Question

Team Activity Assemble a group of four students and assign each group mem- ber to one of the following roles: • Bill Decker (bank customer) . Gloria Liu (bank employee) • Carolyn Kleen (vice president, financial security) • Karl Marcks (bank stockholder, investor) VIRTUAL BANKING: AN IDEA WHOSE TIME HAS COME? The Situation Key Savings and Loan is a multibranch bank located in the Midwest. The company's headquarters is in Indiana and they have more than 35 branches scattered across Illinois, Indiana, Michigan, and Ohio, an area that has, unfortunately, become known as the "Rust Belt." The company has been well managed and profitable for decades, but they are finding it difficult to add new customers or replace ones that leave. The Dilemma A member of the bank's board of directors has recommended that the bank consider closing its branch operations and oper- ate as a virtual bank. Their existing customers could maintain their accounts and would have 24-hour access online. Mobile deposit technology will allow customers to deposit checks from their homes and offices. Customers will continue to be able to withdraw cash through ATMs, either those owned by the bank or through the national network. Other banking services would be available online, as well, such as car loans and mortgages. Closing the branches will save the company millions of dollars, but they have employees and customers to consider. ACTION STEPS 16-16. Before hearing any of your group's comments on this situation, and from the perspective of your assigned role, what are the advantages and disadvantages of becoming a virtual bank? 16-17. Join your group and share the advantages and disadvan- tages of becoming a virtual bank. 16-18. Do you think that going virtual would attract new custo- mers? What types of customers would be most interested in virtual banking? 16-19. What are the potential risks of virtual banking for both the bank and the customer? How can each protect themselves? 16-20. What new services might Key Savings and Loan be able to offer if they go virtual?

Answer 1

16-16The virtual banks provide financial services online and also provides telephone banking.Virtual banking is also known as cyber banking, e banking.The advantages of online banking are higher interest rate and lower mortgage and loan rates,free checking of accounts,convenience as account is accessible 24 hours.more advanced technology and environment friendly as no space is required for banking and there are no paper works.Customers can deposit and withdraw money through ATM.The disadvantages are as there are no physical branches, adding money to the account becomes slow,websites go down at times,lacks face to face transactions which make banking difficult at times.  

16-18 Virtual banking brings with it many benefits as there is absence of physical branches and less capital investment.However the challenge is to attract new customers and also retain the customers.By considering the needs of the customers and increasing their experience by adopting correct digital marketing and technology, financial institutions can take advantage of virtual banking and capture customers.

Millennials are the ones attracted to virtual banking. Millennials are those born between 1981 and 2000 and are in their 20's and 30's today.

16-19 Risks are operational risk like incorrect transaction,unauthorized access to banks,employee fraud, hackers etc. Again there are security risk as it is online and anyone can access the account and misuse it.Then there is reputational risk which leads to loss of funding and customers.Legal risk also exist in such banking as it is new to the industry and there is uncertainty about rules and laws.Criminal activities like money laundering risk is also prevalent.Cross border risks also exist as banking can go beyond national borders .

In order to manage operational and security risks it is needed to have proper system architecture and control.Proper security measures should be adopted to protect all information about customers.Banks should develop anti money laundering technology. Internal grievance redressal system should be developed to have fraud free culture .All banks are required to have security plan along with documentation.

Savings and loans are institutions that offer home loans to middle class .They do not operate online.If S&L go for virtual banking they can offer services like home loans online which will help customers as they can apply online .In recent times they offer checking and savings account like commercial banks.S&L can offer 20%for commercial loan but 65%should be invested in residential mortgages.