Academic journal article ABA Banking Journal

Get Ready for Electronic Commerce

Academic journal article ABA Banking Journal

Get Ready for Electronic Commerce

Article excerpt

The term virtual bank means many things, including point of sale devices and automated teller machines; on-line services such as Prodigy, Compuserve, and America Online; customer service and home banking over telephones and PCs; electronic data interchange and electronic funds transfer; smart cards; and the Internet.

Particularly exciting is the recent explosive growth of computer networking and the increasing popularity of the Internet. At last count the number of users on the Internet was some 30-40 million individuals, international in scope and increasingly more diverse.

Further, the emergence of the prepaid card promises to herald an era of electronic cash, where every telephone and home PC could be a full-service ATM, dispensing electronic cash and taking electronic deposits. And the financial services industry is a key player in this growth and commercialization, because, among other things, our services (such as secure, trusted, and reliable bill payment and credit) are essential for the further success of the growth of electronic commerce over the information infrastructure. But, just what is electronic commerce and why is it so important?

Paperless pluses

Electronic commerce is the ability to perform transactions involving the exchange of goods or services between two or more parties using electronic tools and techniques. It offers many advantages over traditional, paper-based commerce, for example:

* It provides the customer with more choices.

* It decreases the time and cost of customers finding products and services and companies finding customers.

* It expands the marketplace from local and regional markets to national and international markets with minimal capital outlay.

* It reduces the time between the outlay of capital and receipt of products and services.

* It permits just-in-time production and payments.

* It allows businesses to reduce overhead and inventory through increased automation and reduced processing times.

* It decreases the high costs of creating, processing, distributing, storing, and retrieving paper-based information.

* It provides the ability to produce a reliable database of design, marketing, sales, and payment information; and enables increased customer responsiveness.

Several factors have recently lifted electronic commerce to a new level of utility and viability. The factors include the availability of communications with increased bandwidth; the reduced cost and increased user-friendliness of computers and communications; growth of the Internet and on-line services; and intense global competition.

Currently, on-line purchases account for only 4% of total global purchases. On-line purchases via such precursors as the Internet are practically nonexistent. But electronic commerce is likely to grow dramatically over this decade. It is predicted that within six years, global shoppers will use the information infrastructure to purchase $500 billion of goods and services. This represents almost 8% of current purchases worldwide.

Needed: flexible standards

In recent years, great strides have been made to automate many of the labor-intensive paper-based aspects of commerce. Examples include electronic data interchange and electronic mail.

Unfortunately, despite the widespread use of numerous methods of electronic support, electronic commerce is still not the most common method of effecting business transactions. There are several reasons why this is so. For one thing, most business transactions still require the physical exchange of paper documents and instruments, with the inherent costs and delays this represents. For another, current electronic commerce approaches all have their shortcomings and are not sufficiently well-integrated, secure, open, or easy to use.

Many new systems and service initiatives have been announced that address one or more of these current deficiencies to varying degrees. …

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