Electronic money is one of the first things that come in mind when we think about the future of the banking industry. It is generally assumed that electronic money is new and that will replace many channels of payment system especially in banking industry. The term Electronic money refers to many banking activities like ATM, credit Card, debit card, Internet banking, phone banking and mobile banking.
Electronic money payment system coupled with safe cryptographic resources according to American Banks Association (1996) has the lowest transaction cost. It has an estimated cost of US$ 0.01. When compare that with traditional one make at the banks which is US$ 1.075. This overwhelming cost reduction will make without doubt electronic money a serious candidate to affect paper money.
Fast growing changes in financial service industry make it important to determine the efficiency of financial institutions. Banks play an important role in the financial markets of the developing countries and it is very important to evaluate whether banks operate electronic money facilities efficiently or not. There are many research studies that try to look into the efficiency of banks operating within a country and across the countries. These studies can be differentiated on the basis of used methodologies, considered variables, type and number of banks in the sample.
The formal definition of electronic money offered by the European Central Bank is as follows: 'an electronic store of monetary value on a technical device that may be widely used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument.' (ECB 1998) This definition highlights some important aspects of electronic money:
- The fact that it stores monetary value on a technical device with a capacity to be used widely for making payments.
- Its role as a prepaid bearer instrument, excluding account-based electronic payment instruments such as credit and debit cards and EFT payments.
- Its use to cover payments to undertakings other than the issuer, essential to differentiating e-money products from single purpose prepaid cards like telephone
cards.
- Its ability to by-pass bank accounts or any other financial service providers' authorisation.
Pikkarainen, Pikkarainen, Karjaluoto, and Pahnila, (2004) defines internet banking as an 'internet portal, through which customers can use different kinds of banking services ranging from bill payment to making investments'. With the exception of cash withdrawals, internet banking gives customers access to almost any type of banking transaction at the click of a mouse (De Young, 2001). Indeed the use of the internet as a new alternative channel for the distribution of financial services has become a competitive necessity instead of just a way to achieve competitive advantage with the advent of globalization and fiercer competition (Flavi'n, Torres, & Guinal'u 2004; Gan, Clemes, Limsombunchai, & Weng, 2006). All banks using the internet as an additional channel or a bank using only the internet as delivery channel are now on equal footing to offer their banking services on the internet and to compete for customers around the world. As Karjaluoto, Mattila, and Pento (2002) put it 'this could be the reason why the internet is widely seen as the most important delivery channel in the era'
Internet Banking is beneficial for both the provider and the customer. The rationales of banks' usage of the internet banking technology from the bank's perspective are mainly related to cost savings (Robinson, 2000; Sathye, 1999). Banks use online banking as it is one of the cheapest delivery channels for banking products (Pikkarainen, 2004). Such service also saves the time and money of the bank with an added benefit of minimizing the likelihood of committing errors by bank tellers (Jayawardhena & Foley, 2000). Internet banking offer services regardless of geography and time and banks thus provide its services to the customers for them to use at their convenience. As Karjaluoto et al. (2002) argued 'banking is no longer bound to time and geography. Customers over the world have relatively easy access to their accounts, 24 hours per day, and seven days a week'. The author further argued that, with internet banking services, the customers who felt that branch banking took too much time and effort are now able to make transactions at the click of their fingers.
The first targets for these applications were consumers in the developed world. By
Complementing services offered by the banking system, such as check books, ATMs,
Voicemail/landline interfaces, smart cards, point-of-sale networks, and internet resources, the mobile platform offers a convenient additional method for managing money without handling cash (Karjaluoto, 2002). For users in the developing world, on the other hand, the appeal of these m-banking/m-payments systems may be less about convenience and more about accessibility and affordability (Cracknell, 2004). An exploration is underway between banks, mobile operators, hardware and software providers, regulatory agencies, donors, and users to determine the shape of m-banking/m-payments services in the developing world (Ivatury, 2004; Ivatury & Pickens, 2006; Porteous, 2006). Mobile phone operators have identified mobile banking/mobile payments systems as a potential service to offer customers, increasing loyalty while generating fees and messaging charges. Financial institutions, which have had difficulty providing profitable services through traditional channels to poor clients, see m-banking/m-payments as a form of 'branchless banking' (Ivatury & Mas, 2008), which lowers the costs of serving low-income customers. Government regulators see a similar appeal but are working out the legal implications of the technologies, particularly concerning security and taxation. Simply having an Internet presence does not provide banks a revenue stream. However, by offering a wide array of products and services, banks can benefit from Internet integration. By creating financial portals where consumers can manage a broad range of financial activities such as stocks and mortgages, banks can profit from offering Internet capabilities to clients (Wah, 1999). Even with the best the Internet has to offer in banking services, consumers still need to visit an ATM or a bank branch to withdraw cash. Customers also have to deposit checks by mail, through an ATM or by visiting a bank branch (Fysh, 1999). These limitations of Internet banking bring out some issues that e-banks need to address. ATM's are currently the most convenient means of acquiring paper money from an Internet bank.
And most ATM transactions are assessed a fee. To overcome this problem, many e banks reimburse customers for a limited number of ATM transactions each month. In the future, electronic cash could provide a possible solution. But so far, electronic/digital cash has not been well received by the public.
