E-banking has changed the trajectory of the IT application for the banking industry and has evolved a different business model. The differences between the business model of traditional and E- banking can be seen in the five important dimensions: value proposition, market scope, cost structure, profit potential, and value network.
Value Proposition: Traditional banking has realized the value arising out of localization, reduced risk, improved trust and brand embeddedness. Traditional banks have tried to establish a physical presence in a geographical location in order to serve local customers and to build customer trust. Additionally, banks situated in a community participated in local social networks that enhanced trust and brand impression. On the other hand, e-banking has eliminated the physical and geographic boundaries and time limitations of traditional banking. It has provided consumers with efficient time-saving, high speed financial services online and provided a channel to develop long-term customer relationships. Thus, e-banking has realized the value propositions of efficiency, convenience, customization, and market extension.
Market Scope: The market scope refers to the geographic areas and market segments to which the value should be offered. In terms of geographic areas, the market scope of traditional banking was restricted within physical marketplace where customers were mainly functionally computer illiterate. In contrast, e-banking consumers are mainly seasoned internet user and IT-literates. Internet users are generally modern young people and well educated. Therefore, to exploit the new customer base and increase the existing market share, the incumbent banks are seeking to attract and capture the potential clients as early as possible.
Cost Structure: E-banking is driven largely by the prospects of operating costs minimization and operating revenue maximization. In contrast to traditional banking, e-banking is cheaper and it handles transaction process automatically. E-banking has resulted in lower transaction and production costs but due to the electronic channel, the investments in IT and the costs of security management and financial content creation are higher than that in traditional banking. It also requires extra marketing investment to attract potential customers. On the other hand, in case of traditional banking which was rooted in branch-based networking and paid-for infrastructure provided by third-party vendors, high entry and start-up costs were the most prominent barriers for entrants. Thus, the cost structures of both banking models are different.
Profit Potential: In the traditional banking context, banks received their revenues sources directly from over-the-counter products and services they offer. In terms of e-banking, the expenses of labor, facilities, premises, and back-office paper work are minimized and the transactional commissions, servicing charge, advertising revenue, and financial information subscriptions are sources of extra revenue. Now, mobile e-banking also offers tremendous profit potential by providing mobile financial services to attract the mobile consumers. In fact, it is apparent that many banks are motivated to implement e-banking by forces relating to the maximization of the earning through increased market scope and improved customer relationship due to product delivery convenience and service customization. Therefore, e-banking could reap profits from the successful exploitation of the synergies of innovative financial services and appropriate marketing and pricing strategies via virtual channel.
Value Network: The value network describes the position of a bank within the business linking suppliers and customers, identifying potential competitors. The position of banks is mainly an intermediary in the value network of the banking industry. In the past, the value network mainly involved the consumers and financial institutions relating to the bank’s branch network. In contrast, e-banking has blurred the boundaries between banks and other industries. Banks have an opportunity for “re-intermediation” in the banking industry by developing e-banking. The new opportunities has brought new challenges as the branch network has been downsized, the traditional value network has been broken up, the competition among banks has intensified, and non-financial companies have introduced financial functions as part of their online offerings. For example, insurance companies diversify into banking, and retail e-commerce companies provide banking products. Consequently, the arrival of e-banking has accelerated the reconfiguration of the value network in banking industry.
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