ALKHOBAR, 24 June — Changes in the structure of the Kingdom’s economy will bring changes to all sectors contributing to that economy — including the financial sector. Brad Bourland, chief economist, Saudi American Bank, has estimated that to fund ambitious new development projects the Kingdom will need to secure approximately $7 billion per year in funds from foreign investors including loans from international financial institutions. In addition, as Saudi Arabia works toward joining the World Trade Organization (WTO), it is only a matter of time before local banks will face direct competition from those same financial institutions. While brick-and-mortar branches of overseas banks are not yet a threat, the competition from click-and-mortar and brick-less banking operations is increasing. Cyberspace has no borders and expatriates are especially attracted to the ease with which they can maintain their accounts and all related transactions back in their home countries, from PCs here in Saudi Arabia.
Online banking, while a new concept for the Kingdom’s Internet users, has been around in the United States for about a decade. Better financial applications, more bandwidth and improved security are a few of the reasons that online banking is finally ready for international primetime. In the US alone the number of banks offering electronic banking has reached 600. In Saudi Arabia we have just three banks with Internet operations. The first to come online was Arab National Bank in February 2000. National Commercial Bank made its online services available in November 2000 and now Saudi American Bank has joined the e-banking club.
In the US, 4.5 million households already bank using their PCs. Several market research firms have predicted that as many as 18 million American households will be logging on to Internet banking within five years. Here in Saudi Arabia we are a bit farther behind. No one is suggesting that initially Saudi banks will see measurable returns on their investments. Moody’s Investors Service commented in its report, “Internet Banking in the Gulf,” “Over the next two to five years, the development of Internet banking is likely to approach the status of a competitive necessity, if nothing else for marketing and client service purposes. Banks that will not be in a position to offer this distribution channel may find that their franchises, and hence their financial health are suffering as a result.”
Right now it is those customers who are already Internet savvy and have PCs at home, who are most likely to consider online banking. There is a great potential for Internet banking in the Kingdom as the majority of Saudi Internet users are under 30 years of age. This is precisely the age group that will be setting up new financial accounts and making their first investments. Many will probably consider online banking to be an important part of a bank’s services. All online banking customers can manage their personal accounts, credit cards, loans and pay some bills. Locally SAMBA and NCB offer investment services and financial planning online as well.
It is important however for Saudi banks to beware of moving forward too fast. Internationally, great concern has been shown on the issue of security in online banking. According to a report by Jupiter Media titled “Integrated Finance: Composing a Symphony Out of the Discord,” it was found that while financial services executives believe that creating new mobile and online offerings is their No. 1 priority, banking consumers believe that improving trust and security in online banking is paramount. It appears that banks are desperate to be first and fastest at launching new products but customers want to be reassured that their funds are safe.
Jupiter’s results showed that 57 percent of banking executives said their top priority is expanding online capabilities, which, according to Jupiter, indicates an “industry-wide propensity to clutter sites, rather than to simplify them.”
Fifty-two percent of the executives said that broadening the scope of traditional services is a top priority. But only 25 percent indicated that increasing customer trust and security is a top priority, and only 18 percent were interested in improving the overall design and layout of their existing banking website. This was in direct contrast to the customer survey findings, which showed that secure accounts, improved customer service, and convenience are priorities.
According to Jupiter, those financial services that invest heavily in personalization and customization capabilities in order to provide each customer with unique offerings will stand the most chance of succeeding online. Jupiter also recommended that financial institutions improve the customer experience by integrating basic financial services such as banking, lending, insurance, investment and payments into one simple interface.
Is online banking for you? It definitely has advantages. It is extremely easy to track cash flow in an online account. Transferring funds to many countries takes just a few clicks and is faster than using a brick-and-mortar bank. Managing investments can be done 24 x 7. Available bill payment is efficient.
If you have a PC and an Internet account you are ready to give online banking a try. Internet banking has its own vocabulary. Take a moment to learn the most common jargon so you feel comfortable with the online banking experience.
Applet — A small program written in the Java programming language. Often downloaded into your PC from the bank’s website so you can make use of their services.
Bill presentment — An online system that allows customers to receive and view the bill on a computer screen, and then pay the bill electronically. Users can pay their bills immediately and the money is transferred from the account.
Brick-less bank — A bank that exists only on the Internet without any “brick-and-mortar” branches. By eliminating the overhead costs of structures, brick-less banks consistently offer services at more competitive rates. These banks may also be called Internet banks or virtual banks.
Click-and-mortar bank — A bank that has traditional “brick and mortar” branches but also offers its services online.
Client-based — Customers use money management software and their own computers to access the bank using a modem and a phone line.
Download — The method used to transfer or “pull down” a file of data from one computer to another, usually via a modem.
Electronic bill payment — A method for receiving and paying a bill with personal finance manager software provided by the bank.
Encryption — A way of ensuring the privacy and security of a customer’s personal finance information at a bank’s website. Encryption is the process of scrambling data so that only the intended receiver can use it. To be effective, encryption needs to be used by both the sender and the receiver. Bank customers should make sure it is being used when sending sensitive information.
FAQ or Frequently Asked Questions — The section of a website where the bank posts answers to customers’ most commonly asked questions about their banking services.
Fees — If a bank charges a fee for a service at its regular branches it will often charge a similar fee online. Sometimes fees are waived if a minimum balance is maintained.
Internet security — To see if security is operating at a bank’s website, check for your browser’s security icon. Internet Explorer shows a closed padlock icon and Netscape Navigator shows a key icon.
Key — A password needed to decipher encrypted data.
Log in — The way that a customer gains access to a bank’s online service. When logging in, customers enter their passwords to access to a secure area of bank’s website where they can view their financial records and make transactions.
Online banking — Online systems allow customers to plug into a host of banking services from a personal computer by connecting with the bank’s computers over telephone lines.
Personal finance manager — Specialized computer programs that help bank customers carry out a variety of personal finance activities. These programs typically allow bank customers to do much of their work offline, then dial in to complete their bank transactions.
Privacy — The Internet works by sending information from one computer to another until the information reaches its final destination. Unless information is encrypted when it is being sent from a home computer to a website, users at other computers may have the ability to see what is being sent.
Privacy policies — These are important to read when visiting a bank’s website. They appear in various locations. Look for a privacy policy under “Privacy,” “About Us” or company information sections of the site, or under a privacy icon. If a privacy policy can’t be found, send an e-mail message to the site’s webmaster to ask about its policy.
Security — Web browsers can be set to create a signal if a user is about to take an action that poses a security risk. For example, if a credit card number is about to be sent to an insecure site, Netscape Navigator and Internet Explorer will send a warning that the site is not secure. If the site claims to be secure but its security credentials are suspect, both browsers can send warnings that the site might have been tampered with or might be misrepresenting itself.
SSL — This means secure sockets layer. SSL is a protocol designed to increase security on the Internet by allowing encrypted files to be transferred from computer to computer. It works by using a private key to code data that’s sent over a SSL connection.
URL — This stands for uniform resource locator. It is a term used for the address of a website, for example, www.arabnews.com. Before you can use a bank’s online services you must know its URL.