Caroline Möckel
European B2C E-Commerce in the Banking Sector
ISBN: 978-3-8366-4576-8
Herstellung: Diplomica® Verlag GmbH, Hamburg, 2010
Zugl. London South Bank University, London, Großbritannien, Magisterarbeit, 2008
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Acknowledgements
I would like to thank my dissertation facilitator Dr Rüdiger Nagel of Fachhochschule
Mainz, Germany, and Avril Platt of London South Bank University, UK, for their kind
support during my research for this dissertation.
I want to express gratitude to my sponsoring company Sparkasse Langen-Seligenstadt,
Germany, especially to Christian Fahn, Head of the Electronic Media Department,
for funding and supporting my studies.
I also would like to thank Simon Dover for proof-reading this dissertation.
" [...]
The unexamined life is not worth living
[...] "
Plato, Apology of Socrates, 37e-38c
Abstract
After the successful establishment of online banking channels throughout Europe in the
last few years, the business model has advanced and become more sales-orientated. In
theory, European customers can now choose from a wide selection of online financial
products and services offered by both domestic and foreign internet-based direct
banks and traditional branch-based banks. Although greater competition, converging
price levels and a pan-European target market seem tempting to banks, regulators and
customers, the adoption of the issue seems limited so far, especially on a cross-country
basis. As there are only few academic research papers available to date and further
positive development can be expected, the decision to dedicate a masters dissertation
to the research topic seems justified.
This research paper examines the extent, the differences between countries and
main influence factors of European B2C e-commerce in the banking sector and its
implications for mid-sized domestic banks in the competitive environment of domestic,
foreign and direct banks.
Having established the research problem and objectives, an extensive literature review
following a highly systematic structure is carried out in this research paper. The
methodology sets up a research design combining quantitative, qualitative and case
study approaches to reflect the complex nature of the research problem. Four main
research questions are discussed in this dissertation. The first research question defines
the extent of the matter in various European countries, using descriptive statistics and
data sets of the Statistical Office of the European Union Eurostat on ICT usage and
e-commerce in enterprises of the financial sector and European households for the year
2006. Building on these results, a statistical cluster analysis is conducted in the second
research question to identify similarities and differences between European countries.
For the third research question, a range of potentially related variables is tested for
their statistical correlation to indicate their influence and relation with the research
topic, again using Eurostat data sets. The fourth research question then relates all prior
findings to the real business case of the regional German savings bank Sparkasse
Langen-Seligenstadt.
The main findings of this dissertation are the confirmation of the rather low level of B2C
e-commerce in the banking sector in Europe, especially regarding cross-country sales.
Furthermore, country clusters similar to the case of online banking addressed in prior
studies become apparent. Various examined variables show a statistically significant
correlation to the research topic, also leading to recommendations and guidelines for
the bank that is the case study subject.
Before providing a conclusion for this research, the impact of the current financial
crisis on the research topic is considered. While policy recommendations to overcome
current hindrances are given and a generally positive outlook remains, it is expected
that the business model, particularly across borders, will be slowed down for the next
few years.
Since this dissertation contains a certain amount of originalty and value to practitioners,
it may serve as an interesting starting point for future research.
Table of Contents
1
Research Context
1
1.1
Introduction and Theoretical Background of the Research
1
1.2
Professional and Academic Significance of the Research
3
2
Research Problem, Objectives and Scope
5
2.1
Research Problem Statement and Research Questions
5
2.2
Research Hypothesis
6
2.3
Research Aims and Objectives
6
2.4
Scope of the Research
7
3
Literature Review
8
3.1
Overview Literature Review
8
3.2
Introduction to the Current EU Financial Sector
9
(see appendix for sections 3.3 to 3.5)
3.3
Developments and Forces of Change in the EU Banking Environment
10
3.4
Strategic Reactions and Major Trends in EU Banking
10
3.5
Recent Developments and the Current State
of the EU Retail Banking Market
10
3.6
Recent Developments and Current State of
Online Banking and Financial E-Commerce in the EU
12
3.6.1 Other Strategic Trends and Responses to Forces of Change
12
3.6.2 Online Banking in EU countries
12
3.6.3 Financial E-Commerce in EU countries
14
3.6.4 Cross-border financial e-commerce
16
3.6.5 Advantages, Problems and Future Prospects
of Financial E-Commerce in the European Union
18
3.6.6 Potential Influence Factors
on Financial E-Commerce in the European Union
20
3.7
Reflective Summary, Key Findings and Relation to Research Topic
24
4
Research Methodology
32
4.1
Research Design
32
4.2
Research Strategy
32
4.3
Research Methods
33
4.4
Data Sources
34
4.4.1 Primary Data
34
4.4.2 Secondary Data
35
4.5
Data Analysis for Research Questions
38
4.5.1 Research Question 1
38
4.5.2 Research Question 2
39
4.5.3 Research Question 3
41
4.5.4 Research Question 4
43
5
Research Question 1
44
Current State and Extent of B2C E-Commerce in the EU Banking Sector
5.1
Research Results and Findings for Research Question 1
44
5.1.1 Basic Prerequisites for Provision of Financial Services Online
44
5.1.2 Provision of Financial Services Online and Financial E-Commerce 45
5.1.3 Consumer Adoption of Financial Services Online / Financial E-Commerce 47
5.1.4 Cross-Country Financial E-Commerce
50
5.2
Research Analysis and Interpretation for Research Question 1
52
5.2.1 Basic Prerequisites for Provision of Financial Services Online
52
5.2.2 Provision of Financial Services Online / Financial E-Commerce 54
5.2.3 Consumer Adoption of Financial Services Online / Financial E-Commerce 55
5.2.4 Analysis and Interpretation for Cross-Country Financial E-Commerce
57
5.2.5 Analysis and Interpretation Conclusion
58
6
Research Question 2
59
Country Cluster Analysis for B2C E-Commerce in the EU Banking Sector
6.1
Research Results and Findings for Research Question 2
59
6.2
Research Analysis and Interpretation for Research Question 2
62
7
Research Question 3
66
Influence Factors on B2C E-Commerce in the EU Banking Sector
7.1
Research Results and Findings for Research Question 3
66
7.2
Research Analysis and Interpretation for Research Question 3
70
7.2.1 Quantifiable Factors of Influence
70
7.2.2 Other Factors of Influence
75
8
Research Question 4
77
The Case of Sparkasse Langen-Seligenstadt and B2C E-Commerce
8.1
Research Results and Findings for Research Question 4
77
8.2
Research Analysis and Interpretation for Research Question
4
77
9
Reflections on the Current Financial Crisis
83
and its Relation to the Research Topic
10
Conclusion,
85
Policy Recommendations and Future Research
Bibliography and References
Appendices
A
Glossary and Definitions of Terms
A 1.1 - A 1.18 Explanation and Definition of Relevant Terms
B
Case Study of Sparkasse Langen-Seligenstadt
B 1.1 Introduction to the Case
B 1.2 Larger Organisational Network of SLS
B 1.3 Company Overview and Business and Facts
B 1.4 Electronic Media Department
B 1.5 Online Product Sales and E-Commerce at SLS
B 1.6 Further Outlook and Future Perspective
C
Appendix for Literature Review
C 1
Literature Review Materials Financial Sector (Chapters 3.3 to 3.5)
C 2
Therories and Research Frameworks for Online Banking Adoption
D
Appendix for Methodology
D 1
List of Countries Included
D 2
List of Country Populations and Samples
D 3
Levels of B2C E-Commerce in the EU Financial Sector
D 4
List of Potential Influence Factors Variables
E
Appendix for Research Questions
E 1
Research Question 1 - Tables
E 2
Research Question 2 - EU Best-Practice Websites
E 3
Research Question 3 - Results of Statistical Analysis/SPPS Output
F
Other Materials Required
F 1
Reflective Diary
F 2
Copy of Approved Research Proposal
(for a detailed listings of contents for the appendix section,
refer to the separate table of contents of the appendix)
Table of Figures
Figure 1:
Graphical Overview and Structure of Literature Review
11
Figure 2:
E-Readiness of 15 sectors of the EU economy
12
Figure 3:
Online Banking Adoption Variation
13
Figure 4:
Classification of Internet Banking Services
15
Figure 5a:
Example ICICI Bank - German and UK Offerings
17
Figure 5b:
Example Kaupthing Edge Bank - Finland and Luxembourg Offerings
17
Figure 6:
Overview Literature Review (Part 1)
26
Figure 6:
Overview Literature Review (Part 2)
27
Figure 6:
Overview Literature Review (Part 3)
28
Figure 7:
Indications for a Positive Development of Fin. B2C E-Commerce
30
Figure 8:
Relevance and Indications of Literature Review for Research Questions
31
Figure 9:
Overview on Data Sets and Sources used for the Statistical Analysis
37
Figure 10:
Overview on Factors and Variables for Research Question 1
38
Figure 11:
Provision of Online Fin. Services by Fin. Enterprises of EU Countries
45
Figure 12:
Examples for Similarities - Provided and Received Services
46
Figure 13:
Usage of Online Financial Services by Individuals in EU Countries
48
Figure 14:
Online Purchases of Fin. Products by Individuals in EU Countries
49
Figure 15a-c:
Destination of Internet Sales (Home, EU, Worldwide)
51
Figure 16:
Graphical Representation of Results Research Question 1
58
Figure 17:
SPSS Cluster Analysis with 4 Variables, Results using 5/6/7/8 clusters
60
Figure 18:
SPSS Cluster Analysis Dendrogram
61
Figure 19:
Overview 7 Clusters, Variables and their Characteristics
61
Figure 20:
Geographical Map of Country Clusters
62
Figure 21:
Order and Naming for European Clusters
64
Figure 22:
Statistically Supported (and Additional) Influence Factors
70
Figure 23:
10 Recommendation for the E-Commerce Strategy of SLS
82
Figure 24:
Overview Sparkassen Finanzgruppe
App. B
Figure 25:
German Banking Market Share 2007
App. B
Figure 26:
SLS Business Area Map
App. B
Figure 27:
SLS Business Facts and Figures
App. B
Figure 28:
SLS Website for Online Product Sales
App. B
Figure 29:
Obstacles to Full Integration of EU Fin. Retail Markets
App. C
Figure 30:
Consolidation Pressure
App. C
Figure 31:
Reconfiguration of the Value Chain
App. C
Figure 32:
Modern Direct Bank vs. Traditional Branch Bank
App. C
(for additional figures shown in the appendix, please
refer to the separate table of contents of the appendix)
1
1
Research Context
1.1
Introduction and Theoretical Background of the Research
Cross-European retail banking and private investment via the internet has
started to become reality within the last few years. Banks like IngDiba (2008),
ICICI (2008) or Rabobank (2008) will offer their products on a national or
European basis using low cost internet channels and give customers a wide
range of products to choose from. In theory, banking customers may transfer,
borrow or invest money at superior rates with only a few clicks, using online
product offers of highly competitive foreign institutions or domestic direct banks.
But with the financial crisis in full swing, the enthusiasm of the business model was
dampened. Savers would withdraw money out of their online accounts to invest in
traditional low interest savings accounts (FTD, 2008; Spiegel, 2008). German and
British customers had their high-interest accounts opened online at Icelandic banks
frozen due to the downfall of the national financial system (FAZ, 2008a).
This immediately raises questions about the experienced adoption of the issue so far,
the extent of national and cross-border online product sales by banks, the profitability
and chance expected, regulatory and technical problems, potential influence factors as
well as future perspectives, also beyond the times of tremble in the financial sector. For
proposing a research in this field, it needs to be understood that online banking itself is
not a new topic for academic and business researchers and has been addressed widely
in literature and statistical studies in the last 15 years. Internet sales channels of banks
have evolved and become an area of research in their own right, which is often termed
as e-commerce or e-business in the banking sector (EBW, 2003, 2008; Appendix A
1.19). At the start of this development, financial institutions used the internet mainly
to provide product information and for brand advertising. The second phase had an
emphasis on transactions and cost optimisation. The third phase of this theoretic
2
model sees banking products as commodities and poses the challenge of using this
channel of distribution effectively for selling financial products online (Niemeyer,
Rill, 2006; Decker in Schögel, 2001). Together with the observed distinction between
online banking, mainly represented by online transactions, and e-commerce in the
banking sector, meaning online product sales, an increasingly international orientation
emerges, for Business-to-business (B2B) as well as for the Business-to-consumer
(B2C; appendix A 1.6) sector which is the focus of this research.
The development described has been supported by several influences of various nature.
Technical innovation has had its impact on online banking, other e-business applications
as well as on e-security. It has been in the focus of various studies mostly using classical
innovation theories (Mokhtar, 2006, Appendix C 2.1) or the Diffusion of Innovations
Model (Egea, Menendez, Gonzalez, 2007; Appendix C 2.1). Ongoing legal harmonisation
throughout the EU and the implementation of the Single Euro Payments Area (SEPA;
Appendix A 1.12) are other forces behind cross-border online banking and e-commerce.
Positive developments regarding internet coverage and connection speed as well as the
ability of people to use the internet are the basis for further advancement within this
area. Over the years, banks will also have gained experience in this field, specialised and
skilled employees have been trained. Other factors influencing the adoption or serving
as barriers for online financial products are the level of trust, general customer attitude
and cultural influences on internet usage. Furthermore, electronic sales processes, the
product portfolio offered and pricing policies are of interest for academic and business
research (EBW, 2006; ECB, 2002; Niemeyer, Rill, 2006; van Tongeren, 2007). Factors
such as usability and usefulness of online banking have been examined in some detail
by studies (Egea et al., 2007; Pikkarainen, Pikkarainen, Karjaluoto, Pahnila, 2004;
Amin, 2007) using the Technology Acceptance Model (TAM; appendix C 2.2). Recent
studies (Egea et al., 2007; Ventakesh, Morris, 2000) have indicated a need for further
investigation of external factors, such as demographic and geographic characteristics,
which is a central aspect of this research.
3
When looking at the large variety of influence factors mentioned above, it is not surprising
that there are large differences between the development state of online banking and its
subset of B2C e-commerce in the banking sector within Europe. Extensive studies on
e-commerce in the finance sector regarding its European distribution are not available
at this point in time, but for the case of online banking the following can be said.
Online banking adoption across Europe varies largely, with rates from over 70% in
Nordic countries down to under 20% in Poland or Turkey. Factors closely related to
online banking adoption level such as number of branch visits, security concerns and
general online shopping will also differ between EU countries (Meyer, 2006; Centeno,
2003; IMF, 2002).
The chances offered by financial e-commerce, especially on a cross-country basis,
seem limited at the moment due to the described influence factors and apparent
differences, but there are large conceivable benefits and several promising examples.
While it is surely worth examining the current state of the issue and its future potential,
it also needs to be questioned how domestic banks of significant size will position
themselves in the cross-European market. The proposed research will therefore follow
the path research on basic online banking has already taken. Differences in adoption
levels of financial e-commerce across Europe as well their influence factors will be
examined using a quantitative approach. Several country clusters and best-practice
approaches will be identified. Supported by an exemplary small-scaled case study,
recommendations for domestic mid-sized banks and their strategies may then form a
meaningful conclusion.
1.2
Professional and Academic Significance of the Research
Direct banks, especially foreign institutions, with their aggressive marketing strategies
fully exploiting cost and convenience advantages of the internet as a cross-border
distribution channel have scared domestic mid-sized banks in recent years. Besides
the concerns about the loss of customers turning to more competitive offers, the
4
matter of financial e-commerce is tempting to almost every institution due to alluring
benefits such as cost reduction, higher efficiency and an expanded target market. To
understand the real dangers, chances and related influence factors it is of high interest
for business research in this field to define the actual extent and influence factors of
this development.
From an academic point of view, research so far has mainly been targeted at the
general field of online banking but not at the specific case of B2C e-commerce in
the banking sector. Already conducted and upcoming research within this area has
its focus for example on information and communications technology (ICT, A 1.3),
legal matters or website usability issues (EBW, 2006; Niemeyer, Paul, Peters, Nirschl,
2008). Most of these studies are also only country specific (Berger, 2007; Suominen,
2001; Hansapank, 2005). Looking at the narrower field of differences and similarities
in factors influencing B2C e-commerce in the EU banking sector may contribute to
the knowledge about private customer online sales channels of the European banking
sector and their interrelation.
Finally it needs to be noted that this dissertation is of value for the researcher's supporting
company, a local mid-sized savings bank with 700 employees in Frankfurt, Germany
(appendix B). The process of preparing this dissertation, its proposed outcomes and
derived recommendations will support and accompany the professional occupation of
the researcher as an electronic media consultant at this company.
5
2
Research Problem, Objectives and Scope
2.1
Research Problem Statement and Research Questions
After a phase of focussing mainly on transactions, online banking has now developed
a new subset: actual online sales of financial products - best described by the term
e-commerce of the banking sector. High interest cross-border product offers to private
costumers and targeting of foreign markets are now easily possible without a large
branch network in the country itself. When analysing the European adoption and
influence factors of online banking in general, large differences between country
markets and customers become obvious. For the case of e-commerce within the
banking sector, available research is limited. The research problem therefore relates
to the almost undefined current state of B2C e-commerce in the banking sector, its
possible variation in influence factors across Europe and resulting implications for
domestic mid-sized banks.
The research questions to be answered are:
Research Question 1:
Z
What are the differences in the level of adoption
of financial e-commerce in Europe?
Research Question 2:
Z
Are there country clusters?
Can country-specific best-practice business examples be found?
Research Question 3:
Z
Which key influences can be identified?
What is their impact and relation to the research topic?
Research Question 4:
Z
What are the impacts and actions to be taken for mid-sized local banks?
6
How can Sparkasse Langen-Seligenstadt profit from these
theoretical recommendations and can they be implemented to
improve their business practices regarding e-commerce?
2.2 Research Hypothesis
To prepare the statement of the research aims and objectives and to help answer the
research questions, the definition of the following underlying hypotheses may be
useful.
For conducting the planned research project, it is assumed that:
B2C e-commerce in the EU banking sector is a subset and specific area of online
Z
banking as a research field. Therefore, similar research methods can be employed.
Several key influence factors for B2C e-commerce in the EU banking sector
Z
exist and will have an influence on extent and state of development, which can
be corroborated by statistical analysis and backed up by findings from literature.
B2C e-commerce in the EU banking sector is cross-European but also has
Z
implications for domestic banks and their local markets and customers.
2.3 Research Aims and Objectives
Deriving from the introduction given on the topic and the stated research problem and
questions, the research aims and objectives for the proposed study are:
to give a short overview on the actual state and usage rates of
Z
B2C e-commerce of the banking sector across Europe
to highlight potentially arising country clusters and
Z
to recognise possible best-practice countries or companies and give examples
7
to identify key influence factors and evaluate their
Z
actual significance statistically (if applicable)
to critically acknowledge other supporting or
Z
hindering influences of qualitative nature
to summarise and critically evaluate findings and interpretations of these
Z
issues and develop a frame set of recommendations and actions to be taken
by domestic banks, using the case study of Sparkasse Langen-Seligenstadt,
a local mid-sized savings bank in Frankfurt, Germany, as an example
2.4 Scope of the Research
Although the title of this research "European B2C E-Commerce in the Banking Sector"
may seem to outline a narrow area of research, it is necessary to define the exact scope
of this study. First of all, the geographical area covered is Europe, with no comparison
to other world markets or America in particular.
For the same reason of narrowing down and focussing the area of research, the retail
banking market (appendix A 1.10) is selected instead of all e-commerce operations
including enterprises (B2B). The term "banking sector" was finally chosen over
"financial sector" (appendix A 1.9) since their definitions overlap and insurance
companies were not covered in detail in this research. Most importantly, it needs to be
stated here that the focus of this study will be on quantitative factors such as the extent,
influential consumer behaviour or technology adoption levels. Relevant qualitative
factors such as legal issues are acknowledged as factors of influence, but not analysed
in depth. This limitation of scope is due to reasons of time constraint within the context
of a masters dissertation and the available data at the time of writing.
Lastly, it should be noted that in the beginning of this research, the financial crisis with
all its implications had not reached its peak and the enormous negative development
8
could not be foreseen. The author has tried to take adequate care to account for elements
of the crisis related to the issue of B2C e-commerce in the EU banking sector. The
validity of the research topic was informally discussed with fellow practitioners at the
Congress on Innovations in the Banking Industry in Munich (CIBI, 2008) and is not
contested generally. However, the author would like to refer to the discussion chapter
(see chapter 9) on B2C e-commerce in the EU banking sector in the context of the
financial crisis at the end of this paper.
3
Literature Review
3.1
Overview Literature Review
To fully understand the context and importance of the research topic, a comprehensive
and thorough literature analysis has been carried out. Since the topic of financial B2C
e-commerce is still in a relatively early stage, the amount of directly related literature is
limited. Therefore, an analysis of literature describing the general environment of the
European banking sector and the initial situation for financial e-commerce is conducted
to evaluate its potential and status quo. A short overview on specific challenges of the
retail banking sector, e-commerce ability and online banking as a base for financial
e-commerce puts the research topic into perspective. The extent, advantages, problems
and future considerations of the issues are then assessed, based on available literature at
the time of writing. Finally, a reflective summary as well as key findings with reference
to the research questions are provided to prepare for the subsequent data analysis.
The literature review follows a sequential order, narrowing its focus from a general
view on recent happenings in the banking sector down to influence factors on financial
e-commerce (see figure 1). To avoid an overly long literature review and to assist the
reading process, lenghty explanations of underlying and general topics of the broader
industry environment are provided in the appendix. To maintain the systematic structure
9
of this literature review, all reviewed issues are presented through the respective chapter
headings, although some contents are included in the appendix.
3.2 Introduction to the Current EU Financial Sector
The banking industry of the EU is one of the most important economic sectors within
Europe, employing about 5.8 million people and generating about 550.9 billion of
value added (in 2004, from Eurostat Yearbook, 2007, p.405pp.). Currently, the state
of the banking sector is dominated by the financial crisis, the credit crunch and their
direct and indirect effects. Most US as well as European banks are experiencing major
difficulties and losses and will also be negatively affected for a significant amount of
time in the future (El-Erian, 2008; Schildbach, 2008, p.1). It is almost impossible for
anyone to understand and describe the full extent and impact of the crisis, foresee
future developments or find suitable strategies for a fast recovery. It can be expected
that in a few years time, a vast amount of literature and academic work will have been
dedicated to this difficult period for the European economy. The present literature
review will provide an overview of literature available at this point in time, but make
reference to the financial crisis where possible and applicable.
These recent disturbances perceived in the financial markets may hide the ,,silent
revolution" (Schildbach, 2008, p.1) that has taken place in the banking industry for the
last 10 years. A highly evolutionary phase with intensifying competition resulting in
higher profitability and efficiency has been observed in the European banking market
(Eppendorfer, Beckmann, Neimke, 2002). This development should not be undervalued
because of the current situation; its drivers should be carefully evaluated and need to
be considered in future.
Deregulation, integration of the European financial markets and related regulatory
issues, technology, customer behaviour and competition (ECB, 2005; Swoboda, 2004,
p.18) may be seen as the main underlying influences on the banking industry of the last
10
decade. Based on these factors, a consistent set of strategic trends is described in relevant
literature. Authors have commonly recognised consolidation, internationalisation,
convergence of bank- and capital market-based financial systems and deconstruction
related break-up of the traditional banking value chain as the major tendencies within
the sector. This set is complemented by the trends of bancassurance, outsourcing
tendencies and digital banking including e-commerce (for example in Schildbach, 2008,
p.1; Casu, Girardone, Molyneux, 2006, pp.345-368; EBW, 2003; Krabichler, Krauss,
2003; Eppendorfer et al., 2002; Eurostat Yearbook, 2007; Swoboda, 2004, p.19-37;
IBM, 2005; Tietoenator, 2008). These basic influential forces and their resulting trends
will be briefly summarised in the following chapters, of which some can be found in
the appendix.
(see appendix C 1 for sections 3.3 to 3.5)
3.3 Developments and Forces of Change
in the EU Banking Environment
(see appendix C 1.1.1 - 1.1.3 for sections 3.3.1 - 3.3.3)
3.3.1 Deregulation, Integration and the Regulatory Environment
3.3.2 Advanced Technological Environment and Financial Innovation
3.3.3 Changing Customer Demands and Increased Levels of Competition
3.4 Strategic Reactions and Major Trends in EU Banking
(see appendix C 1.2.1 - 1.2.5 for sections 3.4.1 - 3.4.5)
3.4.1 Consolidation Process and Mergers & Acquistions (M&As)
3.4.2 Internationalisation Tendencies
3.4.3 Disintermediation and Convergence of
Bank- and Capital Market-Based Financial Systems
3.4.4 Deconstruction of the Value Chain and Specialisation
3.4.5 Other Strategic Trends and Responses to Forces of Change
3.5 Recent Developments and the Current State
of the EU Retail Banking Market
(see appendix C 1.3 for section 3.5)
11
Structure of Literature Review
3.3 Developments and Forces of Change in the EU Banking Environment philosophy
3.3.1 Deregulation, Integration and the Regulatory Environment
3.3.2 Advanced Technological Environment and Financial Innovation
3.3.3 Changing Customer Demands and Increased Levels of Competition
3.2 Introduction to the Current EU Financial Sector
3.4 Strategic Reactions and Major Trends in EU Banking
3.4.1 Consolidation Process and M&As
3.4.2 Internationalisation Tendencies
3.4.3 Disintermediation and Convergence of Bank- and Capital Market-Based Financial Systems
3.4.4 Deconstruction of the Value Chain and Specialisation
3.4.5 Other Strategic Trends and Responses to Forces of Change
3.5 Recent Development and the Current State
of the EU Retail Banking Market
3.6 Recent Development and the Current State
of Online Banking and Financial E-Commerce in the EU
3.6.1 E-Business Potential of the EU Banking Industry
3.6.2 Online Banking in the EU
3.6.3 Financial
E-Commerce in the EU
3.6.4 Cross-border Financial
E-Commerce in the EU
3.6.5 Advantages, Problems and
Future Prospects of Financial
E-Commerce in the EU
3.6.6 Potential Influence Factors
on Financial E-Commerce in the EU
Financial E-Commerce in the EU
Online Banking
Retail Banking
Sector
EU Banking
Sector
Figure 1: Graphical Overview and Structure of Literature Review
12
3.6 Recent Developments and Current State of
Online Banking and Financial E-Commerce in the EU
3.6.1 E-Business Potential of the EU Banking Industry
First of all, the general readiness of the sector for e-business needs to be questioned
as business sectors vary in their level of development for e-business. Extensive sector
studies by the European Commission have confirmed a high e-business potential
for the banking sector (figure 2), with remarkably high scores regarding the extent
of e-commerce, especially online selling, e-CRM (Electronic Customer Relationship
Management; appendix A 1.5) and planned expenditure on e-business (see scoreboard,
p.50, EC, 2002). Regarding these matters, differences between small and medium sized
enterprises and large companies should be noted (EC, 2002, p.9).
Figure 2: E-Readiness of 15 sectors of the EU economy
Source: e-Business W@tch, in EC EBR, 2003
3.6.2 Online Banking in EU countries
Having established a certain ability for e-business in general, the main e-business
application in the retail banking sector, online banking, needs to be looked at. As an
introduction to the state of online banking (for definition and further information, see
13
appendix A 1.4), the increasing level of internet usage and broadband access (Smihily,
2007) in the EU is mentioned by most authors (e.g. Kubis-Labiak, 2004; Centeno, 2003).
This obviously makes sense as internet access is a prerequisite for online banking and
e-commerce. Here, a linear correlation is often automatically assumed and not backed
up by any evidence. However, several studies with appropriate data analysis have found
a positive correlation (Stobbe, 2003; Mokhtar, 2006, p.201).
Figure 3: Online Banking Adoption Variation,
% of internet users using online banking or brokerage
Online Banking Adoption = -232.79 + 1.67 Latitude + 18.51 GDP per capita, R2 = 0.80
Sources: DB Research, Eurostat, Forrester, World Gazetteer, 2005 in Meyer, 2006, p.2
14
Online banking itself has experienced good growth in the last few years, with an
overall adoption rate of 25% in the EU-27 in 2007, compared to only 16% in 2004
(Eurostat Databases, 2007). As widely acknowledged in literature (e.g. in Yibin, 2003,
p.3; Novametrie, 2004; Casu et al., 2006, p.32, 356; EBW, 2008), adoption rates vary
largely within the EU, with latitude and GDP explaining 80% of all these differences
and several country clusters apparent (figure 3). Other pre-existent conditions, e.g. the
usage of direct deposit over cheque payments, gave advantage to some countries, for
example the Nordic countries in Europe (Lund, 2001). The researcher would consider
these facts as being in line with the developments expected based on several index
models determining the e-business ability of EU countries (EC EBR, 2006, p.12 and
2003, p.45).
To summarise on the last two sections, it can be said that online banking adoption has
reached maturity in some areas, whereas others are still developing, supported by the
strong e-business capability of the sector.
3.6.3 Financial E-Commerce in EU countries
Financial e-commerce may be defined as the distribution and online selling of financial
products such as saving accounts, high interest accounts, certificates, savings bonds,
consumer loans and other services, e.g. insurance policies. The amount of research in
this field is limited, online sales are often seen as an integral part of online banking
or only account for a very small amount of overall revenue and are not addressed
separately (Kubis-Labiak, 2004, p.41). However, a range of researchers has identified
several levels of online banking (Yibin, 2003, p.2; IBM wave model in Lund, 2001;
Niemeyer, Rill, 2006; Decker in Schögel, 2001) and include more sales-oriented,
strategic e-commerce activities in later stages, in contrast to the mainly transaction-
oriented early stages of basic online banking. This mainly applies to traditional branch-
based banks with an integrated online banking channel (Spencer, 2003, p.74) besides
its other marketing channels such as telephone banking, mobile banking or even iTV
15
services (Centeno, 2003, p.9). This dissertation will define online banking elements
which can be considered as sales activity (e.g. opening an account online or acquiring
a savings bond) rather than transactions and services as financial e-commerce.
In the last few years, direct banks without a physical branch network have started
offering the entire portfolio of traditional banks online, demonstrating the full potential
for e-commerce in this sector (Riedl, Stahl, 1999). According to van Tongeren (2007)
of Forrester Research, the number of purchases in the field of financial e-commerce
was almost negligible in 2003, whereas in 2006, over 10% of European internet users
had purchased financial products online (also in Stobbe, 2003). Moreover, online
channels are still seen to be used for "rather simple and standardised retail products and
services" (Casu et al., 2006, p.32). Although almost all services available at a branch
could possibly be distributed online (Centeno, 2003, see figure 4 below), complex
products are still almost exclusively provided at the branch. It can be expected that
more products will be moved online once more consumers use online sales channels
in general, accessibility increases and competitive pressure makes traditional banks
follow direct banks.
Figure 4: Classification of Internet Banking Services; Sources: Centeno, 2003
16
3.6.4 Cross-border financial e-commerce
Financial e-commerce in its meaning of online provision of products is the major enabler
for direct cross-border retail financial services, overcoming the physical distance
between the banks and customers in different countries. Until now cross-border retail
banking services are mostly delivered through local establishment, subsidiaries and
branches from greenfield investments or M&As. Direct cross-border sales of financial
services without local presence only accounts for a small fraction at this point in time
(ECB, 2002; Schildbach, 2008, p.5; Eurostat Yearbook, 2007; Eppendorfer et al., 2002,
p.2). An early example has been INGDiBa (INGDiBa, 2008; FAZ, 2008b), a spin-off
of Dutch ING. Current examples are the online offers in various European countries
by the now discontinued and frequently discussed Icelandic Kaupthing Bank and
Indian ICIC (figures 5a and 5b), where all accounts are solely managed online by the
customers themselves.
As enquired by a Eurobarometer study in 2004, only 4% of EU citizens have opened a
bank account in another EU country so far. However, there are indications for a very
positive uptake in the press (Newsweek, 2007; FAZ, 2008c) and many EU customers
have the intention to engage in cross-border retail banking (in 2003, 9% planned to
open a foreign bank account, with great variation, 35% Swedes considered purchasing
a foreign account, but only 4% of the Dutch; Eurobarometer 205, 2004).
The European Commission of the European Communities (COM, 2007) has
acknowledged the fact that there is only very modest cross-border activity regarding
sales of financial products, caused by legal barriers, economic barriers and local
customer preferences. However, the matter is addressed by several enquiries and
studies, for example a review of the directive for distance marketing financial services
or recommendations for the introduction of the pan-European distribution of basic
products such as current accounts (COM, 2007, p.11,14).
17
Figure 5a: Example ICICI Bank - German and UK Offerings
Figure 5b: Example Kaupthing Edge Bank - Finland and Luxembourg Offerings
The actual importance and potential of European B2C financial e-commerce is also
reflected in the agenda of various key events and conferences of the European banking
sector. Coherent to earlier findings in this text, product innovations, technology,
consolidation and new consumer segments have been found to offer a range of highly
challenging opportunities to banks. Organisers, high potential commercial and academic
staff at events like the International Retail Banking Forum, the Forrester Financial
Services Forum EMEA, both in London, 2008, or the Conference on Innovation in
the Banking Industry (CIBI) in Munich, 2008, have considered a variety of topics
18
related to financial e-commerce as worthwhile to analyse and discuss. The first focus
lies on multi-channel distribution excellence and related topics such as e-business
strategy, direct bank integration, web sales, interactive marketing and search engine
optimisation. The second main focus, customer experience including e-CRM (see
appendix A 1.5), the new position of the bank branches and innovative, personalised
products, is directly related. Other main topics currently discussed amongst specialists
are unsaturated and emerging markets, profitability, m-/e-payment, business process
and quality management, compliance and IT security as well as new topics such as
affiliate marketing and regional online distribution strategies. Considering this list
of topics, it again becomes clear that financial e-commerce and online sales are of
the highest concern for the industry and require further investigation regarding their
prospective development.
3.6.5 Advantages, Problems and Future Prospects
of Financial E-Commerce in the European Union
As a relative new topic, the actual extent and impact of financial e-commerce has
not been addressed widely in literature. These studies may be available in the near
future, as studies regarding barriers to adoption and future developments of financial
e-commerce have been conducted already. However, financial e-commerce shares
most advantages of its online banking base, with literature highlighting five fields of
advantages.
Cost reduction and rationalisation are mentioned, which is said to be due to reduction
of transaction costs, work force, branch network as well as relatively low barriers of
entry in regards to cost (Heng, 2006; Casu et al., 2006, p.36, FSA, 2000; Harrison,
2000, p.171; Mokhtar, 2006, p.81). Secondly, the target market can be expanded; there
are more opportunities for cross-border sales. Thirdly, customer services and value
may be improved through more transparency and information, e-CRM, convenient
global access and a larger selection of competitively priced products (Eastwood, 2007;
19
Mokhtar, 2006, p.81; FSA, 2000; Harrison, 2000, p.171; Newsweek, 2007). Fourthly,
diversification arises through new cross-selling (Niemeyer, Rill, 2006) and marketing
possibilities (Harrison, 2000, p.171). Finally, internal processes are seen to be more
efficient through the increased use of IT systems (Casu et al., 2006, p.39).
All of these advantages are subject to critical discussion though, as the next paragraph
indicates. The cost issue has been answered by an ongoing discussion about the actual
profitability of internet banking, which may be eliminated by very competitive pricing,
recruitment of IT specialists and other high IT expenditures (Casu et al., 2006, p.36).
European-wide expansion as well as domestic adoption may be hindered by security
concerns, unclear legal rules and responsibilities (FSA, 2000; IMF, 2002; FAZ, 2008),
lack of trust in the internet as a medium or in direct banks without an established
brand name (ECB, 2002; van Tongeren, 2007). Personal contact and branch visit are
also still important for most customers (Mokhtar, 2006, p.90; van Tongeren, 2007),
although online customers are more satisfied with the internet as a distribution
channel (Novametrie,2004, p.8). Note that these studies most likely have a bias due
to the sample of internet users used. Customer loyalty is said to suffer because of
the increased multinational product range available; service and pricing expectations
will rise accordingly (E-Commerce Times, 2007; Pritchard, 2007). Here, direct and
traditional banks with their different characteristics will presumably be affected to
varying degrees.
Deriving from these problems, future challenges for successful implementation of
financial e-commerce have been identified by various researchers and practitioners.
Most of these recommendations and plans regard either the improvement of the
legal framework (ECB, 2002; IMF, 2002; FSA, 2000) or the improvement of actual
delivery platforms. The latter point includes strategic decisions such as merging online
transaction and sales channels but also design and usability issues to create a high-
value multichannel experience and to avoid user problems, e.g. through enhanced web
analytics (Pritchard, 2007; van Tongeren, 2007; Niemeyer, Rill, 2006). Web usability
20
and design deserves special attention as it is very important for eventually selling
the product to the end consumer. In this context, the researcher would like to bring
attention to some exploratory studies on web 2.0 tools such as social communities
and blogs in the banking sector (Heng, 2007; Eastwood, 2007, p.14). This might be an
interesting, future-orientated aspect to analyse.
Most authors agree that financial e-commerce, especially across borders, has high
potential but faces a range of obstacles and is still at a low level (ECB, 2002; Candida,
2000, p.35; van Tongeren, 2007; Eastwood, 2007, p.20). Again, it is necessary to
remember that the degree of services offered at this point in time varies between
countries (Casu et al., 2006, p.32). The role of the customer is another crucial element -
particularly the question of whether bank customers are willing to engage in online sales
activities of high involvement products. Since banks as well as regulators (COM, 2007)
have begun to understand opportunities and problems of the field, a slow advancement
and further implementation of financial e-commerce is expected by the researcher,
if potential negative influence factors (see next section) are directly addressed and
balanced out. However, the impact on financial e-commerce of the recent struggle
of the EU cannot be estimated yet - the downfall of the Icelandic financial markets
with some prime examples for cross-border online product sales (Kaupthing Edge;
Lamdsbanki Icesave, 2008) has shown the sensitivity and vulnerability of the system.
3.6.6 Potential Influence Factors
on Financial E-Commerce in the European Union
This section presents influence factors and variables as found in literature, used in
prior studies and related statistics on online banking and e-commerce, which seem
to be suitable for the statistical and qualitative analysis of financial B2C e-commerce
within the context of this dissertation.
21
First of all, already established models for technology adoption like TAM or classical
innovation models (appendix C 2.2) use mostly qualitative factors from survey results
such as perceived usefulness, ease of use and credibility (Pikkarainen et al., 2004) or
innovation characteristics and related factors (Egea et al., 2007; Mokhtar, 2006, p.26-
50). These models are sometimes expanded using additional factors such as computer
self-efficacy (Amin, 2007; Wang, Wang, Lin, Tang, 2003). A few multi-variable
structural equation models have been used including both quantitative factors such as
demographics and more qualitative survey results (Karjaluoto, Mattila, Pento, 2002).
For the case of this research with its primary focus on quantitative factors, a specific
data set underlying and no possibility for a representative qualitative survey, mostly
quantifiable factors will be selected. Based on available literature, the researcher has
identified five groups of factors: customer characteristics and demographics, financial
sector factors, technical and internet specific factors, marketing factors as well as
external or European factors.
Customer characteristics and demographic factors in their most basic form are
represented by factors such as nationality and geographical location as well as age,
gender or income (Pikkarainen et al., 2004; Nilsson, 2007; Stobbe, 2003) as well as
education and profession (Meyer, 2006; Egea et al., 2007). Furthermore, the term
"e-skills" referring to the internet proficiency and technical learning ability of the
individual was branded by the European Commission, and is seen to be influential for
the adoption of technical innovations. Usage rates, also of connected activities such
as mobile phones, internet searching and online shopping are screened (Karjaluoto
et al., 2002; ; Egea et al., 2007; Meyer, 2006; Eurostat Databases, 2007) and can lead
to the development of customer typologies (Mokhtar, 2006, p.172) and segmentation
models (Harrison, 2000, p.68). These and other studies also take into account loyalty
to the bank as well as ownership of an additional financial product as an influence
on online buying behaviour (Meyer, 2006; Eurostat Databases, 2007). Several cross-
cultural studies in this field have used cultural dimensions such as Hofstede criteria for
22
evaluation (Hasan, 2007; Singer, Baradwaj, Avery, 2007), which may be interesting but
carries risks as the model is relatively old, uses a specific sample and is not intended for
internet research in the first place.
The financial sector and its institutions are logically of great influence for its own
e-commerce market. Clearly, the structure of the sector could be examined here,
regarding number and types of banks present, number of branches and ATMs (ESBG,
2008) as well as number of employees (Eurostat Databases, 2007). The development
stage of the sector regarding payment methods (Suominen, 2001) and types of online
banking (Stobbe, 2003) implemented may be of influence for financial e-commerce.
These issues are also reflected in the overall e-commerce ability of financial enterprises
(EC, 2002), which eventually has an impact on e-commerce adoption. This ability has
also been found to be connected with several internal, organisation-specific structures
(Shah, Khan, Xu, 2005). Firm performance measures like Return on Equity (Niemeyer,
Rill, 2006) or Cost to Income ratio (Candida, 2000, pp.19-33) may be related to online
sales, however other researchers have doubted the overall profitability of online banking
itself (Casu et al., 2006, p.36). It needs to be kept in mind that factors, for example the
volume of consumer credits or housing loans (ESBG, 2008), will most likely vary
between countries.
Technical factors will determine the quality of the application and therefore its potential
adoption. These factors include available electronic connectivity (Li, 2004) including
internet access (Pikkarainen et al., 2004) and its speed, for example broadband (Meyer,
2006). In addition to these factors, security and privacy concerns in connection with
internet transactions are mentioned by many researchers (e.g. in Casalo, 2007; Meyer,
2006; Lallmahamood, 2007). A range of specific journals (e.g. Computer Fraud &
Security, 2008) and text books (e.g. Whitman, 2008) are available. The same applies
for the topic of web design and usability for commercial web sites, and while there are
only a limited number of studies for the banking sector (Niemeyer et al., 2008), many
text books (e.g. Nielsen, 2000) and university courses (e.g. BSc E-Business IT, LSBU,
23
2008) will target this issue. Considering the apparent importance of these factors, a
critical evaluation in the actual dissertation seems implicated.
The researcher would like to mention some other factors which have been regarded
as influential for online banking and may be summarised as marketing factors, for
example product concept and pricing (Harrison, 2000, pp.95-125, 176-196; Meyer,
2006). Social dimensions such as direct personal contact and advice may also be of
influence when deciding for or against online financial purchases (Pikkarainen et al.,
2004; Meyer, 2006; Novametrie, 2004). Online marketing itself, including e-CRM
may be an interesting factor to be tested for correlation with actual financial purchases
(EC EBR, 2006). Some of these factors are rather difficult to quantify, but due to high
relevance for business practitioners (Google Adwords, 2008) an analysis should be
attempted.
Besides these mostly country specific influences there will also be impacts on a European
level which then affect all countries, their banking sector and financial e-commerce
usage to a certain extent. Examples for such matters are the recent introduction of SEPA
(appendix A 1.12) to harmonise transaction practices, the E-Commerce Directive (ECB,
2002; appendix A 1.14) to facilitate cross-country sales and the ongoing development
of e-government, e-learning and e-health supported by the European Union (eEurope
2005, i2010).
While this list of potential influence factors on the adoption of financial B2C e-commerce
in Europe is far from being complete, some important aspects for the proposed analysis
can be singled out. First, important demographical and financial factors can be quantified
for statistical purposes and are included in potential data sources such as Eurostat and
Bloomberg databases. Following this quantitative analysis, several qualitative factors
need to be mentioned to complement a meaningful analysis of the research topic.
24
3.7 Reflective Summary, Key Findings and Relation to Research Topic
The current banking market with its recent struggles has experienced an enormous
development in terms of intensification of competition, rising profitability and
efficiency. Powerful forces of change such as deregulation, integration efforts, IT
advancement and new customer perspectives as well as strategic reactions such as
consolidation, internationalisation and the deconstruction of the value chain have been
at work and will lastly support further developments, also in the area of financial B2C
e-commerce.
Deregulation has redefined the banking sector and initiated severe changes by
encouraging new entrants, higher competition levels and market efficiency. Financial
integration is supposed to bring together European markets, leading to harmonisation,
better allocation of resources and lower consumer prices as well as a larger product
choice. The ideal situation of free trade of financial services across EU borders
seems to be in sight, also based on the new possibilities given by IT and technology
advancement. Online banking, electronic payment and faster ways of communication
between banks and clients enable for direct cross-border sales and transactions.
Consolidation, especially across borders, and internationalisation of companies and
business processes foster the demand for cross-border products.
As banks increasingly lose their traditional intermediation role in the corporate
banking area, they will concentrate on off-balance activities and fee services. In the
retail banking sector, commoditised products, higher deposit interest rates and lower
handling fees have been introduced, also fostered by a range of direct banks entering
the market. Additionally, there has been a remarkable shift in customer expectations,
for example regarding their rising price sensitivity, international preference and
individual decision making. The strategic positioning of the branch is questioned as
new distribution channels, mostly the internet, gain ground. Other issues such as IT,
quality management, legal and compliance regulations mean further expenditures,
25
which are particularly problematic for small and medium-sized banks. Reflecting
on these matters, the dilemma of traditional domestic banks becomes clear with
shrinking margins, increasing competition boosted by specialists, non-banks and
international competitors and more demanding competitors, banks struggle to find
differentiated positions and risk being ,,stuck-in-the-middle" between cost leadership
and specialisation. Direct cross-border sales through the internet and direct banks seem
to be a threat especially to small and medium-sized banks mainly relying on their retail
customer base.
However, while a market entry of foreign banks can be observed throughout Europe,
either over the internet or through local establishment, the degree varies greatly across
Europe and is, at least for the case of cross-border sales over the internet, relatively
low. Whereas the overall e-business capability of the sector is enormous and online
banking in its function as a transaction channel has been on a steady rise, financial B2C
e-commerce has not been adopted widely yet. There are a range of related advantages
such as cost reduction, market expansion, better customer services, diversification
and improvement of internal processes, although there are questions and negative
remarks about profitability, security concerns, lack of trust, missing personal contact
and legal integrity. Since financial integration of the European retail banking market
is comparably low against the wholesale market, the appealing opportunity of direct
cross-border sales has not been exploited fully by European retail banks so far. The
current state as described in literature sees most cross-border sales still made through
local subsidiaries or cooperations and the product portfolio sold online remains fairly
simple and basic. Like the adoption level of online banking, there is a great variance
throughout the EU, with first movers and laggards. Various influence factors which may
be grouped in five categories - demographics and customer characteristics, financial
sector-related, technical, marketing-related and European-wide factors - have been
mentioned. In the centre of the following data analysis will be the examination of the
relevance of these factors for the uptake of financial B2C e-commerce across Europe.
26
Figure 6: Overview Literature Review (Part 1)
Key Findings of Literature Review
1. The banking industry experienced a revolutionary phase in the last decade.
The banking industry is one of the most important economic sectors in the EU.
The current credit crisis is the dominating factor of the moment.
Nevertheless, there has been quite a change in the last years,
with intensifying competition, higher profitability and efficiency.
(see chapter 3.2 Introduction to the Current Financial Sector)
2. Deregulation has been a major accelerator for market harmonisation and liberalisation.
Financial integration has not yet reached its full potential in European retail banking.
Harmonisation of EU banking rules, liberalisation of the financial markets and free
competition without government interference has been fostered by deregulation.
Financial market integration is supposed to equalise domestic and foreign markets,
supporting better allocation of risk and capital, greater depth of markets and lower
prices for consumer due to increased competition.
However, the national retail markets remain rather fragmented, in contrast to
wholesale and interbank markets. Reasons are either natural or policy-induced.
Further market integration is expected, based on several legal instruments in place.
(see appendix C 1.1.1 Deregulation, Integration and the Regulatory Environment)
3. Rapid IT progress has affected many bank-related processes and created several innovations.
For customers, new technology usage has been expressed through innovations such as
online banking. Ongoing intermediation has also been supported by automated channels.
Technology can be considered as an important strategic asset to achieve competitive
advantage and to improve information flow as well as knowledge management.
Risks have been mentioned in literature as high cost, legal and operational risk.
These effects may be more harmful to small and medium-sized banks.
(see appendix C 1.1.2 Advanced Technological Environment...)
4. More demanding customers are a challenge to the competitive environment of today's banks.
Relatively independent and well informed customers now expect high-value services and
are willing to switch their financial services provider more easily than they used to.
Reasons for this development can be found in societal changes of attitude and structure.
Global customers and their international preferences become more important, foreign
products are more and more considered as an alternative to domestic offers.
(see appendix C 1.1.3 Changing Customer Demands...)
5. Consolidation is a major trend in European banking, but not all countries are on the same level.
A phase of restructuring of European financial markets began in the 1990s,
following a similar development that had already taken place in the US.
The reasons for banks cooperating or merging with each other can be found in the strategic
and the operative field. There are differences across Europe in the extent of consolidation and
the number of branches - some countries will experience a strong decline here.
Cross-border consolidation has been limited so far, with positive future expectations.
(see appendix C 1.2.1 Consolidation and M&As)
6. International business becomes more important to banks.
The increase of international business activities requires more international products and
transactions. It is also the case that banks have a higher amount of foreign earnings, a more
international shareholders and multinational competition.
(see appendix C 1.2.2 Internationalisation Tendencies)
27
Figure 6: Overview Literature Review (Part 2)
Key Findings of Literature Review
7. The traditional role of banks as asset intermediaries declines, off-balance sheet activities rise.
As corporate clients select capital market financing options, they will bypass traditional
banks channels and their intermediation margins and on-balance sheet activities revenues
will fall, a shift towards earnings from commission fees / off-balance sheet activities happens.
Disintermediation also takes place in the retail banking area, banks will have to implement
automated services for standard products and make profit with non-interest income services.
(see appendix C 1.2.3 Disintermediation and Convergence...)
8. Breaking up the banking value chain has supported outsourcing and specialisation.
The traditional banking value chain consisting of pre-production, production, distribution,
transaction, has gone through deconstruction and reconfiguration processes.
Rising complexity, international competition and the aim to avoid too small-scaled
operations has led to external outsourcing and insourcing through specialised departments.
Specialised banking types and external service providers are now major players in the industry.
(see appendix C 1.2.4 Deconstruction of the Value Chain)
9. Bancassurance, remote banking channels and employment issues deserve special attention.
Bankassurance (or allfinanz) in its function as cross-selling of insurance and financial products
and as part of the universal bank approach has come to rise in Europe, but as it depends on
individual market structures and attributes, the level varies largely.
The opportunities and challenges of digital banking need to be adressed by modern banks.
An outstanding workforce is a differentiating factor, problems in this field persist.
(see appendix C 1.2.5 Other Strategic Trends)
10.
. European retail banks face a range of strategical challenges for remaining competitive.
There is an intensive price competition, especially for standard products (with direct banks).
Modern retail banking customers are particularly demanding and individual.
Differentiation becomes more and more difficult as standardisation increases.
Larger European retail banks are expected to have a European structure and perspective.
Adaption is required across Europe because customer target group differ in their attitudes.
The strategically efficient position of the branch in relation to new electronic channels of
distribution needs to be discussed. Traditional banks with a branch-centered multichannel
strategy may be "stuck-in-the-middle" between differentiation or cost-leadership.
Competition levels in the European retail banking sector are relatively high, with direct
banks and foreign competition.
(see appendix C 1.3 European Retail Banking)
11. The banking industry shows a very high e-business potential.
The European Commission has confirmed a high e-business ability for the banking sector,
with a wide extent of e-commerce, e-CRM and hig planned expenditure on e-business.
(see chapter 3.6.1 E-Business Potential...)
12. Online banking usage is growing, but the adoption rates in Europe still vary significantly.
Online banking has had a positive development so far and is supposed to grow further.
Adoption rates vary largely across Europe, but can be explained by latitude, GDP and
pre-conditions such as broadband usage or direct deposit prefernces.
(see chapter 3.6.2 Online Banking...)
28
Figure 6: Overview Literature Review (Part 3)
Key Findings of Literature Review
13.
. Financial e-commerce (online product sales) has not reached its full potential yet.
Online selling of the entire bank portfolio for private customers has been implemented
by direct banks, traditional banks still lag behind. Products sold at the moment are rather
simple and standardised, they are basically the next step after online banking transactions.
A positive uptake may be expected due to reasons such as consumers getting more familiar
with the internet, better accessibility and competition with direct banks.
(see chapter 3.6.3 Financial E-Commerce in EU countries)
14. Cross-border financial e-commerce is still at a very low level, but may accelerate.
Direct cross-border sales of financial services without local distribution centres are almost
negligible, but there are several examples such as Kaupthing or ICIC bank selling their
products to customers in other European countries.
The European Commission has acknowledged the slow development of this area and has
taken some actions to improve the surrounding framework. Since the issue is widely
addressed at major conferences of the industry in Europe, it can be assumed that there
is also a high relevance to finance decision makers.
Customers from particular country clusters are more likely to engage in cross-border
financial e-commerce, the indication for a positive development in future is given.
(see chapter 3.6.4 Cross-border Financial E-Commerce)
15. While there is a high potential for cross-border financial e-commerce, hinderances exist.
Theoretical coverage on the matter is limited, but literature on online banking may be
useful for reference. Mentioned advantages include cost reduction, target market expansion,
improved customer services, diversification through cross-selling and rationalisation of
internal processes. Problems are directly related: profitability is doubted, recruitment of
IT specialists may be difficult and there is still uncertainty about legal rules and security.
The lack of personal contact and a general unwillingness to purchase financial high-
involvement products online may work against the topic. Recommendations are mostly
in the field of improved legal frameworks and better delivery platforms, e.g. regarding
design and usability.
(see chapter 3.6.5 Advantages, Problems and Future...)
16. Influence factors can be found in the areas of demographics, financial sector factors, technical
and internet factors, marketing factors as well as external or European factors.
Established models for technology adoption will mostly use qualitative factors from surveys,
as this study builds on an existing data set without personal interviews, different factors
need to be used. Five groups of factors have been identified by the researcher.
(see chapter 3.6.6 Potential Influence Factors)
29
There are some hints in literature for an expected positive uptake (see figure 7 overleaf)
and a high significance to the industry of this matter. At the same time, obstacles like
legal uncertainty and inappropriate implementation on an operational level are noted.
Certain tendencies like the increasing usage of the internet as a distribution channel
and the branch for advisory purposes as well as increasing cross-border sales activities
due to more international customer preferences have been pointed out. The overall
development within the industry encourages direct cross-border sales substantially.
Nevertheless, it is not exactly clear how this development will continue, whether
hindrances can be overcome, how customers will react and to what degree local banks
will be affected. Since the overall situation is complicated and hard to overlook, this
dissertation will focus on influencing factors and try to interpret them, especially in
relation to mid-sized banks, using the example of Sparkasse Langen-Seligenstadt (see
case study in appendix B).
To summarise on findings of this literature review, it can be said that financial B2C
e-commerce seems to be the next logical step in the European retail banking market,
following the ongoing efforts of financial integration, the rise of direct banks and the
internet as a distribution channel as well as changing customer demands. The fact that
financial B2C e-commerce gains more ground on a domestic level and several foreign
banks have entered the market with online product portfolios, traditional banks need
to adapt their strategies to achieve competitiveness in future. The current financial
crisis and its grave effects certainly have to be taken into account and may postpone
the described expectations. Nevertheless, this literature review has provided valuable
arguments regarding the research questions (see figure 8), but as developments cannot
be predicted at this stage, a quantitative analysis of the actual extent and underlying
factors of the subject seems advisable (see next chapters).
For a summary on elements potentially beneficial for a positive development of the
research topic found during the literature review process, see the figure overleaf
assembled by the researcher.
30
Figure 7: Indications for a Positive Development of Financial E-Commerce from Literature Review
Indications for a Positive Development of Financial E-Commerce from Literature Review
1. General prerequisites as indications
1.
As the banking industry is a very important economic sector,
high pressure and interest for further development can be expected.
(refer to Key Findings 1.)
2.
The banking industry seems to be ideal for e-commerce applications,
because it shows extraoridnary e-business ability.
(refer to Key Findings 11.)
2. European developments as indications
1.
Free competition, harmonisation of EU banking rules and liberalisation
have all been supported by deregulation and are important groundworks
for cross-border financial e-commerce.
(refer to Key Findings 2.)
2.
Further integration of the European retail banking markets will draw markets
closer together and therefore support cross-border sales.
(refer to Key Findings 2.)
3. Customer-related indications
1.
Customers now expect an international market portfolio as well as competitive
pricing for standard products - an excellent precondition for financial e-commerce.
(refer to Key Findings 4.)
2.
Additional to new customer demands, competition from direct banks has also
challenged traditional banks and their drawn attention to automated sales
channels, serving as a first step towards cross-border financial e-commerce.
(refer to Key Findings 10.)
4. Internationalisation-related indications
1.
Consolidation may create multinational banks and can therefore support cross-
border online sales. Some banks will also widen their strategic scope as domestic
markets become more consolidated with few banks dominating the markets.
(refer to Key Findings 5.)
2.
The modern retail banking sector tends to become more European in its
product offerings, possibly featuring cross-border online sales.
(refer to Key Findings 10.)
3.
The trend for internationalisation will foster financial e-commerce across
borders, as it overcomes physical distance, reduces cost of delivery and
enhances speed.
(refer to Key Findings 6.)
5. IT-related factors
1.
IT advancement has enabled customers to manage their finances on their
own through automated channels, theoretically also across borders.
(refer to Key Findings 3.)
2.
The break up of the traditional value chain has created specialists, which are able
to offer superior IT services and platforms suitable for financial e-commerce,
also to smaller banks.
(refer to Key Findings 8.)
3.
Online banking as a prior development stage to financial e-commerce is widely
adapted and still growing. Once online banking is fully established in additional
countries and laggard clusters, further progress for financial e-commerce is expected.
(refer to key Findings 12.)
31
Figure 8: Relevance and Indications of Literature Review for Research Questions
Relevance and Indications of Literature Review for Research Questions
1. What are the differences in the level of adaption of financial e-commerce in Europe?
online banking as the basis for financial e-commerce shows great variety
numbers of customers planning to open a foreign bank account varies greatly
attitude of customers towards money and financial products varies
structure of the market and banks are different in every country
financial integration has not been implemented fully yet
2. Which key influences are there?
key influences are most likely from the areas of demographics,
financial sector related ones, technical issues, marketing and EU or external factors
certain factors will affect all financial institutions on a European level
local banks may face foreign competition, e.g. direct banks from other EU countries
3. Are there country clusters and best-practices showing similarities?
Scandinavian countries show a high level of online banking adoption and citizens are
more willing to purchase financial products online, however, this is all subject of
examination for the following data analysis - there may also be correlation with the
number of branches and profitability in the country
4. What are the impacts and actions to be taken for mid-sized local banks across Europe?
there are several hints that especially small and mid-sized banks in Europe will have
problems to remain competitive in the modern banking environment in Europe,
mainly due to high IT expenditures, lack of economies of scope and scale
litrature indicates the need for differentiation and the emphasis on advisory services,
which cannot be offered by foreign competitors without local branch presence
5 [...] can Sparkasse Langen-Seligenstadt benefit from theoretical recommendations?
to be evaluated at a later point of this research
32
4
Research Methodology
4.1 Research Design
Providing the framework for collection and analysis of data, the research design of
the planned study can be best described as a cross-sectional design with comparative,
cross-cultural and international research elements (Bryman, Bell, 2007, pp.55-59,
66-70).
Quantitative or quantifiable data (extent and potential influence factors of B2C
e-commerce in the banking sector) is gathered for a range of cases (EU countries) at
a single point in time to detect patterns of association. This approach seems suitable
as it allows for a systematic and standardised method to examine relationships
between the variables - financial e-commerce and its key influence factors - within the
European sample. However, since the proposed design approach has no elements of
an experimental design, problems of internal validity, credibility and uncertain causal
relationships may occur.
As already indicated in the research objectives, another research design in the form
of a case study will additionally be used to apply conclusions and recommendations
derived from the analysis to an exemplary mid-sized bank in Germany. The case study
approach seems particularly interesting as the researcher is working for the examined
company, will have access to internal resources and have opportunities to gather instant
feedback on suggested improvements (Bryman, Bell, 2007, p.62).
4.2 Research Strategy
The research strategy chosen reflects the nature of the examined variables some
examined influence factors will be of quantitative character whereas others are rather
33
difficult to quantify. Since the focus of this dissertation lies on the quantitative analysis
of the extent and current state as well as on measurable relationships and possible
dependencies between e-commerce adoption and several other factors, quantitative
research serves as an appropriate research strategy. Having established this fact, it is
equally important to realise that a well-balanced and complete appraisal of financial
B2B e-commerce will involve qualitative factors and business case examples. Building
on the complementarity of both groups of factors (Hammersley in Bryman, Bell, 2007,
p.645), elements of mixed methods research need to be taken into account as well.
4.3 Research Methods
The research methods used are directly linked to the stated aims and objectives and
are supposed to help achieve them in the most effective and meaningful manner.
Almost all research objectives can be analysed with quantitative data analysis building
on a relevant data set. However, due to the expected nature of the influence factors
examined, qualitative document analysis of secondary research and an exemplary case
study based on primary research will supplement the quantitative analysis.
The reasons for choosing these research methods can be described as follows: first
of all, the availability of current official statistics on this topic (see secondary data
4.4.2). Secondly, studies already conducted in the similar field of online banking
(Meyer, 2006; Shah et al., 2005) with informative results and the connection with a
company for a case study (see primary data) were seen as an excellent starting point.
A number of reasons would even exclude other research methods such as surveys,
interviewing techniques or the triangulation approach (Bryman, Bell, 2007, p.646),
which is commonly used for researching internet adoption (e.g. Sattabusaya, 2007). The
European scope of the research as well as the highly confidential banking sector would
not enable the researcher to conduct a survey research or interviews of representative
nature (Bryman, Bell, 2007, p.423, p.497).
Ende der Leseprobe aus 229 Seiten
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- , 2008, European B2C E-Commerce in the Banking Sector, Hamburg, Bedey Media GmbH, https://www.diplom.de/document/227742
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