, increases cross-selling opportunities, and is attracting some of the most valuable customers in the banking universe. Online customers tend to use more of a bank's services than other customers. The number of customer "touch points" is higher than with customers who don't use online offerings.

Additional, it is also observed that the websites of these banks are offering a moderate complexity product that applies to communications products such as e-mail and credit card applications.

Malaysian banks are getting more involved in the exchange of non-financial information, which also collaborating with non-financial service providers in order to offer a broader range of non-traditional services such as logistics and distributions.

Thus for bank customers, the appeal of Internet banking lies in its relative simplicity, absolute convenience and easy accessibility.

Disadvantages of E-banking

Security remains the main concern of Internet banking. To make sure that there is no room for mishaps, all banks that provide Internet banking should operate at the highest level of security. These banks depend on Secure Sockets Layer protocol as well as 128-bit encryption to encrypt data entering the bank server and verify the bank server to the user.

Additional, trust and confidence, are significantly attributed to security. The threats and attacks to Internet based enterprises have included such Yahoo, E-trade and Amazon.com. These threats and attacks deteriorated the three main aspects of security that are confidentiality, integrity and availability of data. The absence of these three elements causes lack of confidence for wider customers doing business electronically.

On the other hand, online market for “traditional” services is limited. This is the reason that local domestic banks have established this new delivery channel as a competitive tool and a money saver rather than a revenue earner.

Furthermore, the increasing competition from non-banks and new players like technology companies into marketplace. The central role of banks in the payment system is under fierce attack from these new players offering electronic bill presentment and payment. Banks ought to be proactive to maintain their role in the payment system.

References

Bank Negara Malaysia (http://www.bnm.gov.my)
The Asian Banker (http://www.asianbanker.com)
The Journal of Internet Banking and Commerce (http://www.arraydev.com/commerce/jibc/)
The Edge Daily (http://www.theedgedaily.com)
http://www.ebankmarketing,com
http://www.efinanceinsider.com