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Electronic banking has been in existence for quite some time now in the form of telephone transactions and teller machines. However, it has been transformed by the introduction of Internet banking, also known as online banking. This has offered a new channel for banks to deliver services to their customers. With online banking, access is quite faster, it is convenient and more so available on a 24hr basis in different locations. Therefore, online banking allows customers to access their accounts from other countries through wireless communication systems.
Kolodinsky, Hogarth, &Shue (2002, p. 11) alleged that smaller commercial banks have also embraced online banking to gain some competitive over the bigger established banks. Most of the recent literatures have addressed issues to do with customer acceptance, competition from traditional banking systems, operational risks among others. However, very few have addressed the issue of challenges faced by customers. In addition to ATMs and telephone transactions, online banking has created more avenues for customers to interact with their banking institutions. ATMs were introduced in 1980s while telephone call centres came into existence in the 1990s. On the other hand, online banking is considered to be an improvement of previous system. The most recent development of online banking is the mobile banking which is also referred to as m-banking. This is a service that enables customers to conduct transactions via their mobile phones. Therefore, they can be able to check their balance and withdraw money using their mobile phones. In addition, it also allows customers to pay for their bills via the mobile phones. Most scholars believe that m banking will be the next big thing in online banking especially for customers living in the remote areas of the country.
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However, the flip side of online banking is that it poses a number of challenges to the customers. Electronic banking is susceptible to a number of risks that do not exist in traditional banking. By April 2012, there were more than 2.27 billion Internet users, which is a record 566.4% increase since 2000. It is a clear indication that there has been a rapid expansion in the use of the Internet. As a result, a number of online technologies in the educational, social, and trade spheres have also increased. Therefore, there are so many challenges facing online banking industry today To begin with, and perhaps the most critical issue with online banking is security concerns. Most customers are worried about the security of their finances with the banks. They feel unsecure when giving their account details through the internet (Khiaonarong 2000). Another major challenge is the quality of services provided especially with delivery of items and services. Ordering with online banking requires a very short advance time. This has made most e-businesses to run out of business because most people want to take their time when doing online purchases to ensure that they key in the right figures. Furthermore, limited online payment options has made customers to drop out of online banking services because not all pay bills can be done through online banking.
Finally, although we are living in the digital age, not all customers are familiar with the internet. This problem is mainly witnessed among the senior citizens. Most of them feel vulnerable to the digital age and are reluctant to use the services. Though a great number of people are using online banking, there are many people stuck to traditional banking. Therefore, the study seeks to discuss the initiation of Internet banking process and how it turned out to be a critical part of our daily lives to the extent that people blindly trust the online banking process regardless of the security threats.
1.2. Background of the study
Rapid technological advancement has resulted in major changes in the banking industry. There has been an increase in competition between banks and other financial players in the recent years. Rapid adancement in Internet-related technologies has led to major changes in the way banks interact with consumers. Online banking is the self-service delivery of services by banks to their consumers. According to Amato-McCoy (2005), online banking has undergone tremendous growth to become one of the most commonly used avenues for banking services.
Online banking can benefit both the banks and customers. From the customers’ point of view, online banking allows them to perform various transactions electronically. Furthermore, customers no longer have to wait for opening hours to make their transactions. Access to banking information canal can be found so easily on the banks’ website. However, this success also has some challenges. To begin with, online banking has not been accepted as fast as Internet usage because of security concerns among consumers. Almogbil (2005) argues that a good number of customers have stuck with face-to-face transactions because they do not trust the Internet.
Traditional banks have taken the lead in adopting online banking, but online banking channels do not need extensive branch networks to function. A number of purely online banks have come up in the recent past. Such banks also have an impact on the overall banking sector. In addition, they work in collaboration with other channels like contact centres, while others have put up branch services. Most purely online banks have suffered immensely because they didn’t have enough customers and ended up closing down business. Despite such setbacks, online banking is growing fast. Therefore, this would be a lucrative business for new players in the banking industry. Nonetheless, critics argue that there are some unforeseen crucial issues that make the industry unreliable (Kolodinsky, Hogarth, &Shue 2002). For instance, it is argued that some banks are forgetting the basic rules of traditional banking, such as delivering satisfactory services based on the customers’ needs. Some banks do not have time to listen to their customers because they never meet in person anyway.
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Based on previous experience with online banking, most scholars predict that for online business to be successful, it is recommended that it operates differently from traditional banking. Therefore, online banking industry should establish a nitch for themselves to become more competitive and sustain customers. In the meantime, banks use two approaches when dealing with online banking. The first approach is the separate online system which operates independently from the traditional mechanism and all transactions conducted online. The second approach is by adding online services to the already established services. Both approaches have issues to look at.
As it has been stated earlier, large national banks are leading in online banking. Most of them are located in urban centres and larger cities for that matter. In addition, most of the literature on e-banking is about application of online banking by big banks. However, very little literature has been published on-line banking by smaller banks especially those in the rural areas. It should be noted that smaller banks face unique challenges related to online banking compared to the bigger banks. For instance, while the bigger banks have the capacity to employ their own IT professionals to handle the whole process of online banking, most of the small banks prefer to hire consultants on contracts. Some of them struggle to develop good websites (Khiaonarong 2000). Therefore, application of online banking vary from one bank to another across the land. Lack of fiancés also compromises on the quality of online services provided by the banks. Therefore, customers of one bank could experience different challenges from those of other banks. However, there are common challenges that all customers face. The study will focus on the common challenges.
Bill Gates predicted that Banks are like dinosaurs that will be replaced by microcomputers. True to his word, microcomputers have taken over the banking industry. This has necessitated bankks to reinvent themselves to remain relevant. They are formulating strategies to win back customers. The First target is embracing new technology. Banks are of the idea that computer and telecommunication technology will improve customer service and bring them closer to the banks’ services (Graven 2000).
The second most important issues is about the disclosure policy of the banks’ online banking system. This policy has to fully state the responsibilities and liabilities of the bank and the customers. Another key factor is the design of the online banking services to offer customers. The services could be standard packages or more complex or whole packages. The complexities of these services in most cases determine how well customers can use the services. In most cases, young professionals are better placed to use more complex services compared to the older customers. Therefore, it is also necessary that banks consider their target groups when developing online banking packages. No customer likes to be ignored. Therefore, banks should ensure that they respond to the customers’ needs as soon as possible. The banking industry has always had risks. The introduction of online banking has even increased the amount of risks.
1.3. Aims and objectives
Basically, the study aims to explore the challenges consumers of online banking face as they conduct their banking activities. As the previous discussions have shown, most if not all the banks are moving towards online banking. Some have fully adopted the online system where everything is accessed via email. Another approach is where not everything is automated therefore some previous services that used to be accessed through the traditional banking system remains. Both of these approaches pose some challenges to the customers.
It has been realised that cyber criminals started to operate in early 2000, when more people started using Internet. It promoted banks to find better ways of protecting not only their customers, but themselves. Unfortunately, as the banks invest in more secure systems, the cyber criminals invest in finding counter actions to tamper with the new security systems. Most of the cyber criminals first obtain the account details of the customers, and later transfer money to a different account. Such cases not only increase the cost of operation of financial institutions, but also lower the customers’ trust in online banking (Almogbil 2005).
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Some of the most common methods used by cyber criminals to defraud customers are looking over the shoulder to note the account details, and phishing, where criminals use fake emails to dupe customers into giving out their account details. Although banks are trying hard to prevent these problems, it will take some time before the measures are 100% effective.
There are three objectives that have been set out. There are:
To investigate the background of the process of online banking by reviewing secondary sources;
To investigate the security threats of online banking;
To find out why consumers use online banking.
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