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Term Paper ID:26243
Essay Subject:
Examines alternatives to cash, from banking perspective. Electronic commerce, ATMs, credit cards, consumer & security issues, credit unions, smart cards, plastic checks, microchips.... More...
10 Pages / 2250 Words
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Paper Abstract:
Examines alternatives to cash, from banking perspective. Electronic commerce, ATMs, credit cards, consumer & security issues, credit unions, smart cards, plastic checks, microchips.
Paper Introduction:
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INTRODUCTION
The development of cards which can access different monetary services electronically has been the major boost to electronic commerce. Many computer users today are accessing commercial enterprises on the Internet, but millions more have indulged in a different form of electronic commerce simply by using their ATM card, debit card, or credit card in the course of daily business. The dissemination of such cards has been part of a long-term and evolving marketing strategy on the part of banks and other financial institutions to change the way people do business both with their banks and with retailers of various sorts. Some believe this could one day lead to a cashless society where all commerce is conducted through the use of plastic cards with
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Lovelock states that his view of customerservice differs from the usual definition of customer service as a strictlyreactive function responding to customer problems or complaints. The cards can be used like an ATM card, but they alsoreduce the need to carry money, eliminate check approval procedures, andhelp consumers stay on budget. Merchants will not have to invest any money tobe attached to VisaNet and will not have to increase the time it takes tocomplete a transaction (Parker 78). Electronic commerce is an area of2customer service that does not involve personnel directly, and indeedaspects of it are offered on the precise basis that the consumer will beable to make use of services without seeing personnel--the ATM outside thebank is often sold on this basis, showing that people can make deposits andpayments or take cash without having to enter the bank and speak to anyone. Upper Saddle River, New Jersey: Prentice-Hall, 1996.Mannix, Margaret. Visa licensed the technologyfrom the Danmont system and has been using stored-value cards in Denmarksince 1992. The use of these cards is expectedto increased from an estimated 192 million transactions a year to 25billion by 2 . The consumer is looking forcompelling reasons to make decisions about what card to carry, and inaddition to the obvious security benefits, photocards provide novelty andcreate excitement in a market where financial cards are perceived as havingvery little to differentiate one from another. This might actually reduce thespeed with which stores are instituting this service (Steinberg C1). Recently bankshave been urging customers to upgrade their ATM cards to debit cards suchas Visa's "check card" or Mastercard's "MasterMoney" card. of the first U.S.-based card using two microchips tocombine an open-system payment product and non-financial applications. "Debit Card Dangers." U.S. Some cards aredisposable and some are reusable. This began with fees for usingATMs at other banks so that access fees, combined with existing fees thatthe bank charges, could add as much as $2 to $4 per transaction for use ofa machine at a different bank (Stark 49). The customer simply hands a credit, debit, ATM, or MobilGO card to the attendant, who swipes the card along the terminal. The company offering this system is DataCard, and the card can includefull-color printing, magnetic stripe encoding, smart card personalization,embossing, color topping, and indent printing ("New CRM Credit and DebitCard Solution" 1). The technology has indeed spread widely over the last decade andimproved the way business is done. The company saysits research has shown that customers are looking for the fastest way topay and complete their transaction, and this is the next step after pay-at-the-pump technology that allows customers to use credit cards right at thepump. There are some 6 million of thecards now in circulation, up from 25 million two years ago. The Visa Cash cardportion is reloadable from vending machines and on the Internet, since Bankof America and Visa had earlier launched the nation's first online chip-card program to give several hundred cardholders an equivalent to cash andcoins for small purchases on the Internet. The cardsare to be issued by banks and credit unions, and the cards will double asautomated teller cards. "Retailers Replacing Cash with ATM Cards to Lure Customers: No Cash Down." PC Week (December 1, 1987), C1-C3.----------------------- 3 Credit unions still usuallycharge less than do banks. Creditunions have now entered labor-intensive service areas such as mortgages,and fees are the norm for such services. Some believe this could one daylead to a cashless society where all commerce is conducted through the useof plastic cards with electronic strips, perhaps with cards that haveamounts embedded in them so that a purchase subtracts directly. Consumers fear that banks willbegin to charge for use of ATMs that are owned by their bank, and this hasbeen held out as a possibility. NEW SERVICES Visa International is developing the use of the so-called smart cardwith the introduction of stored-value cards. This can mean that the savings offered by electronic commerceare watered down for the consumer, leaving only convenience as a sellingpoint. The store says customers are not giving up checks or creditcards, and about 8 percent of transactions are still conducted in cash.However, 26 percent of the public indicate that they would use debit cards. These are microprocessor-based stored-value cards whichrepresent cash and retain debit information. Another new card emphasizes the advantages of the use of plasticchecks. Debit cards can also help the consumerstay on budget because he or she cannot spend more money than they have orrun up hefty finance charges as can be done with credit cards. Creditunions to date still use fees to address misuse or abuse and not toencourage use of an account. Itwas known, however, that an additional 38, supermarkets, gas stations,and other retailers nationwide were hooked up to regional debit-cardsystems and so had the technology to accept the new debit cards (Hannon 22-24). The ATM cardis simply passed through a card reader, the funds are electronicallydeducted from the user's bank account and credited to Lucky's account, anda computer-printed receipt is printed for the customer, all within a fewseconds. "Credit Unions--the Next Generation: What the Future Holds." Credit union Executive (January-february 1995), 14-17.Lovelock, C.H. These cards are required of all merchants who handle the creditcards, but they charge a much higher fee than ATM cards, leaving affectedmerchants furious about the added expense (Schifrin 42-43). At the same time, as electronic bank services become more popular,banks may begin to charge for what was once free and so make the serviceless attractive. One of thedisadvantages to the credit union over the bank is that the credit unionhas fewer ATMs and similar facilities for the use of its members withouttheir having to pay higher fees for transactions. Merchants find themconvenient, but they may also become less enamored as fees rise. If a receipt is desired, it is then dispensed from theprinter suspended from the belt worn by the attendant. However, there are alsodangers in the use of these methods, from security issues to higher costscharged by banks and merchants in order to offset real or imagined costs.Banks introduced many of these cards to cut costs, and even though theyhave, banks are now seeking to charge for their use. Visa plans to issue cards in$2 or $4 values that can be purchased with credit cards, ATM cards, orcash, and the value of the card is stored on a memory chip. The use of ATMs in this manner eliminates the cost of handling paperchecks, so banks are examining the possibility of charging for their ATMcards as the service becomes more popular. Interlink fees will vary from issuer to issuer butare expected to be in line with ATM charges at typically about 25 cents pertransaction. The card is thereforeoffering what the ATM, debit, and credit card alone did in the past--ameans for attracting and retaining financial customers. Fees do not represent a major portion of incomefor credit unions, though they have increased in importance. The institutions that survive, however, are expected to be themost financially fit (Lemmon 14-15). The future likelyholds wider dissemination, new forms of cards, use by other financialinstitutions, and greater societal reliance on electronic commerce. Credit unions differ from banks in a number of respects, includingthe way they charge for services and the way they make a profit. There are numerous predictions ofthe decline in the number of credit unions in the next century. The SpeedPay method was introduced in New Jersey, which is not aself-serve state, so the SpeedPay system filled a need. Individual companies have also been developing their own electronicpay systems for some services, and one such is Mobil corporation'sSpeedPay, which consists of a belt worn by an attendant and which works ina similar fashion to the "pay-at-the-pump" system used by customers at self-serve stations. "Visa International Charges Ahead with Stored-value Card." InfoWorld (October 16, 1995), 78.Schifrin, Matthew. The customer can choose whether ornot to wait for a receipt, which saves additional time. Nonsufficientfunds and overdraft fees are the single largest source of fee income forcredit unions at 4 percent ("CU Fees Creep Up, Still Below Bank Fees" 9). A similar issue is raised as banks and other financial institutionsraise fees on merchants, who may then pass those expenses on to theconsumer. Security is a major concern for those using any kind of card, and anew card system recently instituted is the new Kardz photocard which allowsusers to issue credit, debit, ATM, and stored value cards with cardholderphotos on them in just a few minutes. Somepredict that within five years there will be fewer than 9, creditunions, and the same sort of consolidation is taking place in the bankingindustry. Manycomputer users today are accessing commercial enterprises on the Internet,but millions more have indulged in a different form of electronic commercesimply by using their ATM card, debit card, or credit card in the course ofdaily business. Banks collect up to two percent of the purchase price each timesomebody uses one, but security is not as good on this use as with an ATMbecause a code is not required (Mannix 73-74). Thefirst chip in the card features Visa Cash, a stored-value payment productin use in the United States and abroad, along with two applicationsproviding access to and protection for information stored on the employee'sPC. Thesecards work because of a vast network of electronic connections, many bysatellite, which allow for recording of transactions and near-instanttransfer of money from one institution to another. The dissemination of such cards has been part of a long-term and evolving marketing strategy on the part of banks and otherfinancial institutions to change the way people do business both with theirbanks and with retailers of various sorts. Services marketing. The banking industryoperated one way before the era of deregulation and has acted in adifferent way since, and though banks today charge more fees and activelyseek ways to discourage customers from using certain services, they remainservice-oriented industries. Two other methods of banking are found inthe automated teller machines and the noncash service terminal with a videoscreen to provide a visual connection with the union. They serve like credit cards in that theyeliminate both the need to carry lots of cash and the lengthy approvalprocedures when you pay by check. Front-stage operations are thoseexperienced by the consumer. This allows retail banks, creditunions, and other financial institutions to offer something that gives thema competitive edge with concerned consumers. All three channelswill be used to form the "virtual" credit union branch of the future,making use of interactive television. This system works bytransmitting the customer's card information by means of wireless modem andsatellite to a central Mobil Oil Credit Corporation computer, where thesale is processed. Issuing thiscard typically takes about five minutes, and the company promoting thesecards says that this gives staff members and consumers time to discussother products and services, such as loan programs and investment products. The cards are to be used at merchantswith point-of-sale terminals linked to a local concentration point, or withPCs at a card-issuing bank. Thetransaction is then processed instantly at the island in full view of thecustomer, and no signature is required. The system was originally developed in 1995 and hasbeen vigorously test marketed since 1996. Such multi-function chip cards are intended toprovide a diverse range of services in the corporate environment, and asDiana P. Instead,Lovelock suggests that customer service "embraces all personnel whose jobsbring them into contact with customers routinely, as well as on anexception basis" (Lovelock 491). All credit anddebit card information is encrypted before transmission, and this assuresthat the credit information will be kept confidential ("Mobil's 'SpeedPay'Debuts in New Jersey" 1). The second chip utilizes contactless technology and provides bankemployees with customized access to the bank building and parkingfacilities. More and more banks are using electronic service which alter therelationship between the customer and the organization and which reduce thenumber of people who provide customer service to the individual customer ona regular basis. A recent report shows that shoppers at Lucky Storessupermarkets across the country are using their automated teller machine(ATM) cards to pay for their groceries at a much higher rate. The ATM cardcan be used to make purchases at only a limited number of retailers, whilethese debit cards are accepted anywhere the MasterCard or Visa logos aredisplayed. Studies show thatthe issuance of this card increases card usage 2 to 3 percent, showingthat consumers are more likely to use cards if they get them right whenthey apply for them rather than having to wait for delivery. It costs credit unions more to provide ATMservices than it does banks, but often the credit union does not pass thesecosts on to the member. The cards have beensold to the consumer on the basis of convenience, safety, and empowerment,and the overall campaign has been highly successful. "Who Owns the Cashless Society?" Forbes (June 16, 1997), 42-43.Stark, Ellen. One problem evident in the early stages, however, was that atlaunch, only 4,5 retailers in five western states accepted Interlink. Banks have for some time pressured consumers to use ATMs rather thantellers, but many banks are beginning to charge fees for ATM use and so areundercutting their own marketing efforts. Personal computerbanking at home is an alternative some credit unions are trying today toallow members greater access. Security remains a concern with all these systems. BANKS AND THE MARKETING OF PLASTIC The banking industry depends heavily on customer service at severallevels and should be considered a service industry. More than 5 percent of the Mobil stations in New Jersey signed up for SpeedPay, withmore added each day. However,customers who do so are at risk because these cards draw directly from theowner's checking or saving account and can easily be stolen and used byothers, more easily used than ATM cards. There is also an ATM-likedevice in the Bank of America Clock Tower building which allows employeesto reload value onto the Visa Cash portion of their chip card using an ATM,debit, or credit card. Works Cited"Bank of America and Visa Piloting Multi-Function Chip Card." Business Wire (October 8, 1997), 1."CU Fees Creep Up, Still Below Bank Fees." Credit Union Executive (January- February 1996), 8-11.Hannon,Kerry. CONCLUSION The consumer today faces a wide array of choices for electroniccommerce at point-of-sale, and many of the new electronic cards offer otherservices, with more being added all the time. A recent instance is Visa International's Visa Check card andMasterCard's MasterMoney card, each of which have taken business away fromon-line ATM cards as they recorded 62 percent of all debit-card purchasesin 1996. One such new card is Visa's new debit card, Interlink, and anotheris the MasterCard debit card, Maestro. Some are now charging for services such asATMs and share drafts because of the higher cost of these services. "Why Debit May Be Better Than Credit." Money (October 1991), 22-24.Lemmon, N. Another new approach is seen in the recent test by Bank of Americaand Visa U.S.A. Knox, vice president of chip card products for Visa U.S.A.,states, "Overall migration from single-function to multi-function chipcards will result in practical solutions that deliver exceptional value tofinancial institutions, their cardholders and businesses" ("Bank of Americaand Visa Piloting Multi-Function Chip Card" 1). News & World Report (April 7, 1997), 73-74."Mobil's 'SpeedPay' Debuts in New Jersey." Business Wire (September 29, 1997), 1."New CRM Credit and Debit Card Solution Features DataCard Instant Card Issuance System." Business Wire (May 18, 1998), 1.Parker, Rachel. This is considered a way of providing an array of features andutilities to give greater convenience to cardholders. NEW WAYS TO PAY INTRODUCTION The development of cards which can access different monetary serviceselectronically has been the major boost to electronic commerce. Banks are faced with increasing competition from other financialinstitutions, such as credit unions, and technology is seen as crucial inthe survival of the credit union into the next century. Customer service is defined in terms ofservice operations, and those operations are differentiated as to whetherthey are front-stage or back-stage. "Six Ways to Steer Clear of the New Cash Machine Fees." Money (February 1, 1996), 49.Steinberg, Don.
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