INTERNET BANKING
By: Ather Akhlaq
What is internet banking?
Internet banking is the fastest and the most
recent bank product which is based on
internet technologies.
you can view your accounts, make transfers,
order cheque books, and stop cheques,
direct debits and standing orders – without
being restricted by banking hours. All you
need is a PC with internet access
Introduction
The large, established "brick and mortar"
banks introduced Internet Banking services in
the mid 1990s. Because access to the
Internet was limited, high-speed Internet
connection were rare and e-business
applications were clunky, adoption of
ebanking didn't really didn't take off until the
new millennium began. All the large banks in
Canada and the United States provide web
banking services
People soon discovered that they were able to pay
bills, transfer funds and check transactions 24 hours
a day from the comfort of their homes. Many banks
provided financial incentives to encourage clients to
adopt self-service banking channels over "at the
teller" full service banking. In addition to Web
Banking, this included the use of ATM (automated
teller machines) and IVR (interactive voice
recognition) telephone banking services
Virtual Banks
Virtual Bank is one that does business by phone and over the
web but does not have a "brick and mortar" presence. Because
Virtual Banks don't require high-end office towers in major cities
or hundreds of bank branches in residential communities, they
are able to pay their customers a higher rates or return on
deposits and provide mortgages and loans at highly competitive
rates.
Although most banking transactions occur electronically, there is
always a need for customers to deposit checks and obtain cash.
Virtual banks leverage the existing banking network of ATM
machines around the world to accept checks and provide cash.
Are you concerned about the economic or political stability in
your country? Do you worry that the value of your national
currency will fall? If so, you might want to consider depositing
funds in a foreign bank via Internet Banking.
The relative value of currencies fluctuate over time, due to the
forces of supply and demand. If you are able to maintain funds
in a stable or appreciating currency, you can benefit from the
relative changes in currency values.
Countries that are resourced based such as Australia or Canada,
often perform well when resource prices are high. This impacts
their currencies. When oil prices increase, for example, the
value of the "petro currencies" often increase relative to other
currencies. In countries where the inflation rate is high, the local
currency often plummets, sometimes to the degree of becoming
valueless.
By opening a bank account in a foreign country, you
can sometimes benefit from changes in relative
currency values. Using e-banking capabilities, it is
possible to transfer funds from a local bank to a
foreign bank (electronic funds transfer).
Had you purchased $100 Canadian in January,
2002 (USD $62) that same $100 would have been
worth USD $85 in September, 2005. In other words,
you would have earned a tidy 37% profit, in addition
to bank interest paid on your deposit. The Canadian
banking system, is among the most stable in the
world.
QUICK INTRODUCTION TO
MONEY AND BANKING
Q: Why isn't it a good idea for me to try to
pay my home Electric bill by giving Internet
Banking lectures to people at the K.E.S.C.?
A (the obvious answer, but not the full answer): The
KESC power company might not want my lecturing
services. But, suppose for a minute that the
company did. Then we'd have a "double
coincidence of wants" - I want their energy services,
and they want my lecturing services, and a trade
could be arranged. Still, that probably wouldn't be
very efficient, since I already have a job and not
much free time. There's a much easier way to pay
my bill - I can pay with money.
Paying with money is more convenient and less
time-consuming
MONEY (anything that is generally accepted as
payment) is more efficient than BARTER (trading
goods/services for goods/services). Barter
requires a double coincidence of wants (you
want the good/service that the other guy has to
offer, and he wants the good/service that you
have to offer); money does not, because
everybody can find some use for money.
Q: Given that I'm paying the power company
with money, why would it probably be a waste
of time to drive down to their office (which is
40 miles away) and pay in cash?
A: Because it's inconvenient and I don't need to. It's
much easier to write a check and mail it in, or to
have money debited from my bank account (e.g.,
pay by phone, automatic monthly debit).
Since the funds in your checking account balance
are easily available for spending (through an ATM
withdrawal, a debit card, online bill payments, etc.),
they count as money, too.
BANK DEPOSITS, followed by CASH IN
CIRCULATION, are the main form of
money in our society.
Banks make the monetary system a lot more
efficient by reducing our need to carry a lot of cash.
People have long tended to use checks instead of
cash for large purchases and bills. Innovations in
banking like debit cards, direct deposit, and
automatic bill-paying reduce that inconvenience
even further, and also reduce such bank-related
inconveniences of time spent standing in line at the
bank, writing checks, or visiting the ATM.
So, then, MONEY may be the common
thread in our economy, but BANKS make the
supply of money a lot more plentiful than it
would otherwise be. Banks also make the
"payments system" a lot more efficient
Definition: A BANK is a financial
institution that accepts deposits and
makes loans.
THE FIVE CORE PRINCIPLES OF
MONEY AND BANKING
1. TIME has value. A dollar today is worth
more than a dollar a year from now. Why is
this? (Several reasons: inflation erodes the
buying power of money over time; having the
money now means you can spend it now;
having the money now means you can invest
it and turn it into more money.)
2. RISK requires compensation. For securities like
stocks and bonds, the higher the risk, the higher the
return has to be. For individuals, minimizing the risk
of such things as accidents, illness, and theft is
worth the expense of monthly insurance premiums.
(A note on usage: "Risk" refers to your potential
losses, financial and otherwise, not merely to the
probability of unwanted events. For example, fire
insurance might not reduce the likelihood of your
house burning down, but it will compensate you for
the damage from your house burning down.)
3. INFORMATION is the basis for decisions. This rather
general sentence relates to money, banking, and finance
because we live in a world of imperfect information. It is hard for
financial transactions to take place when one or both parties lack
adequate information about the other.
As a result, banks and other financial institutions that make loans
gather a considerable amount of information about their potential
borrowers before advancing them money.
Recent advances in computer and communications technology
have greatly helped the spread of financial information, thereby
paving the way for the growth of important new financial markets
like the junk-bond market.
4. MARKETS set prices and allocate resources. Financial
institutions and markets, by connecting savers with borrowers,
allow for people's leftover money (savings) to be channeled into
productive investment in capital (e.g., new technology,
machinery, buildings). Financial markets for assets like stocks
and bonds allow some companies, especially well-established
companies, to obtain funds for new capital investment more
cheaply than they could borrow from a bank. Other, less-
established companies that cannot get approved for a bank loan
can raise money by selling bonds in the junk-bond market
(though at higher rates of interest, because these bonds are
riskier, and risk requires compensation).
5. STABILITY improves welfare (i.e., well-being).
--Imagine that your next job pays you $3,500 a
month (or $42,000 a year). Now imagine that your
boss proposes to change your monthly pay to
$1,000 times the roll of a die. That is, you'd have an
equal chance of receiving $1,000, $2,000, $3,000,
$4,000, $5,000, and $6,000, and the average of
those numbers (or the expected value of your
monthly pay) would still be $3,500. Would you do it?
Most people would say no way.
In the interest of stability in the financial sector,
governments have created central banks to try to
guard against bank failures and financial panics.
(Most people think the bubble-and-bust economic
fluctuations of 2003-2008 were not desirable.) The
tasks of central banks have grown in recent years,
as they are now expected to keep inflation low and
stable, and also to avoid or minimize recessions.
THE FIVE PARTS OF THE
FINANCIAL SYSTEM
1. MONEY - anything generally accepted as payment. It's useful
because you can buy things with it, either now or later (non-
perishable, store of wealth. Contrast with, say, fish).
--Main types of money: bank deposits, cash.
2. FINANCIAL INSTRUMENTS
--defn.: A financial instrument is a formal obligation that
entitles one party to receive payments and/or a share of
assets from another party.
---Exs.: loans, stocks, bonds. Even an ordinary bank loan is a
financial instrument. Securities is a name that commonly refers
to financial instruments that are traded on . . .
3. FINANCIAL MARKETS
--defn.: places or networks where financial instruments can
be sold quickly and cheaply.
---Exs.: New York Stock Exchange, U.S. Treasury's online
auction site for its bonds.
4. FINANCIAL INSTITUTIONS
--defn.: firms that provide savers and borrowers with access
to financial instruments and financial markets. Among other
services, they allow individuals to earn a decent return on their
money while at the same time avoiding risk.
---Exs.: banks, insurance companies, mutual funds, brokerage
houses.
5. CENTRAL BANKS
--defn.: A central bank is a large financial
institution that handles the government's
finances, regulates the supply of money and
credit in the economy, and serves as the bank to
commercial banks. (That last part means that
commercial banks deposit some of their reserves at
the central bank, and the central bank is the "lender
of last resort" to commercial banks in times of
crisis.)
---Exs.: the Federal Reserve System of the U.S., the
European Central Bank (ECB; for countries using
the Euro).
