Digital connecting online, a world of digital business

 

Digital Business within Consumer Banking

 

 

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Introduction

Digital business and the internet has been developed and
implemented in many different ways across a number of industries and sectors. Its
aim is to enhance competitiveness of a business by involving innovative digital
technologies throughout a company by optimising internal processes with online
and traditional channels to market and supply. Digital business must not be
confused with Electronic Commerce (e-commerce) which is narrower than digital
business. E-commerce is known as referring to buying and selling using the
internet through consumer retail companies such as Amazon. However e-commerce
should also be considered as method of communication and dealings between an
organisation and any third party it deals with. By this definition,
non-financial transactions such as customer support and requests for further
information through online communication would also be considered to be part of
e-commerce (Chaffey, D.
2015).

Figure 1

Managing within the digital business sector requires a range
of knowledge for different business processes and activities such as marketing
and sales, new product development, manufacturing and inbound and outbound
logistics. The buy-side e-commerce transactions with suppliers and the
sell-side e-commerce transactions with customers can also be considered to be
key digital business processes (see figure 1) (Chaffey, D. 2015). It is thought
that by 2020, more than seven billion people and businesses, and at least 30
billion devices, will be connected to the Internet. With people, businesses and
all types of devices connecting online, a world of digital business comes to
life (Chaffey, D. 2015).

The following report will include an overview on online
security, strategic applications of digital technology and the future of
digital technology all in relation to consumer banking and its affects.

Online security

Online security is a
wide range of computer security that deals with internet based threats which
include internet browsing as well as network security and operating systems.
Its main aim is to establish measures to prevent against attacks and threats
over the Internet. The internet
is subjected a number threats such as intrusion, fraud, phishing, online
viruses, Trojans and worms. Many
methods are used to protect the transfer of data, including encryption,
firewall and anti-virus software. Other threats such as hacking which
gives unauthorised users access to computer systems, emails accounts or websites.
Hackers would often upload malicious malware or viruses which can essentially
compromise system data or allow it to be vulnerable to other threats such as
identity theft which include the theft of personal details such as bank account
information including credit card numbers.

In the UK banking
has undergone tremendous structural changes since the 1980’s this has been
primarily the result of new regulation and new technology, which itself caused
the change in regulation. These regulations included the Data Protection Act
which was introduced in 1998 designed to protect personal data stored on
computers and documents.

Over the past decade, online fraud has become one of the
most fast growing types of phishing. According to Katy Worobec and a case study
conducted by who is the director of Financial Fraud Action UK estimated that
last year in 2016, the total financial fraud losses across debit and credit
cards, online banking and cheques was estimated at around £768.8 million which
is a two percent increase compared to 2015 (Financial Fraud Action).
Approximately a total of £1.38 billion worth of fraud was identified and
prevented by banks and card companies. In 2016 there was a growth in
impersonation and trickery scams as well as complex online attacks such as
malware and data breaches (Financial Fraud Action). These types of scams are
all aimed to compromise consumers’ personal information along with banking
details which includes credit/debit card numbers which would allow cyber
criminals to commit online fraud.  An
impersonation scam would involve a cyber-criminal to approach a consumer via
communication alleging to be from a genuine organisation. These scams can
usually take place through phone calls, text messages or emails purporting to
be from your bank, utility company or a government department. The
cybercriminal would claim to be there has been suspicious activity on the
consumers’ account and that they would need to ‘verify’ or ‘update’ their
account. At this point the criminal would trick their victim into giving their
personal or banking details. 2016 has seen a high level of data breaches as
well as more frequent lower types of attacks. These types of stolen data are
usually used to make online purchases. Malware and phishing is also another
type of scam that cyber criminals use to compromise consumers’ personal and
security details. Once the criminals have these data, they will be able to
access customers’ accounts and commit fraud.

Around £308.8 million of online fraud from debit/credit
cards took place in 2016 (see figure 1). Over the past decade, ecommerce fraud
has risen to its highest level since this type of data collection began. The
graph below indicates the amount of internet and ecommerce fraud each year
between 2007 and 2016. In 2016, the total online sales in the UK reached to
£199 billion with only 9.5 pence in every £100 spent were fraudulent. On the
other hand, online sales that were made through companies overseas saw 24.3
pence of fraud in every £100 spent.

Figure 2

The main objective for banks is not only to reduce online
fraud but to retain consumers’ confidence by providing secure access to their
online banking as well as a high level of security when consumers want to make
purchases online using debit or credit cards. All major banks in the UK have
online security measures in place for its customers who use online banking.
This includes the use of a secure HTTPS page. The additional ‘S’ found after
the ‘http’ in the internet address bar shows that the particular webpage is
encrypted secured connection. Furthermore the address webpage in green and the
secure lock is another indication of a safe and secure webpage which prevents
any type attacks (Suen, A. 2013).

 

Figure 3

According to consumer group Which? TSB was named the bank
with the worst online security in 2016 along with Santander, Lloyds and Halifax
(see figure 2). On the other hand, only five of the banks assessed by ‘Which?’,
had a particular two factor authentication system which usually include a
password or pin along with a card reader or the use of the consumer’s mobile
phone when logging in or making payments. These banks are HSBC, First Direct
and M Bank, as well as Nationwide Building Society and Barclays.

Figure 4

There are many tips for consumers to prevent phishing
attacks. One of the main advices given is to identify suspected phishing emails
and text messages as fraudsters would usually copy the images of a genuine
company by using the real images and logos. Below are a few other steps to help
prevent such attacks:

·        
Use software to store you passwords.

·        
Always make sure banking websites are using
https.

·        
Keep your credit card information offline. Don’t
allow companies to store that information.

·        
If available, take advantage of login
notifications.

·        
Use two-step authentication whenever possible.

 

 

 

 

 

 

Strategic applications of digital technology

In 1983, the Bank of Scotland offered the UK’s first kind of
home online banking services for Nottingham Building Society (NBS) customers
and this was known as “Homelink”. This particular service required a television
and telephone set which would then need to be connected via the UK’s Prestel
viewlink, allowing transfer payments and the ability to make bill payments.
Over a decade later, the Stanford Credit Union creates the first online
internet banking website for its consumers. In 1994, banks saw an opportunity
to take advantage of the rising popularity in the internet sector and advertise
their services. The internet was simply another source of marketing for banks
without any interaction with consumers similar to a typical brochure. Banking
websites in the late 90’s included pictures of banks as well as map locations
for branches across the country including their contact numbers should
customers require further information. Brief listings of products and services
could also be found on banks’ websites.

Most banks have already taken steps in transforming the
digital and mobile side of banking, as more customers are now using their
mobile phones to do their banking and the mobile experience is becoming a
crucial aspect of digital strategy that banks must address. Additionally, banks
must adapt to their operating models in order to keep up with this particular
fast changing market which include changes in information technology, new
products and services development. The Internet of Things (IoT) is one of the
main technology banks are implementing. This is where physical devices are
connected via internet which then allows people to interact with them.
Ultimately, these technologies allow banks to provide opportunities to deliver
better service for consumers and improve the access to online banking.

 

In recent years Contactless payment was introduced which
uses radio-frequency identification (RFID) that allows consumers with
contactless enabled debit card to make purchases under £30 by tapping a debit
card over a card reader without the need of a PIN. In addition, wearable
devices such as smart watches and glasses like Apple Watch or Google Glass were
introduced also introduced in 2015. These devices are part of the Internet of
Things which gives access to the internet which allows consumers to access online
banking and provide information such as balance and recent transactions.

Banks are investing heavily in digital banking technology,
in which customers use mobile, web or digital platforms to use banking services.
These banking services have existed for many years and progressively led
banking beyond simple multichannel strategies as internet access has become
easily accessible worldwide (see figure 2). Online banking can improve a bank’s
efficiency and competitiveness, so that consumers can take advantage of the
convenience and ease in making successful transactions. The increased level of
convenience with new technology, can enlarge the bank’s target customers.

Figure 5

The influence of smartphone in the financial service sector
has developed significantly over recent years. Most consumer banks across the
globe has teamed up with major smartphone firms such as Apple and Samsung and
has made paying for items at stores and online using your phone possible
through NFC technology. With security being a big factor, smartphone companies
have developed and advanced the means of identification from simple PIN codes
to biometrics identification such as fingerprint, iris and facial scanners
which could mean the end of the use in passwords and PINs. Identity management
concerns the unique identification of objects, and authentication then
validates the identity relationship between two parties (Mahalle et al. 2010).
Smartphones are becoming consumers’ primary computing device, which allows a
set of possibilities to open up for financial institutions interested in
capturing new markets. Inga Beale the CEO of Lloyd’s of London stated that “for many people, the smartphone is the
first and only computer they have.” These new markets come about as a
result of the unique software and hardware features associated with a mobile
device. New markets such as ride haling and takeaway apps (Uber and Just Eat)
were made possible due to the growth in the use of smartphones as well as the
ability to make secure payments through smartphones.

There are many advantages for online and mobile banking
which include, 24/7 access to bank account, less time consuming, very secure
and easy to use. Some of the main features are payment transfers and bill
payments which allow consumers the freedom of maintaining account through a
smartphone. In addition, detailed consumer banking services such as minimum
account balance alerts, viewing account balances, viewing recent transaction,
downloading bank statements, cheque book request and bill payment alerts. The
introduction of Internet banking is undoubtedly one of the biggest changes that
has ever happened in the banking sector although its main limitation of internet
banking is the requirement of a PC with an internet connection which is not
much of a problem in countries such as the US or countries in Europe. However
this can be a barrier in most developing countries in Asia such as China or
India. With the rise of smartphones users worldwide (see figure 4), mobile
banking addresses this issue and most of these users will have access to mobile
banking through cellular networks or through Wi-Fi. 

Number of smartphone users worldwide from 2014 to 2020 (Statista.co.uk)

Figure 6

 

 

 

 

Future of Technology

Banks already have
plans in development for introducing biometrics in the banking sector. MasterCard
have already begun to trial fingerprint sensors for their credit cards (see
figure 6) in South Africa with additional trials planned for Europe and Asia.
The chief security of MasterCard Ajay Bhalla described the new technology would
offer consumers “additional convenience
and security.” Ajay also expects “a
full roll out later next year” in 2018. As well as fingerprint biometrics,
Iris technology will likely to be implemented across the banking industry over
the coming years. Iris companies have been trailing their development within
the security of online banking (Skinner, C. 2008). Additionally the iris technology has been described
as the most reliable source of personal identification and many banks will use
this technology which will eventually phase out passwords and log in
information

Figure 7

Mobile only banks
such as Monzo and Starling Bank will become the norm in the near future
according to Scardovi (2017). These type of banking will renovate consumer
banking industries as a whole by being the one of the first companies to
provide a complete digital only experience for its consumers. The sole purpose
of Monzo bank and Starling bank is to give consumers an easier financial
life by holding current accounts though
smartphones and allow consumers the complete control of their money. They also
give a detailed understanding into their finances and where their money is
being spent.

Since Monzo and
Starling Bank are solely digital, they are able to offer 24/7 customer support,
real time notifications as well as in app options that help deals with customer
banking issue which can be dealt with in minutes rather than days (Scardovi,
2017). In addition Scardovi (2017) explains that there are no relevant fees to
open an account with either bank. Monzo and Starling Bank must be considered as
a real digital innovation within the consumer banking industry as it truly has
the fundamental components to change how traditional banking is done. Financial
experts have always said for years that consumers will see fewer bank branches
in the future, since consumers are now more comfortable with online banking
though smartphones and the evidence is beginning to show.

 

Beyond this, digital
currencies will continue to grow, such as Bitcoin, which will transform the
retail banking channel. These kind cryptocurrencies like Bitcoin rely on
fundamental technology called block chain, also known as distributed ledger
technology which is a database that can securely record financial transaction
between two parties across a network. Bitcoin
is a worldwide peer-to-peer electronic payment system that operates as an
independent currency. It is an innovative and independent currency that uses
cryptography for its creation and for performing secure transactions.  Bitcoin was invented by an unknown person named
‘Satoshi Nakamoto’ and released in January 2009. Since November 2017, the value of Bitcoin began to rise significantly in
the UK and across the world. At the time of writing this report, 1 Bitcoin
would equal to £13,019.10 ($17,447.99).

Beate Sauer, an international economist journalist and
writer, believes that the reason why Bitcoin has value is because people
believe in Bitcoin having value. Only time will tell whether this statement is
true or not as the future is very uncertain. However, at this current time
Bitcoins are still in the development stage and not ready for shifting
purchasing power from today world into the future. “At present, digital currencies fulfil the roles of money only to some
extent and only for a small number of people. They are likely at present to
regularly serve all three purposes for perhaps only a few thousand people
worldwide, and even then only in parallel with users’ traditional currencies.”
(Bank of England 2014a, p. 4).

Due to the major rise in value of Bitcoin, banks will feel
the effects and implications as there has been a shift in how consumers and
businesses make transactions. Nowadays value can be exchanged through a
smartphone without the involvement of traditional banks. This is a major
turning point as consumers will no longer have to visit a bank should they
require financing. Cryptocurrencies especially ones that use peer to peer
networks are becoming more common and for that reason people who are refused
financing from traditional banks can look to investing in cryptocurrencies.
Some banks industries are already feeling the threat from cryptocurrencies such
as Bitcoin. A major banking industry in France, BNP Paribas released a report
that involved the technology behind Bitcoin and how it could leave banks
redundant. Johann Palychata, an analyst for BNP Parabas stated in the report
that “cryptocurrencies should be
considered as an invention like the steam or combustion engine that has the
potential to transform the world of finance and beyond.”

Another report conducted in the UK suggested Bitcoin
definitely represents a threat to banks, especially if consumer behaviours and
preferences are ignored when it comes transactions and money transfers. “Bitcoin users can handle many of their
daily payments needs themselves, without the need for interaction with banks,
and avoiding the need to incur bank fees. In the same way, value stored in
PayPal accounts moves outside of the bank’s payment systems, depriving banks of
valuable payments revenue”. It also suggested that the UK economy could be
destabilised if the Bank of England were not able to govern monetary powers.

While the Bank of England admitted to referring Bitcoin as a
“genuine technological innovation”,
they also dismissed that Bitcoin’s ability to function on a wider scale
although it does suggest that a wider adoption could be possible in the future.
According to the Bank of England, cryptocurrencies including Bitcoin do not at
this current time pose a threat to the broader financial system. The Bank of
England continues to monitor digital currencies and the risks they pose to its
mission. Yet it does suggest that, should broader adoption take place, the
integration of bitcoin with complex financial instruments and global
marketplaces could deepen the impact of any price volatility on the broader
economy. The report concludes by suggesting that “digital currencies do not, at present, play a substantial role as
money in society. But they may have the potential to come to exhibit at least
some of the functions of money over time.”

 

Conclusion

In summary banking consumers have witnessed dramatic changes
over the past century which has seen many new technologies introduced and
implanted to everyday banking. Consumer banking is still in the process of revolution
as digital technology is still improving year after year which will change the
face of consumer banking forever. The introduction of digital technology within
banking brings a greater level of flexibility, greater control and saves
consumers’ time with normal banking transaction just with the use of a
smartphone and apps.

However the more online and mobile banking users use these
services, there is no doubt that the number of cybercriminals will also
increase. Online security will always be a threat to consumers with cyber
criminals attempting to steal customers’ personal online banking details. Banks
and consumers will always need to be alert to such threats, provide the best
security to consumers and keep providing the best possible online banking
security.

Financial institutions that don’t embrace partnerships with
Fintech or facilitate their own mobile, digital and virtual innovations will
not be able to compete with these types of offerings moving forward.