Online Banking and Investing

1. Online Banking and Investing Kazan State University Non-Commercial Fund of Corporate and Cultural Development “FORRA”

2. Outline • Online Banking Services • Hybrid banks • Internet-only banks • Online loans • Investment industry • Electronic Communication Networks (ECNs) • Online trading • Online bond trading • Merging financial services • Financial aggregation services • Wireless banking and trading • Financial planning online

3. Online Banking Services • Traditional banks have established online services • Internet-only banks lack recognition and brand awareness • Internet banking can reduce expenses • Online payment decreases the float • The time it takes for checks to clear after they have been sent for payment or deposited • Payments delivered faster than by mail • Frees up cash and decreases accounts receivable

4. Benefits and Risks to Customers • Benefits • No need to buy stamps • No need to send out bills early • Account information available at all times • Risks • Security breaches • Office of the Currency (OCC) has warned people that sites mimicking bank sites can scam them for account information

5. Hybrid Banks • Hybrid bank model • Traditional banks offering online services • Prominence of brand names increases customers’ trust • Customers can still visit a physical branch • Large network of automatic teller machines (ATMs) • Monthly fees to use online bill paying services • Important to survival and growth of small local banks • Can offer competitive services and attract national customers

6. Internet-Only Banks • Convenience and lower fees, higher interest rates • Can lower building and equipment costs, decrease payroll • Must accept deposits by mail • Little brand recognition • Insured by the Federal Deposit Insurance Corporation, but customer may still not be comfortable • Some are attempting to establish a physical presence

7. Online Loans • Traditionally, • companies and individuals dealt with several different lenders • filling out documents and comparing options was time consuming • Online • Process can be more efficient; approvals within minutes • Access to many lenders, shopping for best deals • E-LOAN, LiveCapital, companyfinance.com • Small Business Administration Office of Advocacy

9. Online Mortgage Services • Decrease time to find a mortgage • Digital signatures make documents legally binding • Ditech.com, MortgageRamp.com and LoopNet • Some sites provide mortgages directly from lenders • Other sites act as brokers, search for best mortgage • Internet may reduce number of broker jobs • Stability of the lender is an issue

11. Electronic Communication Networks (ECNs) • Facilitate electronic trading by: • listing securities order sizes and prices • connecting buyers and sellers • processing digital orders • Transactions are completed faster • Helps to lock in a buy or sell price • Before and after hours trading • Increased price transparency by listing prices from more than one exchange • Loss of the middlemen and the trading floors • Instinet, Island, REDIBook and Archipelago

12. Online Trading • Full-service brokers • Offer speed and convenience of online trading with the advice of a broker • Discount brokerage service • Requires self-sufficiency, investor responsible • Internet-only brokerages and hybrid brokerages • Factors to consider for investing online • Type of investments • Quality of site navigation and customer service • Cost of transaction vs. number of trades per year

13. Online Trading • Online companies charge a fee for every purchase or sale • Internet serves as a valuable learning tool for new and experienced investors • The Motley Fool, MoneyCentral and Money.com • Companies offering online services • Have made investing in stocks and options accessible to a larger audience • Provide real-time market information

15. Online Trading • Trading on margin • When an investor buys stock and borrows money from the broker to invest in the stock • Opening a margin account online requires low minimum balance, answering a questionnaire and being qualified electronically (no assessment is made by a human broker) • A stock’s value may fall below the loan value • The broker can issue a margin call • The broker requires that the investor invests more cash or securities or sell the stock to pay back the loan

16. Online Trading • Day trading • Short-term trades to profit on • market inefficiencies (e.g. news affecting the market) • arbitrage (converting from one currency to another) • Easier on Internet • Transactions limited by communication and server speed • Fees can be expensive • Day traders bear the same risks as other traders • CareerDayTrader.com, DayTradingOnline.com and OnlineTradingAcademy.com • Internet facilitates trading commodities globally • EnronOnline

18. Online Bond Trading • Bond • A written promise that an entity will repay a debt that is sold to an investor (investor receives original investments and a dividend for a certain period of time) • Online companies offer bond trading; claim that process is easier and cheaper • Tradebonds.com,bondsonline and MuniDirect • Internet can cut the cost of issuing bonds • Need for a standard system for bond sales process

19. Merging Financial Services • Since the appeal of the Glass-Steagle Act, banks, brokerages and insurance companies are permitted to offer a wide range of financial services • Most online financial services offer electronic bill presentment and payment • It is crucial for financial institutions to offer a wide variety of services to remain competitive • Prudential is just one example - offers a wide variety of online and offline services • Insurance, banking, brokerage, real-estate, B2B and financial planning

21. Financial Aggregation Services • Give users option of keeping all their financial information in one location on the Internet • Services use screen scraping • The aggregator visits sites with financial information and services, uses username and passwords to log in, downloads the information and stores it in one place • Many banks do not authorize screen scraping • Examples: • Yodlee, 1View Network and GainsKeeper • Privacy and security concerns; not regulated

22. Wireless Banking • Wireless technology offers customers a value-added service • Wireless banking • Paying bills from anywhere • Transferring funds between accounts • Checking account activity • Examples: • TD Bank Financial Group and Netbank

23. Wireless Hesitation

24. Wireless Trading • Wireless security trading is growing rapidly • Traders can receive important news and other information and make trades immediately • Companies offering wireless trading services • Ameritrade, CSFBdirect, Quick & Reilly, Morgan Stanley Dean Witter Online and Fidelity Investments • Wireless access to financial information may grow faster in Europe and Asia than in U.S. • U.S. has not agreed on a single standard or wireless device

25. Financial Planning Online • Internet made it easier for providers and customers • People can learn on their own about financial planning services • Companies can offer online applications, account histories, new products, investment tracking, etc. • 401kafe offers information regarding 401(k) plans - investing vehicles for employee retirement • mPower offers retirement-planning advice to employees of member companies that subscribe • ihatefinancialplanning.com provides information on all financial-planning topics

26. Summary • One of the fastest growing online service industries • Many established banks added electronic services • Internet-only banks lack brand awareness • Money is transferred quicker freing cash and decreasing accounts receivable • Using Internet to offer banking can lower costs, but there are risks • Companies can use Internet as another way to service customers