Book Review: E-Finance: The Future is Here

V.C. Joshi, former General Manager, UK and European branches, Bank of India and former Director of National Insurance Academy, has published the second edition of his book on e-financing. Joshi, with his considerable overseas experience, anticipated the potential of internet in banking and finance sectors. The book has 14 chapters, apart from tables and figures, which cover the various relevant issues and concerns of e-financing, especially in developing countries. The book largely focuses on Indian banking and finance sectors which constitute a significant part of economic transactions. The notable aspect of the book is the practical approach which it proffers concerning the status of e-finance.

Internet is a notorious media which has a unique nature when it comes to operations. Marshal McLuhan, who envisioned the use of media, has studied its nature and concluded that medium should be studied in its entirety to realise its immense potential. He further emphasised that the medium in itself is the message. A proper study of any medium would reveal its inherent complexities. In the same vein, internet as a medium has its own trajectory. Joshi has tried to fathom it in the areas of banking and finance especially when it comes to transactions. The present book offers a timely response to the financial service industry which has ‘witnessed major shifts in customer preferences in the use of this channel and security concerns’ (p. 1). On the whole, the book provides several practical solutions for banking and academic professionals vis-à-vis the execution of e-finance.

What does this book offer to the Indian banking sector? Indian banking sector constitutes the kernel of the Indian economy. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, at the 11th Advanced Management Programme ‘Towards the Next Orbit: Indian Banking Sector’ recently organised by IMI at New Delhi, catalogues the challenges and issues which are critical to the future of the Indian banking sector: (i) With the advent of Basel III and OTC derivatives reforms, the regulatory landscape of the Indian banks need to upgrade their risk management system. (ii) The stress on impartial dealing with customers, financial inclusion and Know Your Customer (KYC) exercises will call for a proper alignment of the data, information system along with the very mindset according to the global norms, provided banks want to look into the future. (iii) The challenge for banks will be the global environment which calls for new products and delivery channels to fulfil the upwardly mobile customer’s aspirations. The book, in fact, addresses the above concerns in a hands-on way. For instance, right from Chapter 4 to Chapter 13, the book covers a host of relevant topics in the context of the Indian banking sector—Product and Services in India, E-banking and E-insurance, E-trading, Click and Brick Marketing, General Aspects of Risk Management, Cyber Crimes, Network Security, Cyber Laws and Regulation of E-finance Institutions.

The first chapter, Indian Developments within the Global Context, apart from evolution and spread of the internet in India, identifies the focus areas which Indian banks need to reflect upon ‘before/after undertaking such investments’ (p. 5). These are: customer development, customer service and support, business to business growth activities, finance and accounting, retail and wholesale operations. Similarly, distinctive areas which call for care are: customer satisfaction, workforce efficiency, employee satisfaction, revenue per customer, customer acquisition costs and customer retention costs. He further points out that the banks’ ‘working has been affected by the fact that now telephone has been replaced by the internet’ (p. 6). This change demands treasury system to adopt, adapt and adept for the future.

In fact, this change may be perceived in a different way. For instance, any new medium basically amplifies the existing process. As McLuhan (1964) has put it, ‘For the “message” of any medium or technology is the change of scale or pace or pattern that it introduces into human affairs’ (p. 2). However, Joshi underlines the fact that ‘it is not the size of investment or even the availability of the technology, but a proper integrated approach in which various stakeholders contribute to successful implementation’ (p. 7). This is the case in point. The banks have to finally understand that internet at the organisational level is a pure technology whereas at an institutional level it needs to include all the stakeholders to make it a meaningful venture. Manuchehr Shahrokhi (2008) editor of the Global Finance Journal and the Executive Director of the Global Finance Association—Conference, too, believes that

E-finance is about web-enabled finance function, which includes all areas of financial service industry. However, if its true benefits are to be realized, e-finance is far more than just adding a web-front end to financial services. It is about changing fundamentally the value proposition of the finance function by re-defining its core activities, changing the interaction mechanism between itself and its prime customers, and moving it up the value chain by creating in assisting others in the organization to create better value for shareholders. (p. 366)

The first chapter concludes with the possibility of the use of internet technology in underdeveloped countries but it does not draw a clear picture of the future possibilities. In fact, the figure (what does the future hold) which is given at the end needs elaboration to make the reader fully understand the scenario.

What are the ROIs of the IT-enabled services in the banking industry? When it comes to any technology, one has to understand that it is an extension of the human being. It alone can never be a fruitful venture. In particular, Indian financial service providers need to understand that a significant change in their work method and culture is necessary to entice the customers worldwide to the Indian market. Here, the workforce needs to adapt and be adept at the e-financing methods to get the proper return on investment. These issues have been addressed in the second chapter.

The third chapter, apart from the use and purpose of the website of a financial institution (FI), catalogues various suggestions on how to use FI websites. For instance, the website ‘must clearly reflect what the organization is trying to achieve’ (p. 20) in terms of its product and services. However, the suggestions seem more on the functional front and less on the communication front. Foremost use of any website is to communicate with the audience. Any communication process is not complete until feedback is received. Particularly, the FIs in developing countries need to have a feedback and complaint section where the customers can put his/her grievances. As a result, this may help FIs to improve their services. The author has ignored this aspect which is vital to the FI websites, apart from the operational efficiency. The author could have discussed about this aspect in the chapter.

What are the products and services various financial institutions offer in India? It is an arduous task to actually understand the demands of the virtual customer. For this onerous job the author suggests a threefold strategy: traditional migrator, continual evolver and clean slate approach. Traditional migrator refers to the internet-banking capabilities that support the current products, services and approach. Continual evolver refers to those banks that reinvent themselves and focus primarily on the internet channel and deepening relationship by meeting customer needs. The clean slate approach is to create a new brand disconnected from its established identity. These three strategies have their own advantages. Further, the author quotes one of his own experiences and suggests that the banks have to find their own ways to reinvent themselves as per new trends and demands. The remarkable aspect of the internet economy is that unlike the other products and services, the surge in the price does not occur with the improvement in quality.

To understand the product and services offered by the various financial institutions, especially banks, an understanding of E-money seems pertinent. Simply put, E-money ‘represents monetary value which is stored on electronic devices and which is acceptable as a means of payment by undertaking other than the issuers’ (p. 30). A variety of E-money are in the market, such as, E-purse schemes, card-based schemes, contact-less cards, Pay Pals, debit cards, electronic travellers’ cheques. E-money in circulation is tough to estimate as it roughly comes to around 450 million euros.

In B2C section the various services presented include: balance confirmation and transfer of balances from one account to another. In fact, the author mentions ICICI Bank which offers its customers to pay municipal taxes online. Though internet has been perceived as a tool to help the better-off section of the society, the author has looked at the use of internet for the marginalised section of the society. In the area of micro-financing internet has been of tremendous help. For instance, the author has mentioned the cases of South Africa’s Standard Bank and Grameen Bank in Bangladesh. These banks primarily have leveraged the use of internet in the area of E-financing. Apart from this the next two topics cover E-trading in securities, equities and foreign exchange, E-trading in equity markets and E-procurements. Also, noteworthy is the suggestion the author provides regarding senior citizens and their acquaintance with the E-banking. The author regrets the fact that in India, Insurance Regulatory and Development Authority ‘has not yet accorded its approval to issuance of policies on the internet…’ (p. 35). This is partly due to the customers’ reluctance to buy the insurance online. The chapter concludes with five observations concerning e-products and services. The most notable of these five is: there is a constant need for adding functionality and new products. Customers should be able to do more things online than they do at a branch.

The next two chapters (5 and 6) capture the area of E-banking and E-insurance, E-trading. Chapter 5 is divided into three sections: the first section deals with the problems and policy frameworks for small- and medium-sized banks which are novice in the area of internet banking; the second deals with the banks who have implemented internet banking and assesses its impact on their workings; the final section observes stand-alone e-banks entering the field and the infiltration of mobile banking.

E-trading offers five distinct services: electronic order routing from the user to the systems, translating orders into trades, electronic dissemination of bids/offer quotes and depths, and post trade information. Chapter 6 covers these areas of E-trading. In particular, this chapter makes a departure from the previous edition which focused on the functionalities of the distributive channel. This chapter assesses the impact of changes on various fronts, such as, process of intermediation, competition, exchange and trading.

Click and Brick marketing refers to a particular business model which brings together the offline and the online combination. This is a pervasive model in India in particular and developing countries in general. In this chapter the author has made some figures to explicate the entire process. This may be useful information for management students and academic professionals.

The next two chapters deal with risk and security management. The distinctive aspect of E-banking risk management is its integration with overall management. At this stage absolute clarity is required to avoid any kind of confusion. The author believes that with foresight, such risks can avoid the worst situations. The author does feel the constraints of technology and admits that the anticipation and preparation for risks in this ever dynamic and evolving area is not an easy task. However, he has provided some of the guidelines of SEBI as useful information.

Cyber-crime is another area which needs proper attention. Though it is not so widespread in India, the author portrays the international scenario. Probably this would help the banking professionals to form an idea about the topic. Since cyber-crime is also an emerging area, the laws need to be tailored according to the dynamic nature of the crimes. Summary of BIS report on E-finance Risks have been provided in a table form to have a look which seems a practical approach. The best part regarding network security concerns is that the banks should ‘come out openly and make their clients aware of the occurrence of incidents’ (p. 140). The main argument is that banks need to take the clients’ trust into confidence because in a service industry the crucial focus is on the customer.

Chapter 12 puts forth the Cyber Laws in India and tries to contextualise it in the global arena. Additionally, the next chapter deals with the regulations of E-financing institutions that are emerging in India and other developing countries. The author stresses the fact that financial institutions, technology firms, auditors and regulators should work together for the interest of the customers and the systems as well. These are purely information based chapters which may be useful for finance professionals. However, the last chapter, The Internet Potential, could have been placed at the beginning to have a proper background for the topic. Its mention at the end does not seem to be a useful idea.

In sum, the book provides a ready-reckoner for the professionals in the banking and financial services. In particular, it seems to be a useful guide for the consultants in the same area. I would like to conclude with the title of the second edition which denotes that ‘the future is here’ unlike the previous edition which talked about the idea of ‘log into the future’. The book has rightly tried to spot the concerns and issues for the future which has already happened.