Introduction
Electronic banking or e-banking service is identified to be a time-efficient service because it empowers the customers to perform banking operations through technological equipment, such as computers and mobile phones through any part of the world (Miranda-Petronella 1093). Since this is one of the emerging services over the past years in the financial service sector, such type of financial services delivers a significant impact on the economic growth and development of a country. An increase in financial services has proven to create vast opportunities for the countries to attain economic growth opportunities due to an increase in consumer spending. While it provides economic opportunities, it also limits some of the countries that fall behind in terms of several aspects such as inflexible rules and regulations and poor infrastructure. Similarly, countries that are ahead in such types of economic aspects are bound to exercise a positive impact on their economy (Sutton and Jenkins 6). Based on this context, this report aims to explore and demonstrate an in-depth understanding while highlighting the impact of electronic banking services on the US economy when viewing from a long-term perspective. It also sets out a brief background on the technology associated with such services and different arguments on the focused topic.
Background on Technology
Technology is the core element of the electronic banking service because the customers can only access and performs banking operations through the use of technological devices (by being online). The technological advancements in recent years have improved along with improvement in the customer service experience quality at the same time. Some of the emerging financial service features for the banks and customers are identified to be automatic bill payment (ABP) service and computer banking (CB). Technological advancements can also be considered as one of the major factors responsible for contributing to the economic growth and development of the US. However, there are also emerging problems faced by the financial sector on adopting the technology for performing the financial operation. Some of the concerns can be highlighted as the privacy as well as poor security issue faced by the customers in the US when performing banking operations. In the context of technological equipment used in the financial service sector, the customers intend to adopt perform banking operations as per the compatibility, trialability, observability, simplicity, and benefitting features of the technological services. So, the advancement of technology in the financial sector that provides such features to the customers is also expected to deliver a positive impact on the US economic growth and development (Kolodinsky, Jeanne and Marianne 238).
However, in the regularly changing market environment, i.e. financial service sector, lack of innovation or poor technology-based service can deliver a negative impact on the US economy as the consumers would not want to make use of it (Kolodinsky, Jeanne and Marianne 241). Although information technology (IT) has been evolving, it has also been bringing significant changes in the regulatory, as well as the supervisory landscape of the US economic system. Considerably, “more than most other industries, financial institutions rely on gathering, processing, analyzing, and providing information in order to meet the needs of customers. Given the importance of information in banking, it is not surprising that banks were among the earliest adopters of automated information processing technology” (Cornelia and Chiþiga 1659).
Literature Review
Since the banking or financial service sector in the US provides a major contribution to the economic growth and development of the company, Salamah (2017) stated that e-banking services have also kept continuing to evolve and play a similar role in the past years. The intense competition in the financial service sector has compelled the majority of the banking institutions to shift towards using automated services. E-banking services allow banks to facilitate growth and attain competency in terms of holding business transactions. It has attracted a vast number of customers because of its advanced and convenient service features. The increase in the number of financial transactions by the customers through e-banking service has also increased the rate of operations held by the banks. On conducting an interview-based survey on the bank clients to assess the impact of e-banking services on the national economy, the majority of the responses highlighted that e-banking services have to deliver a positive impact on the economy (111). However, Rana and Pandey (2015) argued that while there are diverse benefits of e-banking services, some of the emerging challenges could deliver a negative impact on the national economy when viewed from a long-term perspective. Some of these challenges have been highlighted as limitations set on the customers and banking institutions for transferring a certain limited amount and competitive structure of profit of the banks. The existence of these types of challenges could result in a decline in customers. Thus, the contribution from the banking service sector would also decline accordingly (4).
According to Salehi and Alipour (2010), it needs to be noted that “now a day’s due to emerging global economy, e-commerce and e-business have increasingly become a necessary component of business strategy and a strong catalyst for economic development”. The technological advancements in the financial service sector have also been considered as a crucial factor for the economic growth and development of the national economy in the future. The rapid advancement of IT is also expected to intensify the competition among the banking institutions and this would further compel them to seek newer solutions and to construct effective strategies for the attainment of competitiveness in the financial service sector as well as for attracting large number of customers. On this note, Khan et al, (2017) opined that the increasing popularity of e-banking services, such as online payment and the internet facility has helped business organizations and larger corporations achieve success by effectively engaging in conducting e-commerce operations. Payments through money in the modern economy are being replaced by cashless payments at the moment. While cashless payment provides a wide range of facilities to the customers and banks, e-banking services in the future are expected to be more proficient, as well as a viable payment system for the banks and customers across the US. This will enhance the budgetary strength and overall financial operations conducted by the banks and customers in the future. Thus, the contribution from the financial service sector will deliver a positive impact on the national economy (262).
Alongside, Zandi, Singh, and Irving (2013) reported that an increase in the adoption of e-banking services, such as electronic or online payment systems by the US economy resulted in significant growth in the GDP from 2008 to 2012. The evidence reflected an increase in the availability of jobs by almost 1.9 million and an increase in contribution to the US economy from the electronic payment services by 0.8% in the emerging markets and 0.3% from the developed markets. The overall amount of contribution in the GDP of the global economy during this period was reported to reach about $983 billion. This positive impact on the national economy was measured due to the increase in the usage of cards for making online payments. Thus, from a long-term perspective, an increase in the use of the card for making an online payment in the future by 1% by the customers will result in an increase in contribution to the GDP of the country from the financial service sector by 0.032%. In this context, Havasi, Fattaneh, and Rexa (2013) further argued by pointing out major challenges of e-banking services that could deliver a negative impact on the US economy in the future. Considerably, “in spite of the gross benefit received from e-banking, other factors have been hindering it from functioning as it should. Some of these factors include problems of security. The security and privacy aspects are major issue in case of e-banking transaction. Various sites are not properly locked, to ensure whether customer’s money is safe in the cyber world or not especially in these times of cyber fraud” (43). Besides, for newer business organizations and banking institutions, it will be challenging due to the requirement of higher investment for incorporating e-banking services in the future (43).
Nazaritehrani and Mashali (2020) further claimed that across all the economies in the world, competition among the banking institutions is an important factor for establishing the success of the banking or financial service industry. Similarly, sufficient market share ownership in an economy is also a key aspect for attaining competitiveness in terms of profitability and growth. So, in the future, the adoption of advanced technology will not only enable the banking institutions to achieve higher profit and higher market share ownership but will also enable them to attain a competitive advantage at the same time. The innovative market channels will also enable the banking institutions to specialize in enhancing their customer services. Accordingly, the contribution from the banking sector to the nation’s GDP value would increase. From a long-term perspective, it denotes a positive impact of e-banking services on the economy (3). On this statement, George (2017) argued by stating that in the future, challenges and issues are expected to be faced by the banking or financial service sector. This is mainly because the majority of the US banks are considered to be community banks and they are smaller in size. They only provide banking services to the customers for household and business purposes. The larger banks operating in the country provide services to larger business organizations that operate at national and international markets. Since the US has a dynamic economy, rapid technological advancements could disrupt banking operations due to the lack of ability of smaller banks to provide specialized banking services, i.e. e-banking services (para. 3).
George (2017) also highlighted that attaining efficiency and enhancing the profitability of the US banks would become a problem because the technological advancement in the banking sector would demand alteration of the business models that are being used by the banking institutions at the moment. Apart from it, the regulatory compliance issues faced by the US banks at the moment also represent sufficient evidence about the threat that will also be exercised by the US banks in the future. The enforcement of newer rules and regulations would affect the US bank’s profitability, productivity, and contribution from the banking sector to the US economy. Due to this, the US economy could experience a negative trend (para. 20). Even Carletti (2020) stated that in the coming years, the evolution of the banking sector would result in a transformation in the regulatory frameworks, as well as the business models of the banks operating in the national economy. Banks operating in the US and Europe will also face strict rules along with liquidity regulation. Also, the banking institutions of the US have significantly increased their level of capital investments. In this context, it can be stated that the “banks with more capital have lower funding costs and tend to provide more credit. Nonetheless, this may not hold in the short run if banks are forced to comply with stricter capital regulation”. Thus, when viewing from a long-term perspective, banks may be able to comply with the new regulatory framework and further ensure higher contribution to the economic development and growth in the future (4).
Khan (2017) also mentioned that even though there are issues, there are benefits of e-banking services as well that could be enjoyed by the banking sector or financial service sector. It allows the banks and business organizations to perform business transactions primarily by using technological equipment, such as computers or mobile phones. The convenience of this banking service is the key factor that keeps attracting customers across national and international borders. So, rapid innovation in the future might create problems for the banking sector but by looking at the long-term picture of the economy, e-banking services will fundamentally bring vast opportunities in the banking sector to deliver performance at the international level. Along with newer effective banking models and enhance e-banking services, contribution to the national economy would increase even after the disruptions of e-banking service operations and its quality during the short-run (6). Geetha and Malarvizhi (2017) stated that even if e-banking services deliver a negative impact on the national economy from a long-term perspective, the banking sector must undergo technological advancements and adopt newer banking models, rules and regulations, and provide enhance e-banking services to the customers. This is because over time, the consumer trends will also shift. So, the long-term perspective entails the fact that even though the banking sector may suffer from a negative impact due to the transformation of rules and regulations and security issues of the e-banking service, the negative impact could be overcome through the construction and application of effective banking strategies (1).
Conclusion
Based on the research findings, the long-term impact of e-banking services on the US economy, it is understood that the technological advancements could enhance the profitability of the banking institutions that provide a wide range of e-banking services to their customers. In the next few years, consumer demand for e-banking services is expected to increase and this could provide an opportunity for the banking sector to enhance their profitability, productivity, and emphasize enhancing their banking services. This could further help the US economy to attain improved growth and development through the major contribution from the banking sector. However, it can be observed that rapid technological advancements would impose a higher cost on the majority of the banks operating in the US to adopt it. Apart from it, the transformation would also be observed under the banking rules and regulations, as well as banking models, used by different banking institutions. From a short-term perspective, complying with the new structure, rules and regulations could affect the banking operations along with its profitability and productivity. Even contributions to the US economic growth and development from the banking sector could be influenced but from a long-term perspective, a positive impact from the e-banking services on the US economy could be witnessed.
Works Cited
Carletti, Elena, et al. “The Bank Business Model in the Post-Covid-19 World.” Centre for Economic Policy Research, 2020, pp. 1-180.
Cornelia, Piciu G., and Chiþiga Georgiana. "The Role of Information Technology on the Banking Industry." Ovidius University Annals, Economic Sciences Series, vol. 11, no.1, 2011, pp. 1659-1661.
George, Esther. “Challenging issues for banking in the United States.” President's Message, 2017, https://www.kansascityfed.org/publications/ten/articles/2017/winter/presidents_message
Havasi, Farshad, Fattaneh Alizadeh M., and Reza Hashemi. "E-banking: Status, implementation, challenges, opportunities." IOSR Journal of Humanities and Social Science, vol. 12, no. 6, 2013, pp. 40-48.
Khan, Burhan U I., et al. "A Compendious Study of Online Payment Systems: Past Developments, Present Impact, and Future Considerations." International Journal of Advanced Computer Science and Applications, vol. 8, no.5, 2017, pp. 256-271.
Khan, Hajera F. "E-banking: Benefits and Issues." American Research Journal of Business and Management, vol. 3, no. 1, 2017, pp. 1-7.
Kolodinsky, Jane M., Jeanne, Hogarth M., and Marianne, Hilgert A. "The Adoption of Electronic Banking Technologies by US Consumers." International Journal of Bank Marketing, vol. 22, no. 4, 2004, pp. 238-259.
Malarvizhi, V., and K. T. Geetha. "An Empirical Investigation on Users' and Non-Users' Perceptions about E-Banking Services in Coimbatore City." International Journal of Economic Perspectives, vol. 11, no. 2, 2017, pp. 1-72.
Miranda-Petronella, Vlad. "E-banking-Modern Banking Services." Ann. Univ. Oradea Econ. Sci. Ser, vol. 18, no. 4, 2009, pp. 1093-1096.
Nazaritehrani, Ali, and Behzad Mashali. "Development of E-banking Channels and Market Share in Developing Countries." Financial Innovation, vol. 6, no. 1, 2020, pp. 1-14.
Rana, Preeti, and Durgesh Pandey. "Challenges and Issues of E-Banking Services and Operation." ResearchGate, 2015, pp. 978-1.
Salamah, Najah H. "Impact of Electronic Banking Services on Bank Transactions." International Journal of Economics and Finance, vol. 9, no. 2, 2017, pp. 111-121.
Salehi, Mahdi, and Mehrdad Alipour. "E-banking in Emerging Economy: Empirical Evidence of Iran." International Journal of Economics and Finance, vol. 2, no. 1, 2010, pp. 201-209.
Sutton, Christopher N., and Beth Jenkins. "The Role of the Financial Services Sector in Expanding Economic Opportunity." Corporate Social Responsibility Initiative Report, vol. 19, 2007, pp. 7-10.
Zandi, Mark, Virendra Singh, and Justin Irving. "The Impact of Electronic Payments on Economic Growth." Moody’s Analytics: Economic and Consumer Credit Analytics, vol. 217, no. 2, 2013, pp. 1-18.
Comments