1 Online Banking and Investing Kazan State University Non-Commercial Fund of Corporate and Cultural...

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Online Banking and Investing

Kazan State University

Non-Commercial Fund of Corporate and Cultural Development “FORRA”

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Outline Online Banking Services

Hybrid banks Internet-only banks

Online loans Investment industry

Electronic Communication Networks (ECNs) Online trading Online bond trading

Merging financial services Financial aggregation services Wireless banking and trading Financial planning online

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Online Banking Services Traditional banks have established online

services Internet-only banks lack recognition and brand

awareness Internet banking can reduce expenses Online payment decreases the floatfloat

The time it takes for checks to clear after they have been sent for payment or deposited

Payments delivered faster than by mail Frees up cash and decreases accounts receivableaccounts receivable

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Benefits and Risks to Customers Benefits

No need to buy stamps No need to send out bills early Account information available at all times

Risks Security breaches Office of the CurrencyOffice of the Currency (OCC) has warned people that

sites mimicking bank sites can scam them for account information

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Hybrid Banks Hybrid bank model

Traditional banks offering online services Prominence of brand names increases customers’

trust Customers can still visit a physical branch

Large network of automatic teller machines (ATMs) Monthly fees to use online bill paying services Important to survival and growth of small local

banks Can offer competitive services and attract national

customers

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Internet-Only Banks Convenience and lower fees, higher interest rates Can lower building and equipment costs, decrease

payroll Must accept deposits by mail Little brand recognition Insured by the Federal Deposit Insurance

Corporation, but customer may still not be comfortable

Some are attempting to establish a physical presence

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Online Loans Traditionally,

companies and individuals dealt with several different lenders

filling out documents and comparing options was time consuming

Online Process can be more efficient; approvals within

minutes Access to many lenders, shopping for best deals E-LOAN,  LiveCapital, companyfinance.com

Small Business Administration Office of Advocacy

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Online Mortgage Services Decrease time to find a mortgage Digital signatures make documents legally

binding Ditech.com, MortgageRamp.com and LoopNet

Some sites provide mortgages directly from lenders

Other sites act as brokers, search for best mortgage

Internet may reduce number of broker jobs Stability of the lender is an issue

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Electronic Communication Networks (ECNs) Facilitate electronic trading by:

listing securities order sizes and prices connecting buyers and sellers processing digital orders

Transactions are completed faster Helps to lock in a buy or sell price

Before and after hours trading Increased price transparency by listing prices

from more than one exchange Loss of the middlemen and the trading floors

Instinet, Island, REDIBook and Archipelago

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Online Trading Full-service brokers

Offer speed and convenience of online trading with the advice of a broker

Discount brokerage service Requires self-sufficiency, investor responsible

Internet-only brokerages and hybrid brokerages Factors to consider for investing online

Type of investments Quality of site navigation and customer service Cost of transaction vs. number of trades per year

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Online Trading Online companies charge a fee for every

purchase or sale Internet serves as a valuable learning tool for

new and experienced investors The Motley Fool, MoneyCentral and Money.com

Companies offering online services Have made investing in stocks and options

accessible to a larger audience Provide real-time market information

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Online Trading Trading on marginTrading on margin

When an investor buys stock and borrows money from the broker to invest in the stock

Opening a margin account online requires low minimum balance, answering a questionnaire and being qualified electronically (no assessment is made by a human broker)

A stock’s value may fall below the loan value The broker can issue a margin callmargin call

The broker requires that the investor invests more cash or securities or sell the stock to pay back the loan

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Online Trading Day trading

Short-term trades to profit on market inefficiencies market inefficiencies (e.g. news affecting the market) arbitragearbitrage (converting from one currency to another)

Easier on Internet Transactions limited by communication and server

speed Fees can be expensive Day traders bear the same risks as other traders CareerDayTrader.com, DayTradingOnline.com and

OnlineTradingAcademy.com Internet facilitates trading commodities globally

EnronOnline

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Online Bond Trading BondBond

A written promise that an entity will repay a debt that is sold to an investor (investor receives original investments and a dividend for a certain period of time)

Online companies offer bond trading; claim that process is easier and cheaper

Tradebonds.com, bondsonline and MuniDirect Internet can cut the cost of issuing bonds Need for a standard system for bond sales

process

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Merging Financial Services Since the appeal of the Glass-Steagle ActGlass-Steagle Act, banks,

brokerages and insurance companies are permitted to offer a wide range of financial services

Most online financial services offer electronic bill presentment and payment

It is crucial for financial institutions to offer a wide variety of services to remain competitive

Prudential is just one example - offers a wide variety of online and offline services

Insurance, banking, brokerage, real-estate, B2B and financial planning

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Financial Aggregation Services Give users option of keeping all their financial

information in one location on the Internet Services use screen scrapingscreen scraping

The aggregator visits sites with financial information and services, uses username and passwords to log in, downloads the information and stores it in one place

Many banks do not authorize screen scraping Examples:

Yodlee, 1View Network and GainsKeeper Privacy and security concerns; not regulated

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Wireless Banking Wireless technology offers customers a value-

added service Wireless banking

Paying bills from anywhere Transferring funds between accounts Checking account activity

Examples: TD Bank Financial Group and Netbank

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Wireless Hesitation

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Wireless Trading Wireless security trading is growing rapidly

Traders can receive important news and other information and make trades immediately

Companies offering wireless trading services Ameritrade, CSFBdirect, Quick & Reilly, Morgan

Stanley Dean Witter Online and Fidelity Investments Wireless access to financial information may

grow faster in Europe and Asia than in U.S. U.S. has not agreed on a single standard or wireless

device

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Financial Planning Online Internet made it easier for providers and

customers People can learn on their own about financial planning

services Companies can offer online applications, account

histories, new products, investment tracking, etc. 401kafe offers information regarding 401(k) plans401(k) plans -

investing vehicles for employee retirement mPower offers retirement-planning advice to employees

of member companies that subscribe ihatefinancialplanning.com provides information on all

financial-planning topics

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Summary One of the fastest growing online service

industries Many established banks added electronic services Internet-only banks lack brand awareness Money is transferred quicker freing cash and

decreasing accounts receivable Using Internet to offer banking can lower costs,

but there are risks Companies can use Internet as another way to

service customers