Download what is finance

E-FINANCE
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WHAT IS FINANCE ?
 Art and science of managing the money. Concerned with the process,
institutions, markets and instruments involved in transfer of money among
individuals, business and government.
 Area of finance
1. Financial services: is concerned with design and delivery of advise and
financial products to agencies and people.
2. Financial management: is concerned with the duties of financial manager,
who perform various tasks, e.g., budgeting, financial forecast, cash
management, credit administration, investment analysis and funds
management, etc.
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WHAT IS E-FINANCE ?
E-FINANCE is finance anywhere, anytime, any place at the lowest cost.
E-Finance is defined as the provision of financial services and markets using
electronic communication and computation with the help of internet and intranet
by the use of hi-tech IT.
E-Finance by way of:
1.Use of electronic payment system
2. Electronic operations of various financial services.
3.Online operations in various financial markets.
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DEFINITON OF E-FINANCE:
E-Finance is a financial transaction that depends on the internet or a
similar network to which households or non-financial enterprises have
access.
-OECD
E-Finance has a great potential to improve the quality and scope of
financial services and expand opportunities for covering trading risks
and can widen access to financial services for a much greater set of
retail and commercial clients by offering more cost effective service.
-World Bank
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EVOLUTION OF E-FINANCE:
1-Technology: Computer, Internet and Telecommunication
Technologies enabled businesses to be conducted in a fast, efficient and
secure way.
2-Globalization: Worldwide liberalization of trade and investment
facilitated the growth of global business including the Internet based ebusiness and e-finance.
3-Regulations: Both deregulations of the finance industry and reregulations of e-commerce facilitated the growth though in some areas
lacking behind technology.
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EVOLUTION OF E-FINANCE:
4-Entrepreneurship: Creativity allowed entrepreneurs, start- ups and
seasoned companies to break ‘old economy’ traditions and deliver
business solutions through new, exciting and often radically different
structures.
5-Capital: Capital provided the financial means to put these technical
and human wheels in motion.
6-Competition: The above factors created a globally competitive
environment and pool of talents to compete for introducing new
technologies, concepts, and models.
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WHY CHOOSE E-FINANCE?
 E-Finance looks at all organizational business processes as interrelated
activities.
 To eliminate all non-value added activities.
 Offer faster and more accurate financial transactions by processing at a lower
cost.
 Quick and accurate external as well as internal reporting.
 Real time gross settlement.
 Proactive and strategic planning.
 Effective risk management.
 Ensuring compliance and control.
 E-Finance helps in Total Quality Management.
 Effective decision making as it offers analysis on a real time basis.
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BENEFITS OF E-FINANCE
1. Easier Access to services and information. The Internet can reduce financial transaction
costs and increases the speed at which financial services can be delivered and the Internet
can cut down the cost of credit information, which used to be expensive and difficult to
obtain.
 Reduction in transaction processing cost by 78% in cycle time of business process.
2. Improved accuracy. Most e-finance systems now use “straight-through processing”. The
once-only data entry process eliminates the need for repeated checking of information,
reducing error tracing and correction procedures.
 Reduction in error by 99.8%
3. An “Anytime Anywhere” financial advisor.
4. Seamless integration with other trade systems. An e-trade finance system can be easily
integrated with other trade systems if it is properly set up and adapted to global standards.
For example, the e-trade finance system of a bank can be integrated into its country’s
Electronic Trade Documentation System. This will contribute to the faster clearing of customs
and thus to a shorter business cycle.
 Reduction in process cycle time by 80%
5. Low barriers to entry.
6. New Financial Products.
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WHAT ARE THE ISSUES CONCERNING E-FINANCE?
 Security The Internet can be subjected to many security risks such as
software viruses, hacking and service disruptions.
SECURITY OF ONLINE TRANSACTIONS
 Authentication: validates identity of each party or user in the transaction.
 Authorization: allows rules to dictate who uses what resources under
what conditions.
 Confidentiality: protect confidentiality of sensitive information while
stored or in transit.
 Integrity: ensure the message has not been altered or tampered while in
transit or stored in online database.
 Non repudiation: prevents any party or user from denying a transaction
after the fact that digital signatures are associated with the transaction.
 Audit control: provides audit trials and recourse for all users.
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HOW DOES E-FINANCE WORK?
 E-Finance Models
Standalone
e-banking service
• In this model, the banks
have set up their efinance services and
products on their own
website. The bank
customer will have to
use the web site to
apply for the service
and track their
application.
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Integrated e-marketplace
Global Trade Portal
• Some banks have integrated their
online banking service with emarketplace providers. The
advantage for this model is that
companies now do not need to
have a separate log in process
with the bank after the business is
done on the e-marketplace. Trade
and banking information can be
consolidated and viewed within a
single platform that provides better
information management and
greater transparency.
• The two other models
may be useful in the
domestic market. While it
helps to speed up
financing for companies,
it does not provide a total
solution for exporters and
importers. Manual
documentation and
traditional trade services
will still surface once the
goods leave the port.
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HOW DOES E-FINANCE WORK?
 The E-Finance sector can be divided into five broad categories:
1-Business to business (B2B)
2-Business to Consumer (B2C)
3-Consumer to consumer (C2C)
4-Technical infrastructure to support the e-Finance platform
5-Global, institutional and regulatory environment that
facilitate the functioning and growth of e-commerce and
e-finance
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1-Business to business (B2B)
Internet platforms created by institutions to serve other institutions.
In B2B sector, businesses supply information, goods and services to other businesses
and develop business related exchanges to serve other businesses.
B2B business exchanges bring together companies from identical (vertical) or different
(horizontal) industries.
Trends in the B2B Financial Service Sector
A-Reduced Transaction Costs
B-Disintermediation and Electronic Re-intermediation
C-Customized Solutions and Integrated Services
D- Electronic Trading
E- Electronic Funding – Venture Capital – IPOs
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2-Business to Consumer (B2C):
Retailing of goods and services directly to individual customers.
In B2C, business supply information, goods and services to individuals; they can purchase
the goods directly from B2C platform.
Most established segment of E-commerce
Trends in B2C Financial Service Sector
A-Customer-centered retailing
B-Online Trading
C- E-Banking - Online Banking
D- Personal Finance/Wealth Management
E- Insurance and Annuities
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ADVANTAGES OF E-FINANCE:
Real time analysis of key performance indicator
Faster and more accurate financial transaction processing
Increase the overall performance of the company
Quick and accurate external reporting
Computing at low cost
Reduce asymmetric information
Enhance the liquidity of any firm through better management of
their assets and liabilities
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INTERNET SUBSTITUTE FOR TRADITIONAL TRANSACTIONS:
1-Online Banking: It includes automatic payroll deposit, automatic bill payment
and transfer funds from one account to another, viewing account status and
transaction history.
2-Purchasing by credit card: In these transaction credit card numbers are sent
via internet from buyer to the seller
3-Brokerage transactions: These transactions substitute the internet for the
telephone or in person transaction.
4-Investment research: Investors may perform research into companies whose
shares they are considering for purchase or sale, future contracts or other
derivatives.
5-Filling of company reports and tax returns: Companies can file required
reports with government agencies via internet.
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TYPES OF E -FINANCE SERVICES
1.
2.
3.
4.
5.
6.
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E-Banking
E-Payment
E-Trade Finance
E-Credit and e-loans
E-Insurance & guarantees
E-Rating
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E-BANKING
E-Banking is also called internet banking or online banking. The service
enables customers to perform basic financial transactions such as enquiring
bank accounts; make bill payments; transfer funds etc. Because e-banking is
relatively easy to set up, the barriers to entry are low. As a result, e-banking is
not limited to just big and well established banks.
Due to the low barriers to entry, there will be more service providers in the
market. These service providers may take different forms. They may be existing
banks from other countries, new banks that operate purely on the Internet, and
finally a third party web portal that acts as an intermediary to banks.
Features
Core Banking
Internet Banking
Retail Banking
ATM
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E-BANKING - Benefıts of e-bankıng:
By the use of online banking any business firm can manage their supply chain network
effectively by using its online funds transfer mechanism on a real time basis across any
bank location which will enhance the liquidity of the business firm.
• Complete access to your account whenever and wherever you are around the world.
• Perform real-time transaction and account verification.
• Be safe and secure (with SSL encryption using Verisign)
• Put your investment right on your desktop, and watch a world of opportunities open up
right before your eyes.
Why an organization should launch E-banking?
To protect and enhance the organization`s reputation for innovation
Added value for customers
Means for attracting customers
Actions taken by competitors
Potential to develop customized services
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E-PAYMENT
The payment system forms an integral part of the banking and financial system. With the
advancement of ICT, affordable e-payment can be a reality. E-Payment includes electronic
payment in the physical world and the virtual (internet) world. E-Payments are delivered
through channels such as debit cards, credit cards, pre-paid cards, Internet banking and
mobile banking.
A typical
payment
system
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E-TRADE FINANCE
Trade finance is traditionally paper-based, making it slow, costly and error-prone.
The advent of Internet has created an opportunity to streamline such processes
through electronic documents.
Typical services provided in e-trade finance are:
· LC (Letter of Credit) applications
· Apply for shipping/ airway guarantees to clear cargo in the absence of
transport document
· Apply for bank guarantees to secure advance payments or as performance or
tender bonds
· Apply for import financing (trust receipts/ bills receivable purchased)
· Foreign Exchange
e-Trade Finance services involve high value transactions and complex document
processing. Therefore it requires one of the most advanced technologies to deploy.
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E-CREDIT AND E-LOANS
In e-credit and e-loan, SMEs are able to apply for credit facility or loan online
from the bank. When the credit or loan is approved, the amount will be credited
directly to the customers account.
In some e-credit and e-loan applications, the system is not fully automated. In
this method, SMEs will apply for the credit or loan facility online. The
information will be channeled to a bank staff that will manually access the
financial situation of each application. Once the application is approved, the
process is then handled back to the computer system whereby the SMEs
will be informed of the status of the application through the e-finance system.
In the area of e-credit, some implementation has gone fully automated. Credit
facility is automatically granted once the application is approved. One critical
consideration in such situation is that the bank must have sufficient information
about the SMEs and have sufficient risk management system built in place.
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E-INSURANCE & GUARANTEES
Available as part of the e-trade finance module in many banks, e-insurance
and guarantee services enable SMEs to apply for insurance and guarantee
online. As the processes involve fairly complex documents flow, it is usually
done through human intervention as soon as the customer submits the
application electronically.
As for insurance, banks normally partnership with large insurance companies
to jointly provide such a service. In this case, information captured from the
bank system will feed the bank’s financial partners. This involves the privacy of
customer data, thus the bank has to make clear to customers that such
information will be forwarded to a third party.
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E-RATING
Credit rating of SMEs is highly important for both: banks and SMEs. To
manage their risk and to safely execute their credit or payment transactions,
FIs need to know the credit and payment track records of the parties involved
in the transactions. This need is particularly important for SMEs, who have
difficulty accessing finance due to the perceived lack of creditworthiness.
This perception could be avoided if reliable data and information are available.
While banks have their own risk management and credit assessment units,
they also rely on specialized services, which provide credit information and
assessment data, as well as ways and means, such as credit risk insurance, to
reduce the credit and transaction risks.
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DEPLOYMENT OF E-FINANCE
It requires reasonable amount of organizational change management mostly in
terms of elimination of redundant and non-value added activities, shift in focus
from transactional to self service oriented process automation, reliance on
financial analysis and early warning system for supporting operations.
E-Finance is aligned with Total Quality Management and continuous
improvement.
E-Finance can be implemented with commercially available software such as :
-Portals
-Business Process Management software
-Intelligence
-Web services based integration product
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