Business & Economics

Electronic Banking Risks and Prospects Recording of Use and Confidence Degree From the Customers of Greek Banks

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Int. J. , Vol. x, No. x, xxxx 1 Electronic Banking. Risks and Prospects. Recording of Use and Confidence Degree from the Customers of Greek Banks. Iordanis M. Eleftheriadis Lecturer Department of Business Administration, University of Macedonia Economic and Social Sciences, Egnatias 156, Thessaloniki, Greece, P.O. 54006 e-mail: jordan@uom.gr Abstract: The e-banking constitutes an electronic alternative network of payments and benefit of services. The need of creation of electronic alternative
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     Int. J. , Vol. x, No. x, xxxx 1  Copyright © 200x Inderscience Enterprises Ltd. Electronic Banking. Risks and Prospects. Recordingof Use and Confidence Degree from the Customers ofGreek Banks. Iordanis M. Eleftheriadis Lecturer Department of Business Administration,University of Macedonia Economic and Social Sciences,Egnatias 156, Thessaloniki, Greece, P.O. 54006e-mail: jordan@uom.gr   Abstract: The e-banking constitutes an electronic alternative network of  payments and benefit of services. The need of creation of electronicalternative channels has been distinguished well in advance by the foreign banking organizations, which relied mainly on the outburst that wasobserved in the use of internet. The benefits are many, both for thecustomers and for the banks. The banks that are activated in the Internetare susceptible mainly to the systematic, law part and to the reputationalrisk and the customers of the electronic banking channel are puzzledconcerning to the subject of safety of their transactions and personal data.The aim of this report is, not only to analyse the meaning of electronic banking and to present all the alternative providing banking servicenetworks, but also to focus on the advantages and on the risks that thegrowth of electronic banking has brought about while at the same time thedegree of infiltration and the level of consumers’ satisfaction in the Greek  banking market will be determined.Through the empirical research, which was carried out, the conclusionsthat concern the degree of acceptance, usage and confidence from thecustomers, who are the basic receptors of this undertaking, will be drawn.Initially, the imprinting of the Greek active user of Internet Banking profile is presented, (sex, age-related team, studies, income, time of Internet Banking used, services used) and then the evaluation of hischoices follows (evaluation of services through Internet, what comes firstduring the Internet Banking use and in what degree he is influenced bythe already existing situation in level of satisfaction and confidence).Besides, the objective of this research is not only to report on those whohave already been using the internet banking, but also to measure theavailability and probability of utilisation of it in the future, sinceaccording to the research most customers appreciate that shortly manytransactions with physical presence in the shop will come to an end. The basic conclusion is that while a great amount of the population developsdynamically by adopting the new technologies rapidly, a high percentagestill falls short, without incorporating the information technologies intheir daily activities. Greece is a peculiar country with regard to thecustomers that maintain their traditional characteristics who wish andseek the contact with the bank as physical presence. The age and the levelof education are the most important determinant factors for the adoptionand use of Internet Banking. A basic suspending factor is the ignoranceand the lack of suitable technical support services. The marketing     Author  departments of banks should help educating new users and advertising thenew services everywhere. Finally, one of the most interesting conclusionsis that the most precious asset that should be protected by the banks is notmoney but information. Their protection constitutes a challenge and afundamental concern for the banks so that a climate of lack of confidence,which will restrain the access of customers in the new bankingenvironment, is not created. Keywords: Electronic Banking, Internet Banking, Risk, Customer Satisfaction, Security 1. Introduction The objective of this report is to look into the risks and prospects of electronic bankingand more specifically internet banking. The report is comprised of two sections. In thefirst section, the basic terms of electronic banking as well as its basic networks of implementation are presented. In the second section we present the risks that areassociated with the operation of banking institutions. The consequences of growth of newelectronic channels of service are impressed, on the different forms of risk that composethe total risk and ways of confronting with them are formulated. The second section,through the analysis of results of empirical study (research with questionnaires),impresses the degree of infiltration of Internet banking (i-banking) and the degree of satisfaction of customers of banks from the use of provided services. 2. Electronic banking. Basic terms - definitions. The term electronic banking (or remote banking) is referred to the remotely conduct of traditional innovative banking activities with the use of electronic means ( BasleCommittee, 2003). According to the Union of Greek Banks, electronic banking isregarded as any commercial transaction that is carried out between the bank and thecustomers through electronic networks and it helps or leads to the sale of bankingservices/products (Union of Greek Banks, 2000). The modern alternative networks providing banking services are: ● The network of automatic withdrawal machines (ATM-Automated Teller Machine).Through the ATMs the possibility of realisation of transactions with the use of creditcard, cash card or smart card is provided. ● Phone Banking. The user is connected, by using simple telephone connection of vocaltelephony with a special automated call centre. ● Mobile banking. A mobile telephone or any other similar appliance is used, which doesallocate the possibility of bidirectional communication. ● Electronic FundsTransfer/Point of sales (EFT/pos). Substantially, it is about electronicappliances of capital transfer in the points of sale (Electronic Funds Transfer - Point Of Sales, EFT/pos), which are situated in places where products or services are sold to potential consumers. ● Internet Banking. The user has the possibility to perform his banking transactionsthrough Internet himself. ● PC Banking. The user is connected through his personal computer directly with the bank information systems, without the interference of other networks, for example, theinternet. ● TV Banking. The method of bidirectional television, where a television appliance isusually used with the possibility of bidirectional communication, connected with a cabletelevision network.    Title 3. The risks Without a doubt, the technological growth has considerably affected the profile of Bank risks and financial institution formation more generally. Some of these risks areincreased, while others on the contrary are possible to be decreased. In any case, thegrowth of electronic banking has created a new basis with regard to the degree of exposure to the risk and therefore consequently the need of not only a differentiatedregulating frame, but also mechanisms of monitoring to be formed, which has already begun to be shaped in the fields of Basle Committee of Banking Supervision . The degreeof exposing to risks, which are related to the electronic banking, depends mainly on thedegree of adopting new alternative electronic means of distribution of services and products. Next, we are going to present these risks analytically as well as thediversification that is individually observed upon the growth of electronic    banking(Eleftheriadis and Karatzoglou 2006).   The business risk is the risk of not being able to achieve the business targets due toinappropriate strategies, inadequate resources or changes in the economic or competitiveenvironment. It has to do with the ability the credit institution has in order to achieve theoperational objectives by exploiting the available opportunities in the market. The bigchanges on the banking sector and the adoption of fast paced evolving technology alsochange the traditional strategic risks. A bank that will rush into the adoption of newtechnologies so that is rendered pioneer is risking losing its investment as informationsystems lose their value in very short time interval. Moreover, there is the risk of extensive investment in particular products or services, which will not become acceptable by the end users. On the other hand, if it maintains a more conservative attitude there isthe risk of becoming last, in an environment where the competition is moving fast andstrengthens its place in the market. Internet banking may soon convert from acomplementary to the main provider of financial services and products. Consequently, a possible failure of a bank entering this sector, can have various consequences on itsfuture position in the market, especially when the competition of the banks, which areclearly connected with the i-banking and do not have any physical substance (virtual banks), is already given. Finally, the consequences, for the strategy that a bank followsfrom inter-country activities it will undertake, should be evaluated, taking intoconsideration that the nature of internet is to encourage the expansion of banks in newmarkets abroad.Accordingly, the banks strategy should be readjusted globally so that it meets the newchallenges and opportunities that will be shaped in the frames of new technologicalenvironment, with final objective to acquire a leading place in the sector of electronic banking. The operational risk is defined as the risk of loss as a consequence of the actions, the processes, the infrastructure, the technology or other factors that practise functionaleffect, including the false activities that include fraud. The Basle Committee of BankingSupervision defines as operational risk the risk of occurring damage, either frominsufficient, inadequate internal processes and systems, or from human factor, or other external reasons. Operational risk differs from the traditional banking risks in that it doesnot come from the effort to achieve profit but it is an innate characteristic of bankingactivity. The operational risk is the risk of damage that is owed, in insufficient or unsuccessful processes (insufficiencies of systems and internal inspection), individuals(human faults, failures of administration) or systems (risk of damage or insufficiency of computer systems) or in exterior incidents (e.g. natural destruction, fires, legislativechanges, lawful requirements, etc). The operational risks are directly related with the bad     Author  operation of information systems, the processes of reports and the applied internal rulesof observing the management of potential risk. Also, they are existent in all the products,the activities, the processes and the bank systems and all the departments and the servicesof the bank are involved. The operational risk can always arise and cause from negligibledamage (eg risk from a photocopier damage) to essential and very important damage andcould lead even to bankruptcy. It is a field of risk that both banks and enterprisesgenerally have not accomplished to manage effectively with an organised way. Thehuman factor constitutes one of the biggest operational risks that banks face. The reasonsthat can lead an employee, deliberately or not, to cause such damage are the lack of skills,the insufficient training or the fraud. The improvement of information technologytransactions, the use of high technology from the banks for the automation of all manual procedures in combination with the high interdependence of financing systems, includesthe possibility of transforming risks that are related with human errors in risk of malfunction of the system. The operational risks are also related to the safety of transactions, which depend on the handling and the structure of electronic systems of  providing the financial services, the integrity and the right management of records, aswell as the entrusting of electronics banking services to third parties. It constitutes, perhaps, the most important problem, which is directly connected with the electronic banking, which banking organizations are called to face. The loss that the world financialsystems face from the offences of information systems is worrying. Risks caused byinsufficient controls on certification issues and authenticity of co-contractors have probably as result the successful access and falsification of data as a consequence of attacks from malignant intruders (hackers). The consequences of these attacks varydepending on the intentions of those who carry them out, if that is to say they wish thesimple overstepping of the system’s safety or if their objective is commercial sabotage or spying. They try to access customers’ data or even the banks data. Frequently enoughthey rely on any technical weaknesses of the systems. However, as it has already beenmentioned, the greatest risks stem from the human factor. Researches carried out byexperts on issues of security prove that in most cases of attacks the intruders had thevolunteer or involuntary help of somebody that worked in the bank (Lemonakis 2005). Inthe case of planning the problem is located on some software, which reports periodical or  permanent malfunctions. During the operation of the system a problem can arise in caseof telecommunications connections loss, overloading or interruption of electric provisioning. The last category of operational risk that is related to the security of transactions is owed to factors outside the banks information systems and its personnel.The banks find particularly interesting the solution of entrusting the application of electronic banking in a third exterior supplier of such applications. In this way they avoidcreating a software package and the essential infrastructure themselves. This meansreduction on the cost and rapid adoption of e-banking. Unfortunately, a part or even theentire control is transferred from the bank to the external supplier and risks, which the bank cannot control. The problem becomes even bigger in the case when the exterior administrator does not have the experience needed or it is a relatively new company thatignores the banking risks. The legal - regulatory risk is the risk of non-compliance with legal or regulatoryrequirements. A big part of the legal framework is general and it is in effect for all theenterprises, in certain cases, however, a legislative framework that covers specificservices exists. The individual regulations will be specific and they will be published bythe regulating organizations that have legal competence for the particular sector. Thelegal risks are directly related to the electronic banking and they increased as its use isextended. They mainly stem from the uncertainty that exists in the legal - regulativeframework concerning the electronic banking. In most countries an explicit regulatingframework does not exist and this is owed to the little experience regarding the sector of 
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