DISRUPTIVE INTERNET BANKING MODELS - Part 2
By Praveen Kadayinti and Archit Agrawal
This blog has come in two parts where we are discussing about internet banking models and CRM. In the previous blog (Part 1 - find here) we have discussed about two such models. We will highlight a third model in this part and analyze our views.
Model III
A new market has also been identified online where prospective lenders and borrowers meet online, thus reducing transaction time and costs involved with traditional banking methods. Currently banks act as middlemen, collecting funds from individuals who have a surplus (providing an interest rate), and disbursing to people in need (charging an interest rate). The difference in interest rates funds the operation as well as helps the bank make a profit.
Called peer-to-peer lending, the third model matches lenders against borrowers at very low transaction costs, generating significantly higher returns for both. People with surplus money are directly matched to people who want to borrow, without any banks in the middle. Each prospective borrower is given a credit score, lenders choose which credit category they wish to lend to. Websites like Zopa.com and Prosper.com already have implemented this model.
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All three models look to eliminate middlemen, provide the basic necessary facilitation, and allow users to directly interact with each other. These provide cheaper alternatives to the customer, and also allow customers to execute the transactions from the comforts of their homes.
Some of the advantages of the internet models are as follows:-
• Lower costs of operation
• Lower NPAs
• More user-friendly
Disadvantages include:-
• It may take time for the user base to reach critical mass to make profits.
• It is still easier to do background check of a person physically than online.
Traditional banks can work on a number of things that can help withstand the challenges from newer models. Traditional banks need to focus on the following:-
• Better marketing and positioning of banking solutions
• Building a loyal customer base
• Increase switching costs by providing exclusive benefits to loyal customers that may not be provided elsewhere, examples include customized internet and mobile banking.
• Provide a mix of the two worlds - allowing for traditional over-the-counter banking service along with new generation online services.
If banks choose to embrace the new models early they can prevent being marginalized by the new form of disruptive banking. A lot would depend on the packaging of the solution and how the customer is made to perceive the service. Banks would have a head start as they would already have a stronger brand name compared to newer internet sites offering banking. Whoever gains the upper hand, the newer models surely promise a host of new exciting options to the customer.
==================================================================
All three models look to eliminate middlemen, provide the basic necessary facilitation, and allow users to directly interact with each other. These provide cheaper alternatives to the customer, and also allow customers to execute the transactions from the comforts of their homes.
Some of the advantages of the internet models are as follows:-
• Lower costs of operation
• Lower NPAs
• More user-friendly
Disadvantages include:-
• It may take time for the user base to reach critical mass to make profits.
• It is still easier to do background check of a person physically than online.
Traditional banks can work on a number of things that can help withstand the challenges from newer models. Traditional banks need to focus on the following:-
• Better marketing and positioning of banking solutions
• Building a loyal customer base
• Increase switching costs by providing exclusive benefits to loyal customers that may not be provided elsewhere, examples include customized internet and mobile banking.
• Provide a mix of the two worlds - allowing for traditional over-the-counter banking service along with new generation online services.
If banks choose to embrace the new models early they can prevent being marginalized by the new form of disruptive banking. A lot would depend on the packaging of the solution and how the customer is made to perceive the service. Banks would have a head start as they would already have a stronger brand name compared to newer internet sites offering banking. Whoever gains the upper hand, the newer models surely promise a host of new exciting options to the customer.
Comments
Hi
This blog is very well written and quite informative. A good read.
Posted by: Abhinav Bharadwaj | September 2, 2011 7:32 AM