The objective of this paper is to discuss the overall role of electronic money and its impact in banking industry. Advancements in communication and information technology have produced unprecedented opportunities in the global economy, where countries and regions are digitally connected. This digital technology has fostered innovations in a variety of products and services including electronic money and payment systems. The role of electronic money is discussed under a review of literature and through a simple theoretical model. Electronic money has the potential to take over from cash as the primary means of making small value payments and could make such transactions easier and cheaper for both consumers and merchants. We also review the basic requirements of electronic money. We discuss the characteristics of electronic money transactions. A classification of electronic payment systems is presented. Electronic money is a record of the funds or value available to a consumer stored on an electronic device in his or her possession, either on a prepaid debit card or postpaid credit card or on a personal computer or mobile phone for use over a network such as Internet. To argue that electronic money as a network could become an important form of currency we collect data on questioner. Data will be analysed by applying specific formulas and we find a conclusion. The paper can be a very useful reference for the banking industry to improve the level of electronic money services and for further future research.
CHAPTER 1
Problem and Its Background
Introduction
With the rapid globalization of the business environment, trade and investments are rising in greater quantity, creating national wealth and consumer affluence, especially in developing countries. A convergence of consumers' tastes and preferences across the globe is increasing demand for foreign products and services, and technological advancements are making the world more and closer. Internet technology and its various manifestations have become the visible examples of the way in which people around the world interact and get connected instantly. Firms are turning to the Internet and related information technologies to improve business efficiency and service quality, and attracting new customers. Digital convergence of telecommunications, computers, media, and consumer electronics is rapidly conjoining many new products and services.
The electronic money refers to various electronic payment systems designed for use by consumers to make retail payments. Digital money products have the potential to replace central bank currency (Berentsen, 1997). This quote indicates that the advent of electronic money will have an impact on banking system. Growth of electronic money will be based on many things like technology, security, regulation and ease of conversion. Increased reliance on electronic money as a substitute for currency will directly affect the Banking system.
Definition of Construct
Electronic money is the money balance recorded electronically on a "stored-value" card (Ely, 1996). These cards, "smart cards," have a microprocessor embedded which can be loaded with a monetary value. Another form of electronic money is network money, "software that allows the transfer of value on computer networks, particularly the internet and mobile phone. Like a travellers check, a digital money balance is a floating claim on a private bank or other financial institution that is not linked to any particular account" (Berentsen, 1997). This money is issued by both public and private institutions worldwide and is raising concern about the future ability of central banks to set money supply targets. It is widely used in such places as "Germany, the Netherlands, Belgium, Singapore, and Hong Kong" (Tak, 2002). Electronic money as just defined differs from so-called access products, which are products that allow consumers to use electronic means of communication to access otherwise conventional payment services (for example, use of a standard personal computer and a computer network such as the Internet to make a credit card payment or to transmit instructions to make funds transfers between bank accounts). The significant novel feature of these access schemes is the communication method (e.g. the use of a computer network rather than a visit to a bank branch) and so, although they are of interest, they do not raise the same concerns as e-money schemes and are not considered further in this report.
Background Information
Changes in the banking environment, new entrants and actors on the conventional banking markets, globalization of the line of business and service innovations have intensified the competition on the markets and forced banks to offer customers more choices. The technological development has provided opportunities for service providers to develop their services and offer customers more flexibility. As a consequence, banks have launched multiple service access methods via new delivery channels like Internet and mobile phone.
Statement of Problem
The main purpose of this proposed research is determined the advantages and disadvantages of Electronic money to Pakistani banks. This research will try to determine what the effects of Electronic money in banking industry are.
Research Questions
RQ1: How much banking business changes with electronic money?
RQ2: does the electronic money ease the mode of money transactions?
Research Hypothesis
H0 Electronic money have no significant impact on banking industry.
H1 Electronic money have no significant impact on banking industry.
Research Objectives
To see how much of banking business depends on electronic money
To see that investment on electronic money can increase and make efficient Banking industry.
To compare the past and current banking business.
Scope of the study
The scope of the study was limited to the analysis of products that are currently introduced by MCB. While an array of potential products has been proposed and publicised, in many other banks these types different products are still in the early design or pilot phases; as a result, insufficient information is available to assess their security features.
Limitations of Study
Research will be conducted in the geographical boundaries of MCB Head office Lahore Pakistan from different positions and designations from different department. Density of a single department could be a risk factor of the research due to influential responses.
There could be following limitation of the study that can be observed during interviews and questionnaires sessions.
Researcher role in organization may subject to limitation.
People some time fail to respond neutral due to personal limitation.
Respondents are from different departments and spend most of their time in their work and may not available for many hours for training.
Personal moderation of printed questionnaire may be observed to complex.
Researcher biasness is of most important nature
State of mind of respondents is equally important
Assumptions of the Study
This study assumes that the problems discussed are faced by most Pakistani banks and account for the majority of factors that affect performance and output of these organizations.
Another assumption in this study is that the adopted theoretical models and methods can be modified to fit in the Pakistani business culture.
It is assumed also that leadership of organizations recognizes these problems, is also in agreement and would commit to support programs that this study will propose.
Chapter 2
Review of Related Literature
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 (Flavián, Torres, & Guinalíu 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.
Chapter 3
Methods and Procedures
Methodology of Study
For past perspective (to summarize previous research) Quantitative (Meta-analysis) and Qualitative (Content Analysis), and for current perspective Quantitative (Survey based), Qualitative (Interviews), to explore the constructed role of Electronic money and improve efficiency in selected organization MCB.
Research design
Research is designed on the basis of observations, books and literatures
Research population
All the employees of MCB bank working in Head office and related to Information Technology group, Business Process management Group and Internal Control department. These departments are directly or indirectly related to electronic money transactions.
Sampling Technique
Convenient sampling technique is used to collect data.
Sample Size
From the whole population 120 officers are selected for gathering sample
Survey Instrument
Copy of the survey instrument is attached (see appendix).
Data Collection
Data will be collected on a questioner and all the results are calculated using mean and mode from that collected questioner.
Chapter 4
Data Analysis and Representation
Data Analysis
Data will be analysed by using SPSS to apply specific formulas and find mean, standard deviation, variance and correlation.
Chapter 5
Findings, Conclusions and Recommendations
Details of findings recommendations and conclusions will be explained in this chapter.
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