Internet banking in the U.S., Japan and Europe

Multinational Business Review, Fall 2002 by Pyun, Chong Soo, Scruggs, Les, Nam, Kiseok

Two key standards for the payment process have been agreed upon: International Bank Account Number and International Payment Instructions. However, EU has not decided on the implementation date for these standards. An interim solution for the issues related to "double charging" has been proposed in the document called "Multilateral Interbank Exchange Fee", while euro banknotes and coins will easily cross borders, the cross-border inter-bank retail (as opposed to wholesale) transactions will likely not imitate seamless domestic inter-bank retail transaction payments in individual EU nations (Padoa-Schioppa 2000).

European banks are ahead of American banks in integration of retail customer orders from various origins, such as traditional branches, Internet-based home banking, self-service branches or mobiles. However, EU-wide Internet banking faces a serious structural problem: EU nations now use different computer system architectures that are not compatible. The infrastructures for the new integrated systems needed are being provided by a new hardware system called STEP 1. However, the new systems have to provide portability, flexibility, security and manageability of multi-channel banking for banks and non-banks, which handle cross-border retail commercial transactions conducted in different national languages used by customers in individual EU nations. For instance, Germany uses a specific German protocol called BTX and HBCU (home banking computer interface) to the core banking system and a completely new infrastructure had to be recently introduced (Hundehage 2001). Additionally, EU must integrate the clearinghouse operations now handled by ZKA (Zentraler Kreditausschus) in Germany, APACS (Association for Payment Clearing Services) in the U.K., and CFONB(Comite Francais d'organization at de Normalisation Bancaire) in France, as these institutions are not totally comparable in status and activities.

In summary, EU banks face two daunting tasks: (1) Standardizing the EU-wide inter-bank payment procedures that support cross-border inter-bank retail transactions with the single currency, euro, and (2) integrating diverse computer hardware and software used by banks in different EU nations. This will require significant system modifications and capital investments.

CONCLUDING REMARKS

On Wall Street, a mouse beats a bull or bear every time. This metaphor has not become reality in the world of Internet banking. While Internet banking is cost efficient, it has not won the approval of bank customers. Only 5 percent of U.S. banking households, or 4.4 million households, did any banking online in 1999. This is in stark contrast to the estimated 9.3 million online investment accounts that American consumers have at their brokerage firms. These online trading accounts are fast becoming online personal finance accounts that chip away at a bank's customer base.

Online brokerage firms are acting as financial intermediaries in cyberspace in direct competition with traditional and Internet banks. Banks face more opportunities in brokerage and consumer investment services than in brick-andmortar branch networks. Citibank, Bank One, Bank of Boston, Toronto-Dominion Bank, CSFB and others have entered online brokerage business through acquisitions.