Annals of the University of Petroşani, Economics, 9(3), 2009, 239-248 239

ASPECTS REGARDING INTERNET BANKING SERVICES IN

IMOLA DRIGĂ, DORINA NIŢĂ, CODRUŢA DURA *

ABSTRACT: Banks have traditionally been interested in using technology to improve their products, services and efficiency. Over a long time they have been using electronic and telecommunication networks for delivering a wide range of value added products and services. With its increasing popularity, Internet is more and more used by banks as a channel for providing their products and services to their customers. This form of banking is generally referred to as Internet banking. The paper examines the features of Internet banking focusing on the substantial growth over the last years as banks use Internet services as an aggressive business strategy to gain market share rather than for making profits.

KEY WORDS: financial institutions, E-banking, Internet banking

1. INTRODUCTION

Apart from the traditional type of banking services, customers today require more personalised products and services and able to access such services at any time and at any place. Electronic banking is defined as the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels. E-banking includes the systems that enable financial institution customers, individuals or businesses, to access accounts, transact business, or obtain information on financial products and services through a public or private network, including the Internet. E-Banking is also called Internet banking, online banking. E-Banking may include ATMs, wire transfers, telephone banking, electronic funds transfers and debit cards. Nowadays, internet banking sites process customer service inquiries, allow transactions from one account to another, take loan applications, open new accounts. Internet banking (or online banking) is a banking service that allows customers to conduct financial transactions on a secure website operated by their bank. Internet

* Lecturer, Ph.D., University of Petroşani, Romania, [email protected] Lecturer, Ph.D., University of Petroşani, Romania, [email protected] Assoc.Prof., Ph.D., University of Petroşani, Romania, [email protected]

240 Drigă, I.; Niţă, D.; Dura, C. banking basically allows customers to be able to do everything that they can do in your regular banking institution, only with the benefit of doing it from the convenience of their own home. Internet banking offers an array of different advantages to the user, including: account balances and history including year-to-date information, the ability to transfer money from one account to another and to payees for bill payments, check history, reorders, and stop payments, check credit card balances and statements, complete online loan applications, secure interactive messaging with staff, and much more. Financial institution Internet offerings can be broadly classified into three groups with distinct risk profiles: • informational - offers information about the bank's products and services ("brochureware") and is low risk; • communicative - offers account-related information and possibly offers updates to static data (such as addresses). Since access is permitted to the bank's main systems, the risk is material; • transactional - allows customers to execute financial transactions and carries the highest risk. Some transactional models carry higher risks, for example, if the customer has never visited a branch throughout his entire relationship and prefers to carry out all his transactions remotely (this commonly happens with some online share trading sites). Some of the distinctive features of Internet banking are: • it removes the traditional geographical barriers as it could reach out to customers of different countries; • it has added a new dimension to different kinds of risks traditionally associated with banking; • security of banking transactions, validity of electronic contract, customers’ privacy have assumed different dimensions given that Internet is a public domain, not subject to control by any single authority or group of users; • it poses a strategic risk of loss of business to those banks who do not respond in time to this new technology. Over the last few decades information technologies had affected the banking industry highly and have provided a way for the banks to differentiate their products and services. The precursor for the modern home online banking services were the distance banking services over electronic media from the early '80s. The term online became popular in the late '80s and referred to the use of a terminal to access the banking system using a phone line. In today's world, computers play an incredibly large role in the way the world exists in general, and the majority of tasks could actually not be completed if not for the use of computers. The history of Internet banking obviously begins with the history of the Internet. Although the term Internet was first adopted around the year 1974, it wasn't until the 1990s that the Internet became a really universal adoption. The Internet grew incredibly throughout the 90s, and as it continued to grow. Internet banking has been around for quite a few years now, but has really only become prominent over the past year or so in particular. Online banking services started in New York in 1981 when four of the city’s major banks (Citibank, Chase

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Manhattan, Chemical and Manufacturers Hanover) offered home banking services using the videotex system. The UK’s first home online banking services were set up by the Nottingham Building Society in 1983. The system used was based on the UK's Prestel system and allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Homelink system. The first financial institution to offer online Internet banking services to all of its members was the Stanford Federal Credit Union that provided this type of service from October 1994.

2. INTERNET BANKING AROUND THE WORLD

Europeans use online banking to quite different degrees. Adoption rates decrease from north to south and rich to poor. Most companies in Europe use the internet for banking and financial services (e-finance). 72% of enterprises across the EU-27 manage part or all of their financial tasks online. However, the differences are remarkable (figure 2). 93% of firms in Iceland are users of online finance, whereas only 30% of Romanian companies use that service.

Source: Eurostat, 2007

Figure 1. % of enterprises who use the internet for banking and financial services, 2006

Banking over the internet is most widespread among medium-sized firms. The fact that fewer large firms than medium-sized firms use the internet for financial services may be surprising, but many large companies employ legacy systems which do not need the internet (figure 2).

242 Drigă, I.; Niţă, D.; Dura, C.

Northern Europeans are the most enthusiastic online bankers. Adoption rates increase from south to north and poor to rich. More than 70% of all Icelanders use the internet to access banking services but only 2% of the Bulgarians do. In some Northern European countries, more than 60% of the population use online banking. Apparently, online banking has attracted users from outside the early core group. In Iceland, for instance, the adoption rate of highly educated people is 90%, while that of medium educated people has reached 76%. This implies an education gap of 14 pp or merely 20% of the average adoption rate in Iceland. In , this is still 300%. At some point in development, adoption rates among the laggards will catch up with those of the early users (figure 3).

Source: Eurostat, 2007

Figure 2. % of enterprises in the EU-25 who use the internet for banking and financial services, 2006

Source: Eurostat, 2008

Figure 3. % of individuals, who have used online banking, 2008

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In the EU 27, 60% of households1 had access to the internet during the first quarter of 2008, compared with 54% during the first quarter of 2007, and 48% had a broadband internet connection, compared with 42% in 2007. Household internet access ranges from 25% in Bulgaria to 86% in the Netherlands. In 2008, the proportion of households with internet access was three quarters or more in the Netherlands (86%), Sweden (84%), Denmark (82%), Luxembourg (80%) and Germany (75%). The lowest levels were registered in Bulgaria (25%), Romania (30%) and Greece (31%). In the EU 27, nearly a third of all individuals had used internet for travel and accommodation services and around 30% had used internet banking (table 1).

Table 1. Internet access and internet banking in the EU 27 in 2008 (%)

Internet access Internet banking EU 27 60 29 Belgium * * Bulgaria 25 1 46 14 Denmark 82 61 Germany 75 38 58 55 Ireland 63 28 Greece 31 5 Spain 51 20 France 62 40 Italy 42 13 Cyprus 43 11 53 39 51 27 Luxembourg 80 48 48 13 Malta 59 25 Netherlands 86 69 69 34 48 17 Portugal 46 14 Romania 30 2 59 21 58 24 Finland 72 72 Sweden 84 65 United Kingdom 71 38 Note: * Data not available, Source: Eurostat, 2008

An ever increasing number of Europeans access banking services over the internet. Between 50-60% of Europeans may bank online by 2020.

244 Drigă, I.; Niţă, D.; Dura, C.

In the U.S.A., many financial institutions have been slow to upgrade their Internet banking systems, creating a wide gap in online capabilities and use when comparing the largest banks to smaller lenders. However: • 80% of online households now do their banking online, a 12% increase from 2008; • 70% of online households pay bills online monthly, up from 64% in 2008; • 83 million households will use Internet banking by 2014; • consumers are increasingly sensitive to fees; • consumer demand is building for online personal finance management tools that consolidate money-monitoring capabilities offered by free Web sites with financial institution sites; • megabanks, such as Bank of America, Citibank, and Wells Fargo, dominate the Internet banking playing field; nearly 60% of these banks’ customers paid a bill online, significantly more than those customers paying bills online at smaller financial institutions. Overall, 68% of credit unions offer Internet banking services, although that number is dramatically affected by asset size. Nearly all credit unions with more than $20 million in assets offer online banking. The average credit union offering Internet banking has more than 6,300 members enrolled in the service, ranging from 5,800 among credit unions with $100 million to $200 million in assets to about 85,000 for credit unions with more than $1 billion in assets. Banks use Internet services as an aggressive business strategy to gain market share rather than for making profits. Thus, banks reduced Internet payment fees to encourage customers to use the Internet instead of branches. A study developed by Capgemini, UniCredit Group and European Financial Management & Marketing Association, World Retail Banking Report 2009, analysed the local active user’s frequencies of use, developing two new profiles: the branch active user, who uses branches exclusively, and the Internet active user, who uses the Internet as often as possible. The findings of the report were obtained from an extensive market survey conducted in eight European countries, the United States and Japan, based on interviews with chief executives from 54 banks and a thorough analysis of profitability. The study included 11 banks from Romania, with 85% of market share (, B.C.R., Banca Românească, , Bancpost, B.R.D., CEC Bank, ING Bank Romania, Raiffeisen Bank, UniCredit Ţiriac Bank, Volksbank). The report showed that, on average, an Internet active user paid about €31 less than a branch user (34% less). Most of the countries in this year’s study had pricing policies in which Internet services were less expensive than branch services. For example, certain Nordic countries established extremely attractive prices for online services to move clients towards the Internet whenever products were available. Frequencies of use indicate that this pricing strategy directly influences customer behaviour. Contrary to the global trend, a few countries priced their Internet usage higher than their branch services. An example of this is Russia, where banks have kept online banking fees elevated. The fee structures also illustrate the Internet effect.

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From 2006 to 2008, account management fees had been driven down as a result of the Internet (free online banking subscriptions). But over the course of 2008, this trend has reversed, and customers have moved their payments online where fees are lower, thereby lessening the part of payments in the fee structure. The report concluded that, along with the development of low-cost remote banks and clear pricing encouraged by regulators and associations, the impact of the Internet and geographic price convergence will continue to make prices decrease for the next five years.

3. DEVELOPMENT OF INTERNET BANKING IN ROMANIA

Until 2000, Internet Banking applications could have been accessed mostly in the United States of America, or in European countries such as: United Kingdom, Spain, Italy and France. Since 2000, online banking applications are commercialized or created in Romania. In Romania, e-banking was introduced since 1996, first by the foreign banks and then (starting from 1998-1999) by the local banks as well. Although in 1999 the Turkish-Romanian Bank provided for the first time Internet banking services or Emporiki Bank launched its Internet Banking service in December 2000, the first Internet banking solutions are considered to be appeared in 2001. As at that time were few people having Internet connection, Internet banking services market has stalled a few years. Initially, the main customers were large companies. Statistics of the Ministry of Communications indicated that the number of Internet banking users was around 18,000 people in late 2003. In 2006, their number increased to about 200,000. In 2007, 26 of 37 banks from Romania have implemented Internet banking systems (table 2). In May 2007, Ad Mission conducted a usability study of Internet banking services, taking into account the 5 banks in the Romanian banking system: Bancpost; B.R.D.; Banca Transilvania; HVB Ţiriac; Raiffeisen Bank. The report was made from the customer perspective, the average individual who has knowledge of computer and Internet use. Were included in the study customers who had at least one card used to shop online, know the risks of using online tools and are reluctant to any item that is not understood. The study took into consideration different standard and custom criteria (table 3). Based on this study, one may note that of the 5 banks that have made usability tests, Raiffeisen Bank (average score obtained: 7.38) and Banc Post (7.84) were able to do the best compromise between security and usability, the other 3, Banca Transilvania (6.53), HVB Tiriac (6.30) and BRD (6.23) is at a stage that can be improved. Despite of late and small adoption of Internet banking, banks from Romania seem today to be aware of Internet opportunities. In fact, they are all planning to move very rapidly to Internet banking and to offer more sophisticated services. Banks have refined their range of Internet banking services, but their penetration rate continues to be low in Romania, compared to other countries in the region. Young people are increasingly more interested in using these banking products, especially with the expansion of internet services.

246 Drigă, I.; Niţă, D.; Dura, C.

Table 2. Banks from Romania that have implemented Internet banking systems

No. Bank Internet banking 1 ABN AMRO Bank ABN AMRO NetBanking 2 Alpha Bank Alpha Click 3 Anglo-Romanian Bank Limited i-ARBL

4 Banca Comercială Carpatica BCC e-SMARTT 5 B.C.R. MultiCash BCR 6 Banca C.R.Firenze Romania CR Firenze Online 7 Banca Italo-Romena Bank@You- Internet banking 8 Banc Post Internet eBank 9 Banca Românească e-bancamea 10 B.R.D. BRD-NET, BRD@ffice 11 Banca Transilvania BT24 12 Bank Leumi Romania Leumi Online 13 Citibank Romania CitiDirect Online Banking 14 Emporiki Bank UBISQL Internet banking 15 Eximbank Internet eBank 16 FinansBank FINANSnet 17 GarantiBank International Garanti Online 18 HVB-Tiriac Bank * OnLine B@nking 19 ING Bank ING Online, HomeBank 20 Libra Bank LIBRA WEB BANKING 21 OTP Bank Romania OTPdirekt 22 Raiffeisen Bank Raiffeisen Online 23 Romexterra Bank TerraBanking 24 SanPaolo Bank SANPAOLO B@NK 25 UniCredit * UniCredit Internet banking 26 Volksbank MultiCash@SmartOffice Source: Ministry of Communications and Information, 2007, Note: * now UniCredit Ţiriac Bank

Aware of the advantages that these services bring in terms of expenses and queues in front of the tellers, banks have diversified their offers, and even have promotions for those who choose Internet banking. For example, B.C.R., Romania’s largest bank, offers a discount of 75% for interbank transfers through the Click 24Banking B.C.R. service compared to over-the-counter operations.

4. CONCLUSION

In Romania, as more and more banking institutions implement Internet banking services, it is of absolutely necessary for these organisations to identify factors that influence users’ intention to adopt or use of those services in order to gain market share. The Internet banking offered on the Romanian banking market is in full development process as banks have to win the confidence customers. But the level of accessibility regarding the performing of banking operations straight from the company office or from home determines a growing number of customers to use this kind of services. Thus, more and more Romanians use the Internet to pay bills or shop on line.

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Thus, the number of Internet banking users increased almost 10 times in the past three years. If in 2006 about 110,000 Romanians used Internet banking, in 2009 their number exceeded one million users. In 2010, it is expected that the use of Internet banking services could rise especially among small enterprises (with 15%) and medium-sized and large companies (with 12%).

Table 3. Internet banking services usability

Raiffeisen Banca HVB Criterion Bancpost B.R.D. Bank Transilvania Ţiriac 1. Standard Criteria a. Surfing Ease of authentication 7 5 7 6 7 Menu functionality 8 8 8 7 7 Positioning within the site 9 8 7 6 3 b. Design Home page 8 4 8 7 7 Layout 8 6 7 6 6 Methods to capture 7 7 3 6 4 attention c. Content Information Information structuring 7 8 6 3 7 Help zone 5 9 7 6 4 Contact page 7 5 5 6 5 2. Custom criteria Ease of making banking 7 9 5 5 6 operation Security and surfing 8 7 6 6 7 conjugation Ease of accessing demo 9 6 8 7 8 account Help offered in case of 7 5 4 6 7 loss / theft of login Information costs 5 9 4 5 3 incurred by the customer Average Score 7.84 7.38 6.53 6.30 6.23 Source: Ad Mission Romania, Report on the usability of Internet banking services, May 2007

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