Online Banking

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Management 4

Professor Chao, Chiang






Jin Chung

Tina Fogg

Marie Desimone

Richard Lee

Claudia Rubino

Francesca Vicari

Online Banking (Citibank)

INTRODUCTION

The use of computers and Internet in today’s society makes life much more convenient for everyone. This case proves the point that online banking as services are becoming more trusted with the increase in popularity. Also, consumers are finding financial services more suitable with Internet banking. Thus, as result, online banking is spreading like wildfire. As the number of consumers using the Internet expands, banks have to keep up with the demand and provide quality products and services online. Along with this, many users of online banking feel a sense of freedom that these new services offer them. Due to some of its benefits, financial services have never been as simple as they are with online banking. One key advantage, among others, is that consumers can access their accounts from any computer with the Internet around the world. However, like anything else, online banking has its disadvantages as well as advantages.

LITERATURE REVIEW

What is Online Banking? Online banking is just what it sounds like. You access a bank’s web site over the Internet and enter a user ID and password. This gives you access to your account information over a secure server. Service for online banking is available 4 hours a day, seven days a week. You no longer have to rush to the bank at lunchtime or stand in line-ups in the bank or at the ATM, just to find out information about the availability of your funds.

While a number of the largest banks have gone to the Web and introduced free online banking to attract new customers and allow existing consumers to manage accounts online, not much else has changed, according to Bankrate.com’s fifth semiannual Checking Account Pricing Study (Buckham).

Some online banking services are free while others have a fee. These banks determine rates and fees for online accounts based on where you live. That is why these banks ask customers where they live in one form or another. Each state would have different fees and rates. You would be given the same rates that you would receive if you’d walked into your hometown branch of the same institution.

In order to get started with Internet banking, you must have either an IBM compatible or Macintosh computer. You will also need a modem, an Internet browser, and access to the Internet. The recommended browsers include Microsoft Internet Explorer 4.01 or newer, Netscape Communicator 4.7 or Netscape Navigator 4.08 (O’Brien). In the near future it will be possible to access your online banking information from a Palm Organizer or Web TV.

The most basic online banking sites let you see account balances, transfer money between accounts, view transaction statements, and pay bills electronically. Some online banking sites let you apply for new accounts and loans, order new checks and stop payments, and many other services. Due to the fact that many people work during banking hours, online banking is a convenient option for them. It is also a great time- saver. For instance, instead of going to each individual bank to find out about their banking information and rates, you can go online and find out about all of that information.

Another online banking feature that many customers enjoy is paying for bills online. You would only have to type your payee’s account information one time. Once you instruct your bank to pay a bill, the bank will pay the merchant electronically if possible, or the bank will print and mail a check. Online banking is a great tool for checking your account transactions or figuring out whether a particular check has cleared. Many banks let you download transaction information, saving you several hours of data entry each year.

Aside from the advantages and services online banking provides, there are also disadvantages to online banking. Online banking cannot do everything. Some of the disadvantages of online banking are that you need an account with an internet service provider (ISP). There is also an original setup for bill paying and is time consuming, but in the long run it will save you time. Switching banks can also be more cumbersome online than in person. In order to use online banking, the person must have basic computer skills and Internet knowledge, and also must be comfortable using the computer. (www.msmoney.com).

Unlike regular banks, you will need to mail or have direct deposit or any deposits to your bank account. This could be a disadvantage because this could be time consuming. Online banks usually do not have their own ATM’s, although you will be able to access ATM’s provided by many other banks. However, most banks do offer you a rebate for their ATM usage. Online banking is not the same as seeing a teller personally. You can ask a teller questions, but it would not be possible to ask these questions to your computer. This service is not available yet. You may be able to e-mail the bank with your questions, but will not receive a response for at least 4 hours. Some services that are not available are safety deposit boxes, coin counting, and ATM’s. These services cannot be duplicated with online banking. Some things were just not meant to be a part of online banking.

There are also security concerns about this system, like “hackers” accessing your bank account. Banks use the top security measures available for their online banking websites. There are some tips that will help you secure your information. First, you should make sure the online banking service you are using is FDIC (Federal Deposit Insurance Corporation) insured before you make a decision on what bank you should use. Secondly, do not send any account numbers or balances through e-mail to your banks customer service department. You should also protect your online banking password just as you would with you ATM card and pin number. Finally, your password shouldn’t be so obvious or should be changed every 0 to 60 days.

Citibank currently uses three types of security features to protect its customers’ privacy; strong encryption, personal identification number, and automatic time out. Citibank uses the highest level of encryption, 18-bit, which scrambles and then reassembles all information sent between Citibank and the customer’s personal computer. The personal identification number is a unique number that is entered every time a customer accesses his or her account online. Automatic time out helps protect against unauthorized access by ending the user’s connection to their account after seven minutes of inactivity.

Considering the amounts of money being spent on security, and the different types of security features being used, one would think that identity fraud and theft would be a rare occurrence. However, there are 500,000 cases of identity theft each year, just in the United States alone (Mearian). About a year ago, in January 00, a flaw was found in Citibank’s online payment site, cit.com. This flaw allowed any logged-in user to access other customer’s accounts. They could transfer cash, view credit card and bank information, and easily cover their tracks when finished (Fisher). Obviously, the methods being used are not secure enough, and new methods should be implemented.

One type of innovative security solution is biometrics. Biometrics uses a unique biological feature to verify the identity of an individual. Personal identification numbers are still the most used security feature, but can be stolen or lost. Using biometrics provides a more secure way of identifying an individual, and nothing can be lost or stolen. Features that are used in biometrics are fingerprints, palm prints, retina scanning, iris scanning, hand geometry, face recognition, and voice authentication. All of these features are unique to every person, which makes it extremely difficult, if not impossible for identity theft to occur.

Out of all the different types of human characteristics used in biometrics, the voice is the most unique. Furthermore, voice authentication would probably be the easiest to implement through a computer with the use of a microphone, and most users would probably feel comfortable with it.

Citibank is looking into the possibility of using biometrics to identify customers more securely. According to Tom Connaughton, managing director of risk management at Citibank, the company wants to lead the way in using biometrics as a new security feature. In addition, Citibank hopes to provide their customers with a variety of identification options, allowing them to choose whichever one they are the most comfortable with (Mearian). In exploring new ways of protecting privacy, it is important to not forget the comfort of the customers themselves.

The following indicates consumers overall attitude toward online banking.

Consumer Attitude Total

Security/privacy/concerns

over transaction. 85%



Find online financial

transaction more convenient. 4%



Net has changed attitude

to financial transaction %



Conduct/expect to conduct

financial transaction 0%



Check/expect to check credit

card balances 15%

The statistics show that security is the main concern of online banking users as well as with the financial institutions, who invest large amounts of money in protecting the privacy of their customers. If people don’t think their money is safe with an institution, they won’t place their money there. Banks want to provide their customers with a sense of security that their money and information are safe with them.

As predicted by the E marketer forecast, the number of U.S households banking online would almost double from 001 to 005. The number of U.S households carrying out banking transaction via the Internet will rise from 17. million in 001 to 1. million by the end of 00. During 00, the number of U.S households banking online will reach 5. million and by 004 the U.S online banking population will hit 8.7 million. E-marketers predict that by 005, some 1.5 million households in the U.S will be carrying out bank transaction via the Internet. The market will be driven by new offerings from financial service providers and a wider range of wireless devices.

Online Banking Adoption In The U.S

Year Percentage

001 7%

00 8.%

00 %

004 11%

005 11.%

According to research companies, banks wishing to boost adoption rates need to ensure that bill payment services are the centerpiece of any online banking offerings rather than just add-on services.

How U.S Banks Measure The Success Of Their Online Services

Metric Total

Number of online customers 60%

Penetration across customer base 47%

Percentage of active users 4%

Percentage using bill pay 7%

Volume of bill pays 0%

Number of services per customer 7%

Bank executives want to offer online services to more customers and push them to use automated banking. As technology advances and the Internet becomes more wide spread, banks hope that eventually all of their traditional services, and perhaps much more can be offered online.

How Broad Band Changes Consumers Online Financial Activity

Online Activity Total

Receiving or viewing bills +46%

Checking bank balances +%

Inter-account funds transfer +%

Paying bills +11%

Tracking stocks +%

Trading stocks +1%

Some bank customers would rather do banking the old fashion way, at the banks themselves. According to research conducted by Garther, consumers are distrustful of such services in general, believing that their information is neither secure nor private.

Why Customers Dropped Banks Online Bill Services in 001

Reasons Total

Didn’t understand system %

Payment problems 5%

No value 1%

Inconvenient 11%

Expensive 11%

Don’t Know 7%

Value Of Wireless Financial Services To U.S Consumers

Function Very Useful Not Useful

Transacting 7% 4%

Information 58% %

Notice 55% 1%

Online banking is cheaper for banks, households and businesses. The cost of online transaction on average a transaction in a branch costs around $.50, while it may cost even less than 10 cents online.

Potential Savings From Automating Checking

Category Benchmark Potential Savings

Households 5 million takers USD 5.4 billion

Business If business uptake =50% USD 8.0 billion

Banks spend almost half of their spending on customer security and privacy. Providing security and privacy to customers is more important to banks than gaining new ones.

Banks’ Immediate Priorities For Tech Spending

Strategy Percentage

Security & privacy 40%

Customer acquisition 0%

EBPP 14%

Single Sign-on %

CRM 8%

Account aggregation 6%

Other %

Fraud is still a major concern for customers when it comes to online banking. Passwords are vulnerable, can be lost, and forgotten or stolen by unauthorized users. 75% of online bankers are concerned about security and privacy measures.

Attitude Of Americans Towards Cyber crime

Category Total

Feel threatened/concerned over cyber crime 67%

Want more protection for consumers 6%

Less likely to do business online 61%

No effect on E-commerce %

Online Card Fraud As A Concern For US Firms

Type of Concern 000 001

Loss of revenue 7% 57%

Charge backs 4% 45%

Financial reconciliation inefficiencies n/a 4%

Bank fees 4% %



ID Theft Costs Incurred By US Financial Institution, 001-006

Year Total (USD million)

001 1,041

00 1,57

00 ,10

004 ,778

005 ,

006 ,68

5Year CAGR = %



ONLINE BANKING QUESTIONNAIRE

1. Are you an Internet banking user? Please circle one

a. Yes

b. No

. What concerns you most when using online banking? (Please choose only one)

a. Privacy

b. Security

c. Service Fees

d. Reliability

e. Other

. What are the most important reasons that you opened an Internet banking

account? (You may choose more than one)

a. Convenience (ex. 4 hour service, can do it in the comfort of your own home)

b. No additional service charge

c. Ease of use, easy to maintain banking activity

d. Confidentiality

e. Can bank from anywhere

f. Speed of transaction

g. Other

4. What online banking services do you use most frequently?

a. Calculate loan payment information

b. Apply for consumer loans or credit cards online

c. Check-balances online

d. Online bill payments

e. Inter-account transfers

f. Download personal bank transaction activity

g. Other

5. If you do not currently use online banking, which of the following are the

major reasons you choose not to

a. Do not know how to use a computer or do not know how to use online banking

b. Do not own a computer or do not have internet access

c. Do not trust a computer

d. Security/Fraud concerns (privacy reasons)

e. Bank does not offer it

f. Other

6. If you answered (a) to the previous question If you became more comfortable with using online banking, would you use it to conduct your banking transactions?

a. Yes

b. No



The subsequent survey concerning online banking was conducted on twenty different individuals. Following are the results of that survey.

1. Are you currently an online banking user?



. What concerns you most when using online banking?



. What are the most important reasons you opened an Internet banking account?



4. What online banking services do you use most frequently?



5. If you do not currently use online banking, which of the following are the major

reasons you choose not to





6. If you answered (a) to the previous question If you were more comfortable using

online banking, would you use it to conduct your banking transactions?



As is evident from the survey, the major reasons that people are using online banking are because of its convenience, the speed of transaction, and the fact that you can do your banking from anywhere. Branch banks are only open for very limited hours per week. Due to the fact that many American households now have two working parents, it is almost impossible to find time during the day to visit the bank. Online banking, however, provides the convenience of 4-hour banking. You can transfer funds, check you balance, pay bills, among many other things. It is banking for today’s fast paced world.

There are, however, people who are still concerned with the security issues of using online banking. If we were able to survey more people, it is evident that many more would be concerned with the security issues of banking online. For one, many people do not trust entering their account information over the Internet. Even though it is basically guaranteed to be safe, there are some people who are afraid of the new technology. Another reason that people do not use online banking is because they do not know how to use it. The one person who answered that they did not know how to use the online banking service, said that they would use it if they were familiar with the program. One way that banks can get around this is to create the user-friendliest sites possible. This would gradually draw more users to their online banking sites.

The banking industry has implemented many useful and innovative ideas over the years. Online banking has had the biggest impact on the industry. Online banking has forever changed financial services, by making them accessible from any computer around the world. Banks are now constantly updating and simplifying online banking because of its increase in popularity. The growing use of computers has also made this service more popular. Although online banking has made banking transactions more convenient and less time consuming, security and privacy concerns have been its main weaknesses. The solution to the problems such as identity theft will help gain consumer confidence and trust in online banking. By reducing its disadvantages, online banking has the potential of eventually completely taking over banking services. One-day people will be able to enjoy online banking without any privacy worries, but until then we must educate ourselves on proper use and protection of these services so that we may benefit from all of its conveniences. “It might be the best self-service idea banks have ever introduced” (Tobin).







REFERENCES

Buckham, Bob “Free Online Banking Great online banking choices for you,” http//www.best-free-online-banking.com.

Fisher, Dennis “Flaw Leaves Online Citibank Customers Vulnerable,”

http//www.eweek.com

“Financial services,” http//www.kadius.com.

http//www.otg.ca/biometrics/what.html

Mearian, Lucas “Banks Eye Biometrics to Deter Consumer Fraud,”

http//www.cavio.com.

O’Brien, Noel “How to get started with Internet banking services,”

http//www.free-credit-cards-online.com.

”Statistics for general and online card fraud,” http//www.epaynews.com.

“Statistics for online banking,” http//www.epaynews.com.

Tobin, John “How Does Online Banking work?”

http//www.credit-card-debts.com.



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