Money & Banking
This article focuses on the influences of money and banking on a global economy. There is an introduction of internet banking as well as a discussion of how the Basel Committee on Banking Supervision provides an avenue for the banking industry to address banking supervisory issues across the world.
Keywords Automated Teller Machines (ATMs); Bank of International Settlements; Basel Committee on Banking Supervision; Electronic Banking; Electronic Fund Transfers; Market Risk; Operational Risk; Personal Computer Banking
Financial relationships and the manner in which consumers handle their money have changed over the years. "It has become commonplace to argue that the rapid growth in securities transactions during the 1980s, domestically and internationally, is evidence that financial relationships matter less than they used to" (Calomiris & Ramirez, 1996, p. 44). Consumers do not have a need to develop a personal relationship with their bankers. They are comfortable managing their finances via non-traditional media. Calomiris and Ramirez (1996) found evidence that many believe innovation (i.e. new technological breakthroughs such as the use of computers in banking) has led consumers to seek out new ways to find information to resolve issues and manage problems.
Technology has also allowed regulators to relax the restrictions on bank scale and scope. As a result, banks have been able to enter non-traditional banking practices such as security underwriting, derivative sales, mutual fund control, and venture capital financing (Calomiris & Ramirez, 1996). Kaufman and Mote's (1990) work explored how the expansion of banking powers has allowed the relaxation of regulatory policy, which has minimized the use of legislative action in order to get results. These types of actions have assisted the growth of a universal banking system.
Technology has made it possible for financial institutions to offer electronic banking to their customers. In 2013, the IUP Journal of Bank Management reported that 50 percent of banking transactions were electronic-based, and that this share was increasing “at an incredible rate.” (Kaur, 2013) “Electronic banking, also known as electronic fund transfer (EFT), uses technology as a substitute for checks and other forms of paper transactions” (Fullenkamp & Nsouli, 2004, p. 94). Fullenkamp and Nsouli have defined it as "the use of electronic methods to deliver traditional banking services using any kind of payment media" (p. 7).
Benefits of Electronic Funds Transfer
Customers find the service beneficial for several reasons:
- Automated Teller Machines (ATMs) — ATMs are electronic terminals that allow consumers to have access to their funds at any time. Financial institutions will provide their customers with a card which allows them to withdraw money from these machines.
- Direct Deposit — Many employers have mandated that employees have their payroll directly deposited into a checking or savings account. Once the funds reach the bank, the bank processes the transactions so that their customers will have access to the funds on the morning of their pay date.
- Pay-by-Phone Systems — A benefit to consumers is when their banks allow them to pay their bills by calling in the transactions and transferring funds between accounts.
- Personal Computer Banking — Given the use of technology, many consumers will base their banking selection on whether or not they can perform transactions online using their personal computers.
- Point-of Sale Transfers — Consumers may use their ATM cards in many stores to purchase retail items. This process is similar to using a credit card, but the funds come out of a checking account.
- Electronic Check Conversions — There are times when a consumer may write a check at a merchant's business and the transaction will become an electronic payment at the point of sale (HSBC — North America Military Financial Education Center, n.d.).
Concerns: Ensuring Against Fraud
With the rise of electronic banking's popularity, financial institutions and consumers must be cautious and protect information that is considered private and privileged. "Financial institutions are clearly responsible for compromised data in their possession that results in fraud, and account holders have typically been held responsible for guarding against the theft of their banking information as well as any fraud perpetrated as a result of compromised credentials" (Tubin, 2005, p. 3). In order to avoid a compromised situation, financial institutions must develop techniques that will assist in authenticating online banking users.
In the past, many customers used a password to gain access to their accounts. This approach is considered to be an example of single factor authentication. Although allowing users to select an "easy to remember" password can be convenient, it does not assist in the fight against emerging fraud. Unfortunately, there have been many online scams where criminals have tricked customers into providing their user name and password. Many banks have moved toward the practice of creating authentic user names and alphanumeric passwords to minimize the effects of these scams. In addition, there has been secondary criteria added to the log in process. "Adding a second factor, something you have or something you are, as a requirement for authentication increases security well beyond the traditional single-factor approach because it requires the criminal to gain possession of both authentication factors somehow to commit fraud" (Tubin, 2005, p. 10). This approach...
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