E-COMMERCE FOR SERVICE SECTOR - E-Commerce Concepts

E Commerce for Service Industry

The E commerce for service Industry are explained below

E-Services

The delivery of services via the internet to consumers or other businesses can be referred to by the generic term of e-services. There is a wide range of e-services currently offered through the internet and these include banking, loans, stock trading, jobs and career sites, travel, education, consultancy advice, insurance, real estate, broker services, on-line publishing, and on-line delivery of media content such as videos, computer games, etc. This list is by no means exhaustive and it is growing all the time. In this lecture, we will give an overview of eservices.

In order to bring some order to the discuss of these wide variety of e-services, we organize them into the following categories, namely

  1. Web-enabling services, which were previously provided by humans in office agencies and/or their branches. The primary purpose here is that these services help to save time and effort for the user; bring convenience, and improve the quality of life. In many cases, it can result in a reduced cost for the consumer.
  2. E-services that fall into this category include

    • Banking
    • Stock trading
    • Education

    In some cases, this may bring a new dimension to the original service, enhancing and altering it. E-education is an example of this. It may also bring into the catchments new groups of consumers of the service to whom it might not have been previously accessible.

  3. Matchmaking services. These take a need from an individual or business customer and provide mechanisms (from providers) for matching that need.
  4. E-services that fall into this category include

    • Jobs and employment sites
    • Travel
    • Insurance
    • Loans including mortgage loans
    • Real estate sales
    • Brokers

    The advantage of this kind of matchmaking through the internet is that the ability to search electronically over a wider area to satisfy the customer need and to more precisely meet the customer need is greatly facilitated by both computerization and communication over the internet.

  5. Information-selling on the web. This group essentially sells information content of one sort or another and includes ecommerce sites that provide on-line publishing such as web-based newspapers
    • consultancy advice
    • specialized financial or other information
  6. Entertainment services. These provide internet-based access to videos, movies, electronic games, or theme sites. This E-entertainment sector is expected to grow rapidly in the next few years, with a convergence of TV and internet-based technologies.
  7. Specialized services such as auctions. Many different auction sites have appeared and these are discussed further in this lecture. It is not possible to discuss all the different eservices in this lecture and so we will briefly sample only a few examples for each category.

Web-Enabled Services

Web-enabled services include personal banking, stock trading, and education.

E-banking

Security First Network Bank (SFNB;)was the first internet bank. It provides most of the banking services on the web. Therefore, you can do your banking with your fingers instead of your feet. Looking at e-banking, we can distinguish between twp distinct models:

  1. Pure cyber banks
  2. Traditional banks that provide e-banking to complement their retail banking SFNB. is a pure cyber bank, while the homepage of Bank of America illustrates the second model.

While not all banks offer the full range of services on the internet, banks in both the mentioned groups offer a varied range of services including

  1. personal banking
  2. commercial banking for both small businesses and large corporations
  3. financial services
  4. loan application services
  5. international trade including settlement instruments, foreign exchange transactions, etc.

There are significant advantages for both the individual or corporation as well as the bank in using e-banking. An individual doing personal banking on the internet can, amongst other things, pay bills, do account transfers, make queries on account balances, obtain statements, in some cases view images of checks, etc., and import transactions directly into home account management software. Furthermore, one can make such transactions 24 hours a day from any place with internet access around the world. In addition to these, a number of banks offer personal financial services including making personal loan applications on the internet. All these represent a large increase in convenience and time saving for the bank customer, saving him trips to the bank branch, queuing, etc.

The advantages to the banking institutions themselves include

  1. reduction in the number of retail banking branches, saving rentals or ownership of the related properties.
  2. reduction in staffing because of the reduction in paper processing as well as face-toface bank teller contact.
  3. bringing about increase in the time the bank hangs on to the money before making the required transfers, leading to increase in interest received by the banks. These advantages are so significant that some banks offer customers a number of incentives to -switch to internet banking, such as free checks, reduced fees, increased deposit rates, etc.

E-stock trading and e-investing

Several companies such as E-Trade .Datek.on-line, American Express Financial Services, etc. allow you to trade stocks, bonds, mutual funds, etc. on the internet. These companies offer you to trade at a very small cost compared to discount brokers or full-service brokers. This has resulted in these on-line trading companies grabbing an increasing market share. In response to this, discount brokers including Charles Schwab and full-service brokers have also moved to introduce internet trading of stocks.

The steps involved essentially are the following:

  1. place a request to trade, say buy a stock
  2. the system responds with current “on the web site” prices
  3. the internet trader has to confirm this trade or cancel it Several companies allow one to create a simulated portfolio, which one watches over time without actually buying or selling the stocks in reality. An example of this can be found on the Smart Money site .

The major advantages to the person doing the trading are

  1. the reduced cost;
  2. the convenience of being able to trade anywhere in the world with internet access, e.g. while travelling; and
  3. access to a wide variety of information on a number of sites.

In addition to actually allowing you to trade, these sites provide a considerable amount of information. The reduction in margins available to stockbrokers as a result of internet trading is beginning to have an effect on other more traditional forms of brokers. This has led to some traditional brokers also providing internet trading of stocks.

E-education

A number of e-universities are being spawned around the world. Again, three models can be seen:

  1. Pure cyber universities, such as Jones International University
  2. Traditional universities setting up new cyber vehicles for providing university education perhaps with other business partners. An example of this the Hong Kong CyberU .which was set by the Hong Kong Polytechnic University and Pacific Century CyberWorks.
  3. Traditional universities offering courses themselves on the internet. There are a number of web-based technology tools for this purpose. An example is Web CT. A number of so called “open universities” that previously provided distance learning have moved into providing an internet-based version of their courses. These traditional universities have a number of advantages. They can now reach a client base that is outside their catchment. They also expect to be able to deliver these courses at a reduced cost; however, the jury is still out on this. Another advantage a traditional university has on the internet over a new pure cyber university is that it has an established brand name. There are a variety of issues that need to be explored carefully when preparing to deliver educational material on the internet and these include the following:
    1. Does one use a distance learning model where the student uses a PULL model to acquire the material?
    2. Does one use a traditional lecture model using video streaming? This is a PUSH model whereby a teacher “pushes” the materials to the students.

The use of the ‘internet for education opens up many possibilities, namely use of quizzes, tests to provide the student with instant feedback on his/her mastery of the materials, use of graphics and animation to explain concepts, particularly those that have a dynamic character to them. It is anticipated that the internet will not only lead to cyber universities of one kind or another but will also have a marked effect on teaching and learning in traditional universities. One among some of the innovations that are being explored is the joint teaching by two universities on different continents in order to enhance the learning experience.

Matchmaking Services

This has perhaps been the area in which there has been the greatest growth in eservices. Essentially, in most of these applications, the customer who could be an individual or business specifies his requirements in relation to the service.

The e-commerce site then does a search over its own databases or over the internet using mobile agents, or over other databases or web sites to look for one or more matches to these requirements. The information is then returned to the e-service provider site to give the customer the required service.

Travel Services

Before the internet, one might have gone along to a travel agent in order to book one’s travel requirements such as air tickets, train tickets, car hire, hotel, tours, etc. The travel agent would try his best to meet these requirements by providing information regarding schedules, pricing, promotions, as well as suggestions on changes to de itinerary. These bookings could be for individuals or corporations involving corporate rates, etc.

A large number of e-commerce sites have appeared, which address this precise market segment. These include trip.com travelweb.com, and priceline.com. These web sites work in exactly the same way. When a customer provides requirements, these sites do a search of their own databases or send agents our _ explore other web sites and respond to the consumer. Amongst the requirement that the customer could specify is an acceptable price.

A number of sites, such as priceline.com, require that provided the price specified is met, the customer cannot refuse the offer found. These ecommerce sites are beginning to grab an increasing part of the travel market. They are attractive to consumers because of the convenience, the ability to meet requirements such as specified prices, and in some cases like lastminute.com, a special customer need (i.e” booking at the last minute). These travel sites often also have a lot of information on promotions, suggestions,etc., which are useful for customers. These ecommerce sites are having a strong “disintermediation” effect. Disintermediation refers to the removal of intermediaries such as travel agents from the process involved in the purchase of the service.

A recent increasing trend has also seen the primary provider of a service such as an airline introducing internet based booking at reduced prices, further emphasizing the disintermediation effect.

E-employment and e-jobs

There are several different kinds of services provided here, namely

  1. sites where you can get advice on developing your resumes and can post your resumes on the web
  2. recruiters who use the web site to post available jobs, such as Hot jobsor Jobdirect
  3. employers who list available jobs on the web sites
  1. matchmaking facilities that search the internet for jobs for jobseekers based on a specification, such as
  2. matchmaking facilities to search the internet for resumes that best fit a job description given by a prospective employer use of agents to do the search These approaches of using the internet for e-employment or ejobs avoid many of the costs and difficulties associated with traditional approaches to advertising, such as high cost, limited duration, and minimal information.

Others

In some areas, such as real estates e.g., the visualization ‘(3D’ facilities provided on the web allow one to either

  • show visualizations of buildings at the drawing board stage, or
  • allow people distant from the physical site of building to actually visualize it

This area of matchmaking and brokering services is expected to grow greatly in the near future with e-commerce sites exploiting new market niches. This is also an area with the greatest likelihood of disinter mediation, and traditional agents or brokers will have to build new dimensions to their services in order to survive.

E-Entertainment

This is expected to be a growing area of e-commerce in the future. A number of companies are gaining access to or have purchased large inventories of movies or other entertainment material with the view of allowing people to download this on the web. Sites here vary from theme sites that use a small amount of interactive entertainment to promote their products, such as Disney, to others that provide games either for a fee or are free coupled together with advertising that pays for the site. An important issue here is that the payments involved are relatively small for each transaction, and hence the use of micro payment techniques is likely to be of considerable importance here.

Electronic Commerce and Banking

“Banking is vital to a healthy economy. Banking as a business can be subdivided into five broad types: retail, domestic wholesale, international wholesale, investment, and trust. Of all these types, retail and investment banking are most affected by online technological innovations and are the ones that stand to profit most from electronic commerce. The role of electronic commerce in banking is multifaceted impacted by changes in technology, rapid deregulation of many parts of finance, the emergence of new banking institutions, and basic economic restructuring.

Given these environmental changes, banks are reassessing their cost and profit structures. Many banks feel that in order to be profitable they need to reduce operating expenses and maintain strict cost control. This philosophy is evident in the many mergers and acquisitions occurring in the banking industry. The challenge behind bank restructuring lies in adequately operational zing the notion of cost control.

Technology is the predominant solution for controlling costs.

Banks are

Increasingly help to reduce operating costs and still provide adequate customer service. Innovation and technology are becoming the key differentiators in the financial services business. Advance in networking, processing, and decision analytics have allowed institutions to lower service costs. Technology has also accelerated the pace of product innovation. For example, sophisticated arbitrage instruments like derivatives are changing the nature of investment banking.

The Securities and Exchange Commission’s decision to allow Spring Street Brewery to trade its stock online may also fundamentally change investment banking by disinter mediating the traditional role of underwriting. Technology is enabling the development of new products and services. For example, technology is capable of replacing or expediting tedious financial exercises like check writing, filing taxes, and transferring funds. Although large businesses have automated these tasks, many small businesses and most households still do them manually.

This is not surprising; large businesses have been undergoing computerization for more than thirty years, whereas PCs have been entering households in significant numbers only in the last few years. Technology is changing the interaction between banks and consumers. In particular, technological innovations have enabled the following capabilities: online delivery of bank brochures and marketing information; electronic access to bank statements; ability to request the transfer of funds between accounts; electronic bill payment and presentment; ability to use multiple financial software products with “memory” (thus eliminating the need to re-enter the same data); online payments—encrypted credit cards for transferring payment instructions between merchant, bank, customer; and finally, micro payments (or nickel-and-dime transactions using electronic cash and electronic checks).

These online capabilities increase the facility and speed of retail banking. However, new technology is a double-edged sword. While it enables banks to be more competitive through huge investments, it also enables new competition from fast-moving, non banking firms.

This trend can be seen in the area of online payments, where recent innovations have provided an opportunity for non banks to break into the banking business, threatening the banking stronghold on one of the last key services provided by banks. The present nature of online payments is a clear indication that if the banking industry fails to meet the demand for new products, there are many industries that are both willing and able to fill the void.

Technology also creates problems in the product development lifecycle. In the past, banks had the luxury of long roll-out periods because successful investment in retail banking required a large monetary commitment for product development. This financial requirement pre-vented new participants from entering the market and was a key determinant of success. This is no longer the case.

Instead of a single institution doing everything, technology allows the creation of a “virtual financial institution” made up of firms, each contributing the best-of-breed software or products to the overall product. In this new “virtual model,” banks compete with the twelve-to-eighteen-month product development times of companies like Intuit or Netscape, which have product life-cycle times of only six to nine months.

Changing Dynamics In Banking Industry

In recent years, there has been a major change in the way banks strive for increased profitability. In the past, the banking industry was chiefly concerned with asset quality and capitalization; if the bank was performing well along these two dimensions, then the bank would likely be profitable.

Today, performing well on asset quality and capitalization is not enough. Banks need to find new ways to increase revenues in a “mature market” for most traditional banking services, particularly consumer credit. A thorough understanding of this competitive environment is needed before banks can determine their online strategy. Five distinct factors contribute to the new competitive environment:

  • Changing consumer needs driven by online commerce
  • Optimization of branch networks in order to reduce costs,
  • Changing demographic trends and potential new consumer markets
  • Cross-industry competition caused by deregulation, and
  • New online financial products.

Changing Consumer Needs

Consumer requirements have changed substantially in the last decade. Customers want to access account-related information, download account data for use with personal finance software products, transfer funds between accounts, and pay bills electronically. Of course, along with these services, banks must be able to supply/guarantee the privacy and confidentiality that customers demand, which is not a trivial matter to implement on the part of the banks.

Many consumer requirements are based on a simple premise: customers and financial institutions both seek closer and more multifaceted relation-ships with one another. Customers want to be able to bank at their convenience, including over the weekend or late at night. Bankers want more stable and long term relationships with their customers.

From the bank’s perspective, developing and maintaining this relation-ship is difficult. Although financial products are essentially information products and financial institutions are highly automated, there is a gulf between automated information and the bank’s ability to reach the consumer in a unified way. This gulf is filled with established methods, such as branches, postage and mail, advertising, and people on telephones.

These methods can be costly and impersonal. Electronic banking provides a method of communication that will enable the bank customer to be reached, served, and sold products and services in their homes and offices whenever it is convenient for them-twenty-four hours a day, seven days a week.

Banking Via Online Services

Although personal finance software allows people to manage their money, it only represents half of the information management equation. No matter which software package is used to manage accounts, information gets man-aged twice once by the consumer and once by the bank. If the consumer uses personal finance software, then both the consumer and the bank are responsible for maintaining systems; unfortunately, these systems do not communicate with one another, thus giving new meaning to double-entry bookkeeping. For example, a consumer enters data once into his system and transfers this information to paper in the form of a check, only to have the bank then transfer it from paper back into electronic form.

Unfortunately, off-the-shelf personal finance software cannot bridge the communications gap or reduce the duplication of effort described above. But a few “home banking” systems that can help are beginning to take hold. In combination with a PC and modem, these home banking services let the bank become an electronic gateway, reducing the monthly paper chase of bills and checks

Citibank and Prodigy

Citibank and Prodigy

To understand the more contemporary online banking services, we look at CitiBank and Prodigy. Prodigy has been pro-viding home banking to consumers since 1988, and has relationships with more banks than any commercial online service. To expand the attractiveness of its online banking services, in 1996 Citibank began offering Prodigy subscribers a free and direct link to its electronic home banking service. Access to Citibank is available to Prodigy sub-scribers at no extra fee throughout the New York metropolitan area. The agreement represents the first time that CitiBank has expanded access to its proprietary PC Banking service through a commercial online service.

To en-courage Citi Bank customers to try online banking through Prodigy, free Prodigy software will be made available at local Citi Bank branches. CitiBanking on Prodigy offers a full range of banking services. Customers can check their account balances, transfer money between accounts, pay bills electronically, review their Citi Bank credit card account, and buy and sell stock trough Citi Corp Investment Services. Citi Bank and Prodigy al-low customers to explore the wide array of services using an interactive, hands-on demonstration.

Banking via the Web: Security First Network Bank

With the explosive growth in Internet use, banking via the World Wide Web will undoubtedly catch on quickly. The goal of this approach to banking is to provide superior customer service and convenience in a secure electronic environment. The competitors in this segment are banks that are setting up Web sites, and firms like Intuit that can easily transport their product to the Internet.

Banking on the Internet is not the same as banking via online services. Internet banking means that: Consumers do not have to purchase any additional software (the Web browser is sufficient), store any data on their computer, back up any information, or wait months for new versions and upgrades, since all transactions occur on a secure server over the Internet.

Consumers can conduct banking anywhere as long as they have a com-puter (not necessarily their own computer) and a modem-whether at home, at the office, or in a place outside the United States. Banking via online services is restrictive in that the consumer has to install a soft-ware package onto her computer. This limits the customer to banking only from that computer, making a call to access a separate network, working with a separate software company, and banking during limited hours of operation. Consumers can download account information into their own choice of programs rather than following the dictates of the service provider.

Internet banking allows banks to break out of the hegemony of software developers. If bank customers (end users) install personal financial management software on their PCs, these customers become direct customers of software firms. By controlling the software interface, software firms such as Intuit can control the kinds of transactions end users make and with whom these transactions occur. By maintaining a direct relationship with end users via the Web, banks can offer additional services and provide a personal feel to the interface, without seeking the cooperation of a software company.

If banks choose to offer home banking via personal financial management software, they lose control over the end user interface and the relationship they have with customers.This loss of control has tremendous long-term implications. The software industry history offers com-pelling proof of the importance of organizations having a direct relationship with consumers. In the early 1980s, IBM decided that operating systems were not central to IBM business strategy. As a result, IBM licensed DOS from a small software company called Microsoft. IBM called this operating system PC-DOS and allowed Microsoft to market this same operating system to competing computer manufacturers under the name of MSDOS.

IBM’s seal of approval made DOS an industry standard. However, IBM was unable to move the industry to a new operating system called OS/2 in the late 1980s because Microsoft controlled the customer relationship and was able to convert most end -users to Windows. For banks, too, losing control over the interface could have dire consequences.

Management issues in Online Banking

The challenge facing the banking industry is whether management has the creativity and vision to harness the technology and provide customers with new financial products necessary to satisfy their continually changing financial needs. Banks must deliver high quality products at the customers’ convenience with high-tech, high-touch personal and affordable service. In order to achieve this, management has to balance the five key values that increasingly drive customers’ banking decisions: simplicity, customized ser-vice, convenience, quality, and price. Online banking will realize its full potential when the following key elements fall into place:

  • The development of an interesting portfolio of products and services that is attractive to customers and sufficiently differentiated from competitors.
  • The creation of online financial supply chains to manage the shift from banks as gatekeeper models to banks as gateways.
  • The emergence of low-cost interactive access terminals for the home as well as affordable interactive home information services.
  • The identification of new market segments with untapped needs such as the willingness to pay for the convenience of remote banking.
  • The establishment of good customer service on the part of banks. The fact that technology increases the ease of switching from one bank to an-other means that banks that do not offer superior customer service may see low levels of customer loyalty.
  • The development of effective back-office systems that can support sophisticated retail interfaces.

Marketing Issues: Attracting Customers

The benefits of online banking are often not made clear to the potential user.

Consumer question includes :

How is balancing the checking account online superior to doing it on paper?

Is paying bills online superior to the familiar 5 of writing checks?

Where is the consumer gaining value?

Perhaps the answers to these questions are not clear to the bankers themselves. Regardless of how a bank chooses to answer these questions, it is clear that make a mistake trying to sell online banking services on the basis of convenience. While short term convenience is important, consumers want 19-term ability to control and organize their finances more than they want convenience. Banks must also look beyond home consumers for online banking consumers. The rapidly growing use of personal computers by small business- provides a solid opportunity for banks to build a profitable base of small business until a broader consumer market evolves. There are mil-lions of small businesses with annual sales ranging from Rs. 250,000 to Rs. 5 million.

Many of these firms have PCs and modems. New services like interactive cash management services could generate significant revenues for banks. Industry studies indicate that 20 percent of small businesses are immediate prospects for online banking and are willing to pay more than individual consumers for the service-up to $100 a “month. Thus, banks have opportunity to tap into this market segment.

Marketing Issues: Keeping Customers

Keeping customers (or customer loyalty) requires the following:

  1. Banks must switch the costs of moving from one software platform to other to keep customers from moving. Customers are increasingly familiar with using technology to access bank accounts and to handle financial affairs, and this familiarity increases interest in additional vices and increases switching costs.
  2. Banks must provide integrated services. The oftcited time squeeze on consumerslong commutes, heavy workload, family obligations, household management is pushing consumers toward integrated services that can speed up financial procedures. These integrated services contribute to cementing the customer relationship.
  3. Banks can realize the positive cost implications for the longterm value of building customer loyalty. In the online world, there is not a big cost dif-ference between serving one customer and serving 100,000 customers. Clearly, marketers must also work on building a loyal customer base not only in order to maintain the existing base, but also in order to be attractive to potential customers.

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