Socioeconomic Challenges of Electronic Banking Practices in Bangladesh

In Bangladesh, banking industry is mature now to a great extent than earlier period. Electronic banking is one of the most demanded and latest technologies in banking sector. Despite huge demand from the business community as well as the retail customers particularly the urban customers, online banking in Bangladesh is still at a budding state due mainly to a number of constraints such as inadequacy of reliable and secure information infrastructure especially telecommunication infrastructure; sluggish ICT penetration in banking sector, insufficient legal and regulatory support and so on. In Bangladesh, telephone connectivity is inadequate, cost of personal computers are still beyond purchasing capacity of most people, Internet connection is costly, and IT literacy is yet to reach satisfactory level are prime drawbacks. Despite the constraints, efforts by the Bangladesh Bank in modernizing the country's payment system and commitment by the government in building ‘Digital Bangladesh’ have brought competition among the scheduled banks to improve banking services and rapidly adopt online banking on a wider scale.

The major Socioeconomic Challenges are discussed here in a qualitative manner:

Access to the Internet

Although the growth of the Internet has been very fast, there is still a large population not connected to the Internet. Lack of computer literacy, high cost of hardware and call charges and various other social and economic factors are some of the reasons cited for this. This is changing fast as more and more people connect to the Internet, and numbers are expected to grow even faster with the maturity of mobile communications. However, this is still more of a problem in some developing countries, where the telecommunications infrastructure is less developed.

Consumer Behavior

A large number of consumers of financial services are still reluctant to conduct their financial management online. A study of consumer habits in 10 countries found that two-thirds of consumers do not consider online services important and that almost 30 percent do not know whether their bank offers Web-based services. Changing consumer behavior takes many years, as was the case with the 10-year adoption cycle of the ATM. This process can be accelerated with aggressive marketing and high value-added features, two things that are lacking in today’s online banking market. This can also be true for some businesses, which may be even slower than consumers in adopting new technologies. Factors such as security, perceived difficulties of use, perceived usefulness, functionality and lack of promotion (such as availability of cheaper products on new channels) are most commonly cited factors which are hindering the widespread adoption of new technologies.

Language and Culture Issues

These play a major role in global e-Commerce. Although English is accepted as the primary language of the Internet worldwide, in some cases a website has to be designed specifically to suit the market that it is trying to reach. The main problems associated with this are speed and cost. It takes a human translator up to a week to translate a small website into just one language. Financial services related websites are usually very large and consume large resources in the translation process. The problem does not end with the translation of a website; it also need be adapted to the local culture to attract visitors. Banks around the world would do well to learn from Swiss banks, which successfully offer their services in several different languages.

Adverse Industry Trends

The financial services industry worldwide is in the middle of dealing with a number of significant developments, which usually means that e-banking is low on their priority list. These developments include the recent ‘credit crunch’, conversion to the Euro, and various mergers. These require sizeable resources to deal with resulting costs and to upgrade and integrate various systems, distracting the attention from e-banking development and advancements.

Fear of Competition

Some banks have been hesitant to promote e-banking systems, fearing that their costs will become too high and that it will be difficult for them to match the prices of competing Internet only banks. These fears have proven to be significant in most developed markets. Companies should focus on other means such as product differentiation to protect themselves from excessive competition. Traditional banks could also use their well established brand names and product development expertise to manage competition from new entrants.

Security Issues

Internet security is still one of the major issues hindering the growth of Internet related trade. Since the Internet is an open network, high security risks are involved with financial transactions. Internet fraud is common, and related stories get immediate media attention, making people hesitant to bank online. Different security methods (including hardware and software) are being tested and employed currently but there is still some way to go to win the trust of a large majority of customers.

Project Management

Project management is a vital part of an e-Commerce implementation strategy, and lack of project management skills with some banks is considered to be a major barrier to the implementation of e-banking. E-commerce projects must be carefully planned and executed. There are some factors which relate specifically to software projects but can be applied to e-Commerce projects. The important skills needed for a software systems implementation are team building and communication skills, which she refers to as ‘soft skills’. Projects need to be business driven with a cross-functional project team, and a rapid decision making process to help ensure that the project does not fall behind schedule.

Availability of Resources

For some banks, lack of financial and human resources will be a problem because offering the sophisticated Internet based services is an expensive project requiring major changes in IT infrastructure. Similarly, the primary deterrents for businesses establishing a Web presence is startup costs and the costs associated with major organizational changes required for such moves. Strategic partnerships could combine to develop e-banking related systems. However, finding suitable partners in very competitive environments may prove difficult.

Return on Investment

E-banking should be considered more as a business project rather than a technological initiative. In this context, cost benefit analysis may be very useful. Offering e-banking is expensive because of initial technological, human and marketing costs. A detailed investment appraisal may save a company from costly mistakes. Internet banking should be considered in terms of how it can achieve business objectives. Moreover, a number of studies may be needed to find out:

·         To what extent will business strategy be affected?

·         To what degree this transformation of business strategy will impact the competitive advantage of the company?

·         How the enterprise strategy is changing against the competitors?

·         What will be the Return on Investment (ROI)?

Lack of Promotion of E-Banking within Banks

As the Internet is a relatively new delivery channel, customers need a great deal of persuasion to switch to this new channel. Incentives, such as higher interest rates on savings or low cost services (for example insurance) are often used for this purpose. This can be costly and success uncertain, with any decision regarding backed up by concrete marketing information. Promotion of e-banking to employees is also important. Change resulting from e-Commerce implementation affects many people in organizations. Uncertainties resulting from changes are usually addressed by getting as many employees involved as possible at all stages of a project life cycle. This may lengthen the project duration but the benefit can be immense. It is also important to keep communication going and keep all stakeholders, including users, informed of the progress for the entire duration of the project. Some organizations such as the Woolwich also use incentives such as free WAP phones and bonuses for e-banking promotion within organization.

Social Issues

E-banking literature is dominated by technical issues and human issues get little attention. We have argued that human activity is more fundamental to the success of e-banking, so the investigations of approaches underpinned by theories of social interaction are outlined in this book. From research in the social domain, a foundation in critical social theory emerges as a promising direction. Within such an approach, the first issue to be addressed is that of understanding the problem context. For this, critical social theory points to the use of critical systems heuristics and critical boundary judgments to critique and determine the system boundary. Boundary critique further informs intervention strategy. The methods required must embrace functionalist (technological), interpretivist (human-centered), and radical humanist (emancipatory, participatory, ‘social inclusion’) issues. In any future work, the ongoing research in the application of critical theory to management issues must be considered, and a brief outline of this is provided. Given these findings, how might a manager seek to action them? He or she should:

·         Determine the initial scope of the system of concern, identify the social group(s) involved in and affected by that system and form representative samples from these groups. In terms of management action, the challenge here is not to see e-banking development and management as a problem to be solved by an expert group of developers. A framework (for example, of user groups) needs to be established, from which the contribution from those participating in web usage can be drawn. Managers should also:

·         Conduct boundary critique to initially determine the system of concern and continue this throughout the project.

·         Use participative forums to discuss all issues of web design, development and implementation.

·         Choose and implement the relevant methodological approaches in a critical framework.

Initially, formal boundary setting sessions will be needed to set the scene. Quite quickly, groups will form their own clear views about the scope of e-banking developments within a particular organizational context (it will become ‘culturally’ ingrained), and less time will be necessary in formal sessions to discuss this. The particular forums can then be used to surface the issues, the only primary requirement in terms of expertise will be a facilitator who can assist with guidance on the process and lead the forum.

We argue that e-banking management is a task to be conducted within a social framework. A purely technical approach or even a technical approach, even where informed from participative analysis, is insufficient to address the complexity of the problem contexts encountered. It is essential to recognize that what is being dealt with is a social system, albeit enabled by technology, and, this being so, it is difficult to envisage how such an undertaking could be informed from anywhere other than social theory.

Ethical Issues

Consideration of the ethics of e-banking have mainly focused on areas relating to the use/abuse of information collected through analyzing online customer behavior.

In this context the main issues may include security/privacy of information about individuals, accuracy of information, ownership of information and intellectual property, accessibility of information held and what uses of this information are ethically acceptable. These relate to: freedom of choice; transparency; facilitating fraud (ethical/illegal activities of others).

One of the main benefits of e-banking is that organizations can improve service and potentially generate more profits for shareholders and job security for employees.

On the other hand, job losses are one of the methods of cutting costs and this has numerous negative implications for those affected. The displacement of job opportunities away from face-to-face and back-office service roles to information system professionals is a common feature of the electronic commerce revolution. How banks deal with this issue often raises ethical issues which may be mitigated by a careful and considerate approach to change management.

In business to business banking, access to sophisticated e-banking often comes hand in hand with the need for ‘plumbing in’ of software and hardware, which means that business customers are locked into one bank’s facilities. This is a form of restriction of free choice. The main ethical issue here is that the business customer should be aware that a particular choice could mean that there are significant implications for future freedom of choice.

Fraudulent activity by individuals and businesses is both illegal and unethical but what about the facilitating of fraudulent activity? How much responsibility do banks have to prevent their services being used to aid unethical or illegal activities such as money laundering or depositing money made through corruption? The Swiss banking system of confidentiality has always been condemned in this regard, but many banks in other countries have been found wanting in connection with these activities.

Taking personal relationships out of responses to credit applications has the effect of dehumanizing the process. A client’s relationship with a bank or a manager may have developed over years of loyal customer commitment. Reducing this to boxes ticked and computer-generated numbers/models would, according to an ethic of care, result in the loss of the development of individual relationships, the human touch and the use of intuition. Such aspects may be viewed as necessary to the new electronic economy, but human networks are just as important a part of business practice as the efficiencies associated with e-banking.

Electronic commerce also allows for the concealment of the real identity of suppliers of a product or service. This white labeling (products sold without clearly labeling the source/supplier) may offer extraordinarily misleading information about the source. This and many other ethical issues remain to be address to date and progress seems to be slow.

Small banks also have to overcome impediments related to investment, technical skills, ethical issues and understanding of organizational issues involved. All these obstacles need to be identified, and then minimized through active learning and collaboration with customers, management, and people within organization as a whole.

Outsourcing Problems

Development or implementation of e-banking systems and other technical tasks such as upgrading and integrating existing legacy systems are very complex. They require very high levels of technical and project management competence to carry out without outside help. Even the best companies need to recognize the limitations of their expertise and when to outsource certain e-Commerce functions.

Many banks outsource all or part of e-banking related operations owing to a lack of in-house expertise or simply to cut costs. Some aspects of outsourcing, for example the type and number of partners, can present particular management challenges.

Outsourcing works in some cases but can create a risk of the bank losing control of its critical functions. For this reason, if a bank needs to outsource its e-banking operations, it should do so with due consideration to outsourcing risks. General good practice in planning, negotiating and actual outsourcing is applicable here.

Organizational Structures and Resistance

The introduction of e-banking can generate conflicts and morale problems as changes required succeeding in e-banking may have profound effects on the way an organization is structured. Confusions resulting from fast paced changes can also have negative effects on customers and suppliers. For example, middle management is common in many significant change projects. He stated that this type of resistance to change constitutes a major barrier to the success of change projects in the banking industry. A major source of conflict is over the best ways in which to move into the future. Many people will have different views about future directions and may resist when their opinion is not valued.

Change management projects have very poor success rates. Organizational change is a dynamic process encompassing different but interrelated forms of diversity. This diversity might be related to several dimensions such as organizational structure and culture, or the interactions between different dimensions of an organization.

Causes of failures can often be found in inefficient interactions of technical and human activities, the organization with its environment, or organizational design and management style. Lack of systematic change management methodologies or problems in their implementation is another commonly cited problem. Most of the change management methodologies focus on four common dimensions of an organization (process, design, culture and politics).

Process change may involve changing services development process (from market research to actual roll out) cash flow (from investments to profits), human resource input, and information flow. Structural change involves changes to organizational functions, their organization, co-ordination and control, such as changes in horizontal and vertical structures; in the decision systems or policy and resource allocation mechanisms; and in the processes used for recruitment, appraisal, compensation and career development. Culture encompasses such issues as values, beliefs and human behavior in terms of mutual relationships and social norms. Politics may involve the power of change makers or those who resist it, which stakeholders will be effected and why etc.

The above categorization is useful in understanding not only of the diversity in organizational change, but also of interaction between these dimensions. The four types of organizational change are interconnected through a dynamic process so a change in any one dimension will result in changes in others. Therefore an initiative to carry out changes to one or two area in isolation is likely to fail.

Cao et al. (1999) suggested a generic critical model with four interrelated types of organizational change:

·         Process change: Change in flows and controls over flows. Typical approaches may include Total Quality Management (TQM) and Business Process Reengineering (BPR).

·         Structural change: Change in functions, their organization, co-ordination and control. Typical approaches include contingency theory, transaction cost economics, and the configuration approach. These are reported in literature to improve the efficiency and effectiveness of the more tangible sides of an organization, but are impoverished in dealing human centered issues.

Cultural change: Change in values, beliefs, and human behaviour in terms of relationship to social rules and practices. Two of the main cultural approaches are unitary culture, and cultural diversity management. These approaches force attention to the human side of organizations.

Political change: Change in power distribution and the way organizational issues are influenced. These can be associated with the political models of organization developed by Pugh (1978), Mintzberg (1998), Morgan (1997), Pfeffer (1992 & 1994), and Pettigrew (1985). In these models focus is on power, domination, political bargaining and negotiation processes.

A holistic view of the four types of organizational change is based on this classification. The four-dimensional view of organizational change implies that managing organizational change needs diversity in approaches. Each of the four types of organizational change is the source of a particular type of problem so it needs four categories of change management approaches to deal with different types of organizational change. These approaches might be needed simultaneously, or at different stages of the overall change process.

Each of the change management approach is primarily focused on a specific type of organizational change. Therefore these approaches lack the power to deal with situations where more than one type of organizational change is required. Since different types of organizational change are interrelated, they need to be managed together through a holistic approach. This requires that multiple methods and/or methodologies are applied to a single change context. Whichever change approach or approaches are being followed, there is the need to critically evaluate whether the change is being implemented effectively. Systems thinking which is covered in other chapters of this book in greater details, therefore has a clear relevance to an holistic change management. It better enables a holistic approach to organizational problem contexts, which it sees as interdependent sub systems within the larger organizational system.

One such holistic approach called Management of Change (MOC) is suggested by Cao et al. (1999) which relate the four types of organizational change to the three different systemic approaches: Hard Systems Thinking (HST), Soft Systems Thinking (SST) and Critical Systems Thinking (CST). The objective is to help practitioners to analyze and address diversity in organizational change systemically and critically. The key idea of the MOC framework is to help manage the diversity and interactions in organizational change and the change management methods. The framework is explicitly based on CST, and is intended to help through a critical process, determine the organizational change context and scope, participative related to change management. The power of this approach lies in its ability to relate different change management methods to each other through a systemic framework. The framework represents something deeper than just the use of different methods to address (say) a mixed process/cultural context, but actually enables the managers applying it to see a single context differently. For example, if a change management problem is process specific, HST can provide general principles for the effective and efficient design of organizational processes, focusing, most likely, on approaches such as BPR and TQM. But what if there are different views about implementing this change process? In this case, SST can be utilized to help gain better understanding of these views. Further, if there are disagreements where one view is dominating over others, CST may help reveal who will benefit from or be disadvantaged by the implementation of change (Cao et al., 1999).

Similarly with structural change, there is rarely a consensus on the design of vertical and horizontal organizational structures, decision systems, and human resource systems, and SST can be used to help understand the values and beliefs underlying the change decisions, whilst CST can help uncover political issues of power and conflict.

Cultural change is particularly complex. Whilst HST might be useful to help develop a unitary or strong organizational culture, such approaches must be used with care. It is all too easy to assume a consensus where in truth there is strict control over expression of views. SST (perhaps applying cultural diversity management) is more likely to be of value in such circumstances, receptive environment for diverse ideas, values and beliefs, and thereby helping develop ideas to rich organization.

Where disagreements are found, with one view is dominating, CST might help at least to understand, and at best to neutralize the dominant culture. This framework can be applied in practice to help develop a holistic view of the change context. What types of organizational changes are needed? What are the possible interactions between them? Is it possible that the one organizational change may results in other types of changes? This type of questioning aims to help develop a better understanding of the change situation.

Availability of too much information or advice can also be problem as stated here:

Managers end up immersing themselves in an alphabet soup of initiatives. They lose focus and become obsessed by all the advice available in print and on-line about why organizations should change, what they should try to achieve, and how they should do it. This proliferation of recommendations often leads to confused approach and mixed results when change is attempted (Beer & Nohria, 2000).

To manage these issues, a detailed change management strategy and plan is often required to facilitate the adoption process. This plan is likely to include detailed evaluation of which part of the organization and which employees are likely to be affected. A great deal of care will be needed in actual execution of change to minimize disruptions.

Other Challenges

·         Lack of proper integration of related systems

·         Culture of achieving only short-term targets

·         Non web-enabled business processes

·         Lack of understanding and knowledge, within the organization, about ecommerce

·         Lack of product differentiation and categorization

·         Lack of understanding customer community

·         Difficulties in personalization of products

·         Limited research and development

·         Lack of e-commerce promotion within the organization

·         Lack of understanding that the e-banking initiative is a business critical area and not just a technical issue.

Conclusion

E-banking started in the form of PC banking in the early 1990s, through which a user could use a PC and dial up modem to login to their bank’s system without connecting to the Internet. Owing to various reasons such as lack of functionality, call costs and so on, this approach didn’t quite gain wide acceptance. With the arrival of the Internet, interest in e-banking re-emerged and many banks started offering e-banking in the late 1990s. During the last decade or so, new players such as Internet only banks as well as other organizations such as supermarkets or clothing retailers have also started offering e-banking. While large banks still hold the major market share, these new arrivals are winning noticeable market share.

The importance of services distribution channels is also changing at a rapid pace. In the past the main source of retail banking services distribution was ‘bricks and mortar’ branches. With the arrival of other channels such as telephone banking and e-banking, the number of branches is steadily declining, a trend also fuelled by mergers and takeovers. Now, most banks choose to deliver their products and services through multiple channels, including the Internet and telephone.

Often the main goal of e-banking is to provide most, if not all, of the services offered at a branch. This may include transactions as well as information, advice, administration, and even cross-selling. However, the interactive nature of the Internet not only allows banks to enhance these core services, but also enables banks to communicate more effectively and enrich customers relationships. When combined with the improving analytical capabilities of data mining, customers’ relationships management and other related technologies, the potential for enriching the relationship with customers is huge.

In the context of e-banking, many challenges lie ahead in the banking sector. First of all banks need to satisfy customers’ needs that are complex and difficult to manage. Second, they need to face up to increased competition from within the sector and from new entrants coming into the market. Third, they must continually invest in new products and services in the light of the changes described above.

Central to meeting these challenges is the development of strategies to exploit existing markets and explore new ones using new delivery channels such as the Internet or mobile banking. However these new delivery channels bring their own sets of organizational and external challenges, which need to be managed in order to achieve success.