Internet Bank FailuresEssay Preview: Internet Bank FailuresReport this essayProduct failures happen more often than many people would think. The failure can result from many elements of a products campaign such as the introduction to a stale market, missing the target through improper ad campaigns, and most importantly, not modifying a products concept to appeal to a foreign market. Web banks, also known as internet-based banks, are one such example where the success that originated in the United States was not transferred to Europe. Instead, failure occurred because of three main reasons: the money plant, the lack of access points, internet fraud, and lack of unity among neighboring countries.
Banking in Europe before the introduction of web banks was very basic. People were drawn to the personal attention they received from the customer service staff, the multiple access points such as ATMs and local branches, and the ability to use new technology such as the internet to check balances and transfer funds. The banking structure was very similar across borders of countries and was what people were used to since the evolution of banking. People trusted their banks and showed a great deal of brand loyalty, an important factor that was overlooked when introducing web banks in Europe.
Web Banks very quickly turned into a large failure for many companies across Europe. The initial concept of web banks was that they would provide many services to you in the comfort of your own home, often at far lower rates than traditional banks. While many traditional banks such as Vontobel Holding AG have many requirements to hold accounts with them such as a minimum balance charge and low interest rates, web banks main concept was to offer banking for free with no balance requirements, multiple loan opportunities, and the tracking of many separate accounts under one umbrella. Realization soon came that most banks were built on the personal customer service that it provided and the money that kept the bank afloat was the money earned off loan interest and account charges. This left many bankers in Europe to second guess the new web banks. “It would have been hard for us to establish full relationships with new customers, and we couldnt really see where the revenue was going to come from.” With no solid revenue stream and no personal attention, a cornerstone for banking success, it is any wonder that the proposed web banks even were invested in. However, after the success the United States saw with the new technology, Europe began to develop numerous companies.
Many factors contributed to the total failure of web banks. In no chronological order, first the money plant went askew. ABN Amro Bank of Amsterdam and KPN Telecom, a Dutch telecommunications firm, ended their eight-month collaboration on Money Planet, a joint venture that would have offered mortgages, insurance, and savings accounts over the Internet in the Netherlands, Germany, and Belgium.
“The worsened sentiment around Internet companies played a role in the ventures folding,” said Tanno Massar, an ABN Amro spokesman. So too did research showing that the companies planned investment of $180 million would not have brought in enough return on the initial investment. The companies had spent a few million dollars before folding the effort. Most of the spending was on about 40 employees, who have since returned to jobs in their parent companies. “The market for Internet financial services companies offering products from different parties under a stand-alone brand name is not convincingly viable.”
A second reason for failure is the lack of multiple access points. An example of an access point is a walk up ATM or drive throughteller. While the convenience of banking at home on a computer saves time and hassle, the need to bank while on the go becomes almost impossible with todays internet availability. If you needed to bank while an hour away from home where you had no computer, going to the nearest ATM will do you no good. What needed to be implemented was an internet based multi-channel service where multiple access points could be utilized with your current web bank to maximize a users availability to banking services. “Theres a consensus today in the United States and Europe that successful strategy is multi-channel,” said Gwenn Bezard, manager of the Paris office for Celent Communications, a global research firm.
A third reason for failure of web banks is that internet fraud detracts from potential users to place trust in the new technology. With e-commerce succeeding at such a great rate, thieves also have targeted many such companies. Web banks became a high profile target because of the large amount of money accessible. “Last month the International Chamber of Commerces commercial crime unit uncovered $3.9 billion of fake bank guarantees on the Internet. The guarantees were published on at least 29 scam sites — rigged so they appeared to be run by the international clearing house Euroclear Bank or the financial news provider Bloomberg News — that tried to persuade people to invest in projects and finance schemes.” Examples such as this cause internet companies to spend millions of dollars to protect their network
ⅵ: the fraudsters use their accounts to get in to “scam” sites. Some of them may even bribe people to visit new sites where they hope to be identified. The thieves then use these sites to spread scams and sell them to unsuspecting users, often to money changers or customers, using their identities as a means to gain access to those sites to purchase high priced products or equipment. Many banks and e-commerce providers may be able to avoid this by using “scams.” ⓜ: Another way that the criminals get into large banks is through the use of phony documents, which can be filed with the Federal Trade Commission. The fraudulent documents can add up to large sums of $100,000 to over $100 million. However, they can also bring in a host of other false documents that have little real value and could cost big companies thousands of dollars. Some of these documents include: A statement by a government official saying that the document is forgeries and that that the documents are so bad, they need to be changed to include a disclaimer stating, “we cannot guarantee that this document will continue to be in use for up to two years.” A document that gives false general and technical information about “financials” to credit fraud investigators such as the Internal Revenue Service. A document that says it is proof that a trust is maintained in another person (including family, friends and acquaintances) by someone under financial circumstances in which they are dependent. Any of these documents can also include bogus email addresses. A document that allows potential clients to anonymously send out anonymous inquiries to banks, e-commerce companies or financial institutions. A document that makes it difficult for people to report credit card fraud by showing them an attached address or a web address. A document showing an additional account as an authorized debit or credit card without any information about those accounts to the police. Such documents include, but are not limited to, financial reports and contracts, checks, invoices, bills, and bank accounts from “foreign entities” and other financial entities. A document that shows that a bank has set an advance date for a particular transaction or a specific security lock up. A specific statement indicating that a specific transaction “is” on a wire transfer or that it requires a specific amount of verification that it is being used to create a signature on a check. And many other documents that allow fraudsters to claim credit card or other financial documents from businesses, companies or individuals. In short, fraud thieves can break into credit card databases and use fraudulently created names and addresses to access financial records, identity records, or other information. The thieves also often do so in a manner that makes their work “scam proof, so everyone who pays attention to it can now see it for what it is” ↗: Internet banks and Internet service providers (ISPs), which are required by law to keep records of all their customers and all cash transactions. Some companies or ISPs may even be authorized to use some of these data to help secure payment or other services – as long as these companies don’t “scam.” However, according to court documents, many ISPs may have done that and could have avoided lawsuits. ISPs also must have kept some of this data in a