A Study of Comparative Advantage of Internet Banking In Hong Kong
...ervices such as internet banking in order to survive in a highly competitive and fast-pace environment. It is interesting to note that well-known banks, such as the Hongkong and Shanghai Banking Corporation (HSBC) had already launched mobile banking services in 1999, but not online banking services. Their Internet banking services were made available only during the second half of the year 2000. (***Research Questions?) What are the factors that would hinder a bank's decision to offer internet banking services? Is the startup cost of internet banking very expensive? Is public acceptance of internet banking in Hong Kong very low? This study attempts to shed some light on the above questions. Customers' responses and readiness to use internet banking is most probably the key to the decision of a bank to provide internet banking services. Courtier and Gilpatrick in their research (1999) recommended that financial institutions should regularly survey or gauge customers' needs and desires before setting up any banking strategies on the Internet. Customers' needs and desires directly contribute to the success of the implementation of internet banking. Moreover, customers' expectations and acceptance of the new technology and the beliefs in their ability to use it will directly influence their needs and desires to adopt it. 1.2 Retail Banking Development At the turn of the new century, Hong Kong banks have realized that competition, customer expectation, deregulation and globalization have caused some major changes to the way they conduct their businesses. More importantly, however, they have noticed that strategic information technology could give them the competitive edge over their competitors. This is even more evident in the global retail banking industry. For instance, Internet technology would allow retail banks to provide products and services available to customers anytime and anywhere without the cost of physical infrastructure and employees. In the banking industry, there are four major transformations, which are changing the business environment. They are the growth and consolidation of banks, globalization, technology advances and deregulation and competition. 1.2.1 The fall of Retail Banking Retail banking, the most traditional business of commercial banks, is where margins are being progressively squeezed by new competitors. Until the beginning of the 1990s, nearly every country had a domestic retail banking sector that was separate from its neighbors and was dominated by a handful of established banks. The core assets of banks were extensive branch networks, each branch being equal to all the others, with a manager, front-end people, and huge back-offices. At least up to the advent of e-banking. The pace of dramatic change for retail banking varies from country to country, but common trends are emerging: • The focus of banking is shifting from transactions management toward sales of financial products. As banks merge, they are increasingly centralizing and streamlining their processes. • Barriers to entry for the retail banking segment are being lowered, allowing competitors from other industries to come in and try innovative approaches mainly with a massive use of technological delivery channels. • The growing variety of delivery channels for banking enables new entrants to thrive. The two main forces changing the competitive environment in retail banking are technological change and aggressive new competitors: 1. Technological change is creating huge problems for traditional banks with extended and costly branch networks. The major technological issues affecting the retail banking business are the rise of telephone banking and the impressive diffusion of the Web-based banking. These innovations make branch networks less important and national boundaries irrelevant. Computer banking, either through the Internet or proprietary networks, is gaining a growing and growing importance. 2. New unrelated competitors are entering the retail banking market. In the United Kingdom, the country’s two biggest retailers, Sainsbury’s and Tesco, have gone into partnership with the Bank of Scotland and the Royal Bank of Scotland, respectively. Sainsbury’s Bank offers a savings account, two credit cards, and personal loans and mortgages, with more services to follow. Tesco Personal Finance offers only a savings account and a credit card, but aims to expand its range. These trends do not indicate that traditional branch banking is going to die, but that the competitive scenario is changing. High-street banks have expensive branch networks and relatively outdated procedures, with far greater operating costs than their new, more flexible rivals. Despite growing competition, retail banking can still generate remarkable profits - at least in the United Kingdom. So high have been the returns that a number of U.K. banks experienced that they have sold their investment banking arms to direct more attention toward this lucrative sector. This strategy (known as specialization) is proving effective for those banks that decide to specialize. Nevertheless, the general trend is that the retail banking industry, rather than being the dominant business of commercial banks, will become a specialized niche as the core business of a few high-street banks. Global banks will offer retail banking service and products in the context of a wide spectrum of services and products from other banking businesses. 1.2.2 Growth and Consolidation of Banks One of the most important trends affecting the financial service industry is consolidation. The U.S. market saw a merger boom in 1996; in Europe the same process culminated in 1997, with the merger between the Swiss banks UBS and SBC creating one of the largest banks in the world. The first months of 1998 saw the creation of the world’s largest financial group— Citigroup—formed by the merger between Citibank and Travelers. This trend is likely to continue, at least for the foreseeable future. Consolidations take place for the following reasons: • To take advantage of economies of scale. These are horizontal mergers or acquisitions (e.g., two or more institutions of the same type merge). • To have access to distribution channels. This is referred to as interindustry consolidation. For example, large insurance companies often seek a fast way to access a widespread network of points of sales, such as bank branches, through which they can sell their products. • To widen the range of products that the bank can offer both actual and potential clients. This process is known as contamination and can be achieved by entering into a new market. For example, the acquisitions of investment banks by commercial banks are aimed at widening the services offered by the parent bank through its business units (they may also be, and often are, legal entities separate from the acquiring bank). Entering into a new market through an acquisition is often much easier than starting a new business from scratch. • To enter a new geographic market. This type of consolidation is known as international diversification. For a foreign commercial bank, any national market has significant barriers to entry, because it is difficult to establish an efficient and effective network of branches in foreign countrie...