2008 could be the start of exciting new developments in electronic banking, both in mobile banking and in peer-to-peer (P2P) lending.
The electronic bank is gradually taking shape in the UK. Much of the automation is in the back office and this has proved an obstacle to progress, as banks have attempted to bolt sophisticated products to a varied collection of machines programmed in basic computer code in the 1970s. However, new platforms are now being installed and more banks are investing in modern, flexible systems that will make personalised customer services possible.
Gradually, paper cheques are being phased out in the UK and other major economies. In many cases, paper cheques have been replaced by direct debit and a greater number of payments are being made by plastic card.
However, it appears that the use of the immensely profitable credit card has peaked in the face of a debt crisis and controversy over interest rates. Innovation in contactless cards has focused on the debit card, which is growing in popularity.
The electronic wallet, which was much promoted at the end of the 1990s, has failed to gain the enthusiasm of either retailers or customers wherever it has been piloted. Similarly, the use of mobile telephones for transaction purposes has failed to increase, and the development of interactive television led to nothing within the banking industry. Telephone banking has expanded to cover most bank customers and its future growth is likely to be slow.
Direct banks, set up by major institutions to bypass their traditional and slow-growing services, matured in the years 2002 to 2007, capturing a new market segment and largely contributing to parent companies' profits. Neither these, nor the direct online channels set up by their parent companies, have cut the necessary costs of branch banking, since most customers look for face-to-face contact if they have financial problems.
Instead, new developments in wireless technology and mobile telephones in 2007 promise a new way to replace cash transactions for sums of up to £10. These new payment methods are due to be rolled out in several banks during 2008 and involve a combination of contactless technology and mobile telephones.
The development of Web 2.0, the next generation of Internet applications, has been boosted by the increased domestic coverage of broadband. P2P mutual lending organisations, which have been in existence since the early 2000s, have grown quickly as a result of enthusiasm among `Generation Y' (people born between 1978 and 2000). Any downturn in credit availability, or higher interest rates on bank borrowing, may give these alternative banks a boost.
Key Note forecasts that, between 2008 and 2012, automated payments will rise significantly in volume terms, while those by plastic card will remain at a similar level. Cheque payments are forecast to fall significantly in volume during this period.
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