Internet banking systems: An exploration of contemporary issues
| Date | 01 June 2003 |
| Pages | 93-110 |
| DOI | https://doi.org/10.1108/13287260380000775 |
| Published date | 01 June 2003 |
| Author | Philip O’Reilly,Pat Finnegan |
| Subject Matter | Information & knowledge management |
Journal of Systems & Information Technology 7
93
INTERNET BANKING SYSTEMS: AN EXPLORATION OF
CONTEMPORARY ISSUES
Philip O’Reilly
Pat Finnegan
Business Information Systems
University College Cork, Ireland
ABSTRACT
Since 1995, Internet banking has allo wed consumers to utilise the Internet as a
platform to interact with their bank. Initially, the hype surrounding Internet ban king
was immense. However, more realistic expectations abou t the value of Internet channels
and cha nges in the financial services sector are affecting opinions of Internet banking
systems. This stu dy examines contemporary Internet banking systems in five leading
‘clicks and mortar’ banks operating in the North-Eastern part of the United States. The
findings reveal a move towards viewing I nternet banking as an opera tional rather than
a competitive instrument, with consequential changes in how banks evaluate th eir
Internet banking systems. The pap er concludes by proposing some changes to
expectations on how Internet banking is likely to develop.
INTRODUCTION
Internet Banking is the concept of conducting one’s banking transactions over the
Internet. On the 18
th
of October 1995, Internet banking was born when the world’s first
virtual bank, Security First Network Bank (www.sfnb.com) became the first institution
to carry out a transaction online. Initially, researchers believed that the Internet as a
delivery channel would have widespread impact on banking (Cronin, 1997; Graham,
1997; Johnson et al, 1995; McChesney, 1997; Treanor, 1997) with estimates that 60%
of retail banking transactions would be online within ten years (Daniel, 1999). Yet such
hype was one of the myths of the new economy (Howcroft, 2001). The reality is
somewhat different with adoption rates being quite low. I ndeed today, Sec urity First
Network Bank (www.sfnb.com) no longer supports online transactions and is little more
than an information portal. With the ongoing consolidation in the b anking industry and
the changing economic climate (Luneborg and Nielsen, 2003) an examination of
contemporary Internet banking systems is timely. A key question that needs to be
addressed is how Internet banking systems have evolved. In addition, how do issues
such as trust (Kim and Prabhakar, 2000), risk (Kim and Prabhakar, 2000), control
(Johnson, 1999; Marenzi, 1998), ownership (Kumara at al, 1997; Mols, 1998) and
profitability impact on these systems?
This paper studies the Internet banking systems of banks utilising a ‘clicks and
mortar’ strategy. The findings illustrate that for various reasons, predominately relating
to systems ar chitecture, banks have adopted different approaches to implementing their
Internet banking systems. We also explore how banks evaluate their Internet banking
Journal of Systems & Information Technology 7
94
systems and investigate current issues. The paper is organised as follows: The next
section reviews the theoretical background for the study. This is followed by an
explanation of the research methodology utilised. Findings are then presented and
conclusions drawn.
THEORETICAL GROUNDING
Researchers argue that banks face a number of strategic decisions in choosing
distribution channels for banking services (Greenland, 1994; Mols, 1998). In the mid
1990’s banks saw the Internet as an offensive tool; part of a strategy to be seen as a
market leader while increasing their customer b ase (Pariser & Zimmerman, 1996). More
recent research reveals that banks utilise Internet banking as a defensive strategy to
satisfy the growing number of affluent customers who expect this service (Gervino,
2000). However, researchers such as Proctor (2000) and Robinson (2 000) claim that
utilisation of Internet banking is not widespread with the number of customers online
being quite low.
Deupree and Berini jr (1998) document four possible phases that banks may go
through in adopting Internet banking:
• Phase 1: The creation of the Web site;
• Phase 2: A transactional phase, in which customers can perform basic banking
operations;
• Phase 3: A relationship orientation, whereby the bank can do targeted marketing
to classes of individuals;
• Phase 4: One-to-one banking, in which personal Web pages for individ ual
customers can be created dynamically.
Whatever approach is followed, a decision faced by every bank is the integration of
the online banking system with the existing systems architecture. Building an Internet
banking delivery channel requires a complete end-to-end solution that includes high
availability and redundancy, the highest level of security, relationship-driven account
access capability, total customer care capability as well as the possibility of engaging a
solution provider that can pro vide Internet banking applica tion software and
professional services (Sackenheim, 1999).
The different levels of complexity associated with certain areas involving security,
operations, planning and monitoring have caused many banks to outsource all or part of
their Internet operations (OCC, 1999). There are advantages and disadvantages to
developing technology-based products and services in-house versus contracting with a
vendor. Larger national b anks with substantial resources may choose to purchase
computer hardware and operating systems and / or develop the necessary application
software in-house. A variation is to outsource the service (Johnson, 1999; OCC, 1999).
This option may be especially well suited for banks that do not have the technical
expertise or financial resources to develop this service in-house (OCC, 1999). If the
decision is taken to outsource, possible disadvantages may include losing control, lack
of flexibility and the possibility that the outsourcing vendor may not be able to deliver
the desired benefits (Johnson, 1 999; Marenzi, 1998). For banks, control of content is
crucial; otherwise they will loose control of the customer relationship (McChesney,
1997).
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