Internet Banking: Alternate Strategies

In the light of the fact that the e-commerce regulations for India are to be announced soon and the entire banking industry in the country is

looking at the Internet as the future of the industry, this analysis assumes

importance. Financial institutions planning to enter the Internet market can adopt two approaches–either a segregated approach of establishing a totally new, separate organizational infrastructure, and implementing new products and services external to the existing

operations. Else, follow the conventional alternative of entering the Internet by

focusing on locating products that are available to carry out the services that are to be offered to the consumers,

selecting the best products and implementing their selection through 



integration into an existing operational infrastructure.

The following three distinct postures for entry into the Internet market are worth considering. Strategic Posture

refers to an organizational position that includes a well-defined strategic vision of a target market, identification of

specific products to be implemented, integrated with the anticipated lift that will be provided to the institutions as a result. Tactical Posture is an organizational position where an institution has not yet defined a specific strategic vision for its Internet direction but is willing to move one or more products into place to test their viability prior to incorporation as a strategic initiative. Defensive

Posture is a position where the organization has chosen to implement Internet-based services solely on perceived 



market-place pressure and currently believes that it will not be a niche player in this area. 


But given the posture of the organization on Internet products, which direction, segregation or integration, is the best implementation approach? The significance of this question relates directly to the initial and continuing impact that implementation of a new product from a new platform has on the existing operational infrastructure of an organization. There are preferred approaches to each of the three postures that should be considered while planning the implementation of new products. The preferred approach for a financial institution following strategic posture should be segregation. Those institutions that have firmed up their Internet strategy and decided that it will be an on-going integral part of the future would be best served by developing a new and segregated infrastructure. This means
establishment of a unique operational division to include hardware platforms, technical support, and customer service areas. It is difficult enough to integrate one or two new platforms into an existing infrastructure and even more difficult to keep up with the changes in

infrastructure when it is being revised by an additional entity within the institution. Every new system presents new challenges because that infrastructure will not stand still while you are preparing a new product for production implementation. Major financial and time-to-market impacts faced by the institutions are taking this approach to new Internet products.

Segregation holds good for tactical posture as well. The same conditions apply in most cases of tactical product implementation, similar to a strategic posture. There is, however, the need to consider the importance of time-to-market. If the driver behind the initial one or two product implementations is time-to-market, it may be best to prepare to invest slightly more in the development of a segregated approach. If the Internet products later become a part of the institution’s strategy, nothing is lost. The risk here is that the institution

decides not to expand the Internet offerings. At that point, the decision on maintaining the segregated operation or moving towards integration becomes more of a financial decision.

Integration comes out as the best strategy for an organization adopting defensive posture. Although the time-to-market may still be a factor in the decision process here, it is likely that the costs for what is perceived to be a small offering-set will drive the institution to integration. The integration process can be much slower but a more stable set of product offerings relieves a lot of the pressure on the infrastructure experienced in the other two postures. In an era when India is looking up to

e-commerce and Internet banking as the most important development in the financial industry, understanding the various options available with the industry to take banking to the World Wide Web is important.