DISRUPTIVE INTERNET BANKING MODELS - Part 1
By Praveen Kadayinti and Archit Agrawal
This blog will come in two parts where we discuss in internet banking models and CRM. We will discuss on two such models that we come across in this blog.
Here, we look at some of the disruptive Internet based banking models that have come up in the last few years, and analyze how traditional banks will have to change themselves to cope with these new models. Traditional banks will have two options; either follow the curve or lead the curve. Leading the technology curve may result in cannibalization of their existing business products but following the curve might reduce the banks to insignificant players if the market grows exponentially in favor of the early adopters of technology.
Customer Relationship Management (CRM, defined as the set of processes that manage the relationships between an Organization and its customers) will play an increasingly important role, both for the new models and traditional banks. Banks will need to innovate, to reach out to the customer, to retain existing customers as well as gain new ones.
Internet is changing the banking habits of the masses in subtle ways. A lot of internet based banking models have come up in the past & failed. A few have managed to stand out for their innovativeness, user friendliness and customer centricity. We look at three such models.
Model I
The first model is an internet based currency exchange service. Traditional currency conversions involve a Sell/Buy rate set by the bank. Buying currency from the bank costs more than selling currency to the bank. The bank uses the difference in the Buy and Sell rates to fund the cost of operation, and also makes a profit in the process. Here, the bank benefits as the volume of currency converted in each transaction increases.
The internet site Transferwise.com has come up with a new model where the Buy and Sell rates are the same. An electronic payment service, this site offers a convenient process to exchange money with anyone across the world via a secure third-party between the two parties involved in the transaction. The site charges a fixed cost per transaction that is irrespective of the volume of currency converted. The exchange rate at which the conversion will take place is the true exchange rate that is reported by Reuters, Bloomberg, and XE.com etc. Unlike banks, no premium is charged over this exchange rate. The site profits as the volume of transactions increase; as the number of users increase.
Users benefit as the transactions can be done from the comfort of homes and offices, at the same transaction cost, irrespective of the volume of currency converted.
Model II
The second model benefits users who regularly transact on Internet shopping sites like eBay and have built a reputation of being trustworthy and reliable to conduct transactions.
This model looks at internet based lending to creditworthy vendors based on their rating by customers on EBay and Amazon. A private equity fund uses the EBay and Amazon rating to provide loans to highly rated vendors. Highly trustworthy customers can obtain loans as quickly as in ten minutes.
The lender benefits as he does not need to do additional background verification checks to verify the credentials of the borrower; the shopping site (example eBay) has done it for him. The borrower benefits as he can get funds from a source without worrying about having to prove his history. Kabbage.com has implemented this model.
