Online banking vs Traditional Banking

Availability:

Online banking always available 24/7 and traditional banking is only operating during working hours (usually 9-5). So customers are not be able to go to bank to do banking activity after the working hours which is bad for business since nowadays business still conducted even after normal working hours.

Security:

This is the major bummer for online banking user and create insecurity among them since customer’s money is not on their palm. Many customer will feel more secure when going to physical bank since you can see the security cameras, the securities who guards the bank and might be some soldiers. This will create secure feeling since the building is heavily guarded and you are inside the building with your money.

Personal preferences:

If you go to physical bank, you can meet more people, like other customers, bank staffs, the bank manager, etc. Some people might like to meet new or make connection with other people, some other prefer to stay away from people and chose not to meet them.

Interest rate:

Most online banking have better interest than brick-and-mortar bank because there no funds to operate the building and the interest rates of online banking in some banks are 6 times higher than traditional banking.

Traditional banking in Malaysia

Malaysia is playing an iconic role in Islamic banking, having been a pioneer in the beginning and a frontrunner in the global arena at present. Malaysia has come a long way since the first Islamic bank was established in the country in 1983. There are now five wholesome Islamic banks, local and foreign, and eleven Islamic subsidiary banks owned by conventional banks, local and foreign.

As is well known, Islamic banking operations are driven by the shari’ah which defines the nature and character of the deposits mobilised and financing provided. Islam prohibits interest (riba) and permits trade (tijara). Accordingly, profits in Islamic banking operations are derived from the contract of trade (al-bai’), unlike the conventional banks’ profits which are derived largely from interest-bearing loans. In Islam, it is business risk taking, and not financial risk taking, that forms the basis for profits.  The al-bai’ principle is manifested by an exchange of money with an underlying asset, whereas a contract of interest-bearing loan entails an exchange of money for more money.

What legitimises profit in Islam is risk taking (ghorm), effort (kasb) and responsibility (daman). Theshari’ah objective (maqasid al-shari’ah) plays a critical role in determining the legality of Islamic transactions, as it inisists that all transactions must have positive impacts on general welfare. Seen in this context, there is much more to Islamic banking than the prohibition of riba. Other prohibitions include ambiguity (gharar), gambling (maisir), and bribery (rishwa). All transactions must be transparent based on mutual consent with offer and acceptance (ijab and qabul) being free from duress (ikroh).

Put in a nutshell, real sector connectivity and risk sharing distinguish Islamic banking from conventional banking. In Islamic banking, all financial transactions must relate to the real economy with no space for ‘financialisation’ or financing for the sake of financing. In the Islamic paradigm, the financial sector is inextricably linked to the real sector of the economy, which means that the financial sector would not exist on its own.  In other words, in the Islamic order, the financial sector primarily functions as the facilitator for the real sector.

Online banking in Malaysia

In 2013, 14.3 million people already use online banking (49.1%) and 0.3 million of them are corporate users. This online banking initiate merge of 51 banks institution and 10 banking groups. The mergers, which involved the consolidation of 96% of the total assets of the banking institutions was achieved with minimum disruption and dislocation to the system. This has been a major accomplishment by the domestic banking industry. This merge also make domestic bank earn more and this is a great benefit for national economy.

Under the Bank Negara Malaysia guidelines, all licensed banking institutions in Malaysia are allowed to establish informational Web sites. For more advanced Internet banking services, only domestic banking institutions are allowed to establish communicative or transactional Web sites with effect from June 1 2000. Locally incorporated foreign banks, however, are only allowed to incorporate communicative Web sites from Jan 1 2001 and transactional Web sites from Jan 1 2002 (Low, 2000). Only banking institutions licensed under the Banking and Financial Institutions Act 1989 and the Islamic Banking Act 1983 are allowed to offer Internet Banking services in Malaysia (BankInfo, 2005).

The Internet wave has caught on in Malaysia, especially through the MSC initiatives undertaken. In the first wave of the Internet, it is extensively being used for communications, messaging and the posting of static information. Businesses use it as a form of online brochure, publicising their corporations.

Rapid advances in ICT has also significantly revolutionized the banking business, transforming processes as well as the strategic focus of banking institutions. It has fully opened the doors for new business opportunities as well as offering new methods of delivery of banking products and services, such as through the Internet. Under the new environment, competitiveness will not depend only on physical presence as in traditional markets, but rather on the ability to capitalize the technology strategies so as to deliver efficient and effective services. Successful banking institutions will be the ones that are able to leverage most from the ICT revolution as greater recognition is accorded to ICT as a driver of change. This approach emphasizes on high standards of corporate governance, transparency and accountability. In adapting, banking institutions would need to reassess their internal practices as well as the overall corporate culture to be consistent with the new rules and regulation (Bank Negara Malaysia, 2001a).

Customer satisfaction may increase based on the want and need, times, power of buying, and status. Today’s companies have moved from a product and sales philosophy to a new marketing philosophy. Customer-centered companies have emphasized a better understanding of customers’ needs and wants and then translated them into the capability to give customers what they really need and want. The technology of E-Commerce determines what can be offered to customers, but only customers determine which of those technologies will be accepted. The key to success for E-Commerce lies in knowing customers.

What is online banking?

Online banking is a modern banking system that emerge after technological advancement and information technology. Bank customers are able to perform their banking activity from anywhere and anytime as long as they are connected to the internet.

Online banking through traditional banks enable customers to perform all routine transactions, such as account transfers, balance inquiries, bill payments, and stop-payment requests, and some even offer online loan and credit card applications. Customers are also able to access their bank account and the information will be updated every time they check it.  

However, some banks might have limited coverage for online banking since they might have problem with infrastructure and environment. Security might be an issue for some customers since hacker can steal their money even though it is unlikely to happen.

What is traditional banking?

Traditional banking is the usual physical bank that customers often visit. It is the basic form of banking worldwide. Bank itself is a financial institution with main purpose to act as a payment agent for customers and to borrow and lend money. Bank can receive, keep, and lend money.

Introduction

Today’s technology can be considered sophisticated. Infrastructure provide advancement in technology and technology can make our life easier. With good infrastructure, a country can provide fast internet for communication which will affect the population in a good way. Fast internet can help in many aspects. For example, in education school can make an online portal for the students so they are able to find information about the school, online enrollment, online class, etc. In business section, online transaction is very beneficial. Online transaction is fast, very convenient, and can be done anywhere with internet connection. Business can get their money just in a blink of an eye from their customers. Nowadays, online banking already popular and adopted in most of big banks around the world. Their common services are include balance inquiries, transfer funds, ordering check, requesting credit card advances and bill payment.

Despite the advantages of online banking, the implementation of this new banking system is not as high as analyzer expected. In western countries like United Kingdom and Brazil, the growth of adoption of online banking is showing positive progress but yet we still cannot conclude this research since there are many mixed result in different regions. Specifically in Malaysia, the implementation of online banking I relatively low in 2006.