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SEPTEMBER 10, 1999 VOL. 25 NO. 36
Banking Without Borders
The Internet is rapidly changing the industry
By ALEJANDRO REYES/Hong Kong
Months ago, when Cynara Tan began pondering her family's move from Singapore, she wondered how she would manage their bank accounts from their new home. That's when Tan and her husband signed up for DBS Bank's Internet service. As the couple prepares to take up new jobs in Hong Kong this month, she is at ease. "It's convenient," says the marketing executive. "You can access accounts at any hour and from any point. I'm not at the bank's mercy." Tan can execute all the transactions she needs, including checking balances and transferring funds. A Net-savvy consumer, she doesn't worry about security. "I've bought stuff online before, so I'm comfortable with doing my banking too."
FINANCIAL 500 1999
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THE 500
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Banks in the U.S. and elsewhere "are beginning to realize that online banking offers competitive advantages, operational efficiencies, and direct marketing capabilities," says Johnson. Online banking could lead to a major challenge to the dominance of banks in providing financial services. In the same way that software and communications-network firms are taking business away from established stock exchanges and brokerages, non-bank companies are poised to swipe a chunk of customers away from regular banks. In June, U.S. online brokerage E*Trade announced it was buying electronic bank Telebank to create what could be the first Internet company in America to provide comprehensive financial services.
Brick-and-mortar banks have been slow to grasp just how much under threat they are, concludes PricewaterhouseCoopers in a report released in June. "Most banks mistakenly see the Internet as just a futuristic delivery channel," reckons the consulting firm's London-based senior partner Angus Hislop. "We're talking about a paradigm quake that will rattle the entire industry." The impact will be much more radical than with previous innovations such as the automatic teller machine or phone banking. Computer networks allow access from anywhere and lower costs significantly. The cost of an online transaction is about a tenth that of the same procedure done over-the-counter or half what it costs by ATM.
In Asia, banking by computer is just beginning. Most firms have little more than a website. DBS, the biggest bank in Singapore, has more than 10,000 Internet users, which is estimated to be about 55% of the country's current online-banking market. Customers can access the Web-based service to perform a range of transactions, as well as pay bills including utilities, credit cards, club fees, town-council charges and even traffic tickets. They can also buy stocks. Prodded by government warnings that foreign competitors like Citibank will use online services to steal business away - after all, with the Internet, a bank doesn't need an extensive branch network to reach customers - Singapore's banks have been moving fast to develop online facilities.
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Still, Asia is where the Internet is growing the fastest. The Industrial Credit and Investment Corp. of India launched its Infinity service in Oct. 1997 and now has about 6,000 customers. The bank expects swift growth, as Internet usage in India is reported to be increasing by as much as 10% every month. In future, banks may team up with their own corporate customers to set up "portals" or websites offering a wide range of e-commerce services such as travel. A user, for example, might buy a car online and arrange financing on the same site.
Nobody can withdraw real cash through the Internet. But as cashless payment systems become common, that won't be a drawback. Net users will load up stored-value smart cards through the phone line. Says PricewaterhouseCoopers consultant Alan Gemes: "If [Europe and Asia] don't react quickly [to all the changes taking place], they may end up looking like the king who commanded the tide to retreat." In other words, like losers.
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