E-Finance: Current Developments, Issues, Impacts, and Future*

Yong H. Kim
*Acknowledgement: I thank Feng Jiao for his help in preparing for this draft.

1. Introduction
As the growth of Internet broadens its scope, e-finance grows accordingly. As part of e-commerce, e-finance has its own unique characteristics. On one hand, the Internet offers convenience, price transparency, broader access to information and lower costs; on the other hand, financial services are data intensive and do not generally need physical delivery of products. The combination of the two seems to give unique advantages to help e-financial services grow faster than other e-commerce sectors. The impact of Internet on traditional financial services can be categorized into price transparency, differential pricing, and bypass and disintermediation. (Clemons, Hitt, Gu, Thatcher, and Weber (2001)) Before we go on with the main part of the discussion, we would like to give efinance some definition. Since there is no broadly accepted definition of e-finance, we tentatively define e-finance as the provision of financial services: Internet banking, brokerage, payment, mortgage and other lending, insurance and related services over the Internet or via other public networks. The presentation will include the following segments: e-finance developments around the world, e-finance issues around the world, and the future direction of e-finance growth.

2. E-finance growth around the world

2.1. Overview of e-finance developments

Sato, Hawkins, and Berensten (2001) show recent developments in e-finance. The growth of financial services is estimated to exceed one trillion dollars (see Table 1). According to one estimate, e-finance revenues will more than double in three years (Morgan Stanley Dean Witter, 1999). However, not all segments grow at the same speed in financial services. Among the segments such as brokerage, online banking, e-payments, life insurance, and investment banking, Internet brokerage grows the fastest. Online banking grows a little bit more slowly. E-payments, life insurance, and Internet banking hardly see any dramatic growth. Growth in brokerage can be seen in Figure 1. However, some simpler financial service products might see potential growth in the next few years. They include online credit cards, mortgages, student loans, and car loans and leases; simpler insurance products such as car insurance, travel insurance, and home equity insurance. From an international perspective, e-finance grows the fastest in the United States and Europe. Pacific region also grows at a quick speed, led by Japan, Singapore, and other countries in the region. Even though the e-finance leaders are in the U.S. and Europe, they also show different characteristics. U.S. e-finance is largely PC-based. That is caused by years of penetration of PC in the U.S. market. However, in Europe, both PC and mobile phones penetrate fairly well in the market. This is not surprising because Europe has the mobile phone leaders such as Norkia and Ericsson. European countries usually adopt WAP (Wireless Application Protocol) technology, allowing Internet banking and brokerage via mobile phones. This kind of banking is also referred to as Martini banking: anytime, any place, from any access device.(Figure 2 and Figure 3)

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2.2. Different growth rates seen by e-finance segments: Theoretical background

According to Mantel (2001), the first is product diffusion theory. Building on a new product diffusion theory, some studies cite a laundry list of barriers standing in the way of e-finance growth path. On the demand side, studies have cited customer resistance or inertia, lack of incentives, and lack of customer awareness of the innovation as obstacles to change. On the supply side, studies have pointed to the lack of clear standards, the need to overcome industry fragmentation, inadequate incentives among incumbents, and the presence of network externalities. This theory assumes implicitly that a significant portion of e-finance innovations are clear substitutes for existing services and that additional work by incumbent firms alone or in collaboration will lead to broad acceptance. The barriers to entry in various segments can be seen in Table 2 ( Classens, Glassner, and Klingebiel (2000)).(Table 2) A competing theory about the e-finance phenomenon is called new market development. The theory suggests that broader structural changes are underway, driven by technology, and these changes are blurring the lines between banking and commerce. While it is both natural and critical for incumbent firms to experiment, this theory suggests that innovations tend to unleash improvements that incumbents may not find valuable in the short-or mid-term. Some observers may suggest that incumbent firms in these industries do not understand their markets or are not adequately investing in the future. However, studies have found that incumbent firms, for purely profit maximizing reasons, may not want to choose to pioneer some of these innovations themselves, leaving other firms with different specialties to do so. In other words, such firms do not see first mover benefits. Each of the above-mentioned theory can show why some segments are more inclined to fast growth, and some other segments will grow much slowly. The first theory will show that brokerage services will be much easier to move online, because the services are relatively simple. On the demand side, lower transaction costs and greater information transparency means more incentives for customers to join the service. On the supply side, relative low entry barriers push the incumbent firms to move to the online services quickly. Otherwise, the incumbent firms will face market share erosion. In the case of slow growth

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in e-money service, investment banking service and other more complicated financial services, entry barriers are higher (investment banking), inconvenient (complicated financial service), and insecure (e-payment service). Therefore, these segments show sluggish growth. According to the second theory, the fast growth of brokerage shows that the first mover benefits tremendously. First mover will be able to grab a large chunk of customers. Even though profit margin might erode in the short-term, the large volume from large market share will be more than enough to compensate the margin loss. From profit maximization point of view, brokerage firms will be able to identify the trends and move quickly. However, other e-financial services are not able to show the fast growth observed in the brokerage house.

2.3. Developments in online banking, trading system, and impacts on the transaction Costs

Furst, Lang, and Nolle (2000) find that only 20% of national banks offered Internet banking in the third quarter of 1999. However, as a group, these internet banks accounted for almost 90% of national banking system assets and 84% of the total number of small deposit accounts. All of the largest national banks offered Internet banking. Large banks are more likely than small banks to offer a broad range of services on the Internet. Banks in all size categories offering Internet banking tend to generate profits from noninterest activities. Institutions with Internet banking outperformed non-internet banks in terms of profitability. It is likely that the more aggressive business posture of these banks explains both their relatively higher profitability and their decision to offer Internet banking. Among the key bank characteristics explaining which banks have chosen to offer internet banking are membership in a bank holding company, physical location of the bank in an urban area, relatively higher premises and other fixed expenses to net operating revenue, and higher noninterest income, and efficiency than non-internet banks. More profitable banks were more likely to adopt Internet banking after the second quarter 1998, but more profitable institutions were less likely to be among the first movers. Among banks that offer

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internet banking, larger banks and banks that offered the service for a longer time were significantly more likely to offer a wider range of services on the Internet. Large banks have more aggressive plans to offer business Internet banking services in the future than small institutions. Projections based on banks plans as of the third quarter 1999 indicate that 45% of all national banks will be offering Internet banking by the beginning of 2001. Those banks will account for 95% of the assets and 93% of the small deposit accounts at national banks. While most of the growth in new Internet banking will be due to small banks coming online, almost half of all national banks had no plans to offer Internet banking. The large majority of those are small institutions. Customer use of Internet banking is disproportionately concentrated among a few large banks. Based on analysis of data from private sector studies, Furst et al. (2000) estimate that the five banks with the greatest number of online customers account for almost 36% of all Internet banking users. By comparison, these same five banks account for only 20% of small deposit accounts. Among banks characteristics to explain the decision to offer Internet banking, the most notable variables are: assets that banks have, whether or not a bank belongs to a holding company, the location of a bank (urban or rural area), etc. In studying banks characteristics about the reason of banking first mover, Furst et al. (2000) found that return on asset, banks asset base, banks membership in the holding company, and location are the most significant determinants.(Figure 4 and Table 3) The trading system also undergoes changes when Internet becomes available. ECNs (Electronic Communication Networks) are private electronic trading systems that allow investors to clear trades through an open limit order book. Rather than placing an order with a specialist or dealer, traders on ECNs may anonymously submit orders and trades with each other directly. Competing directly with Nasdaq dealers, ECNs offer a low cost and anonymous alternative to traditional trading. Weston (2000) shows that ECNs have improved Nasdaq liquidity. ECNs market share had grown from 1998 to 1999. With the increased volume of ECN relative to the total NASDAQ volume, he finds significant improvement in quoted depth, significant price discovery, and less stock volatility. Even after he introduces different measurement, the above results still remain.

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Domowitz (2001) also looks at more general electronic markets and shows that electronic markets embodying automated trade execution are linked to reductions in trading transaction costs. Lower explicit costs are related to development and operating costs in an electronic environment. Information available from electronic limit order books is identified as a means of realizing implicit cost savings. More interestingly, Domowitz also shows that lower costs can result in disintermediation of trading services, especially at the level of the brokerage function. Disintermediation is simply a part of a reintermediation cycle. Reintermediation, the reestablishment of a disintermediated institution in the new electronic environment, applies to brokerage and exchange functions alike. In both cases, the issues center around product and services provision, particularly with respect to the nexus between trade execution and investor decision support services. Through the Internet, exchanges have broadcast capabilities that previously were not available. The exchange can intermediate the process of resolving near matches through anonymous indications of trading interest via broadcast capabilities. Early examples of this idea exist in local area networks, such as the block board facility of the original Swiss SOFFEX (a local Swiss exchange system) design. (Figure 5 and Figure 6 ) The impact of Internet banking can be seen from the study by Sato et al. (2001). (Table 4)

3. Issues, risks, and policy implications of e-finance

As e-finance grows, many interrelated issues emerge. The interrelated issues can be seen from Sato et al. (2001) (Figure 7) Classens et al. (2000) show that economic integration within and across countries, deregulation, advances in telecommunications, and the growth of the Internet and wireless communication technologies are dramatically changing the structure and nature of financial services. Internet and related technologies are more than just new distribution channels, they are also different ways of providing financial services. The related issues to e-finance are:

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3.1. Safety and soundness

a) Over the long run, there may be less need for a financial sector safety net, including prudential regulation and supervision of banks. b) Authorities should be wary of extending guarantees to new deposit substitutes, as the moral hazard implications could be substantial c) Over the short run, authorities could require nonfinancial corporations to provide payment services through bank subsidiaries. Over the long run, authorities may want to consider separating payment from other credit services and allow freer entry in payment services. d) E-finance will lower the franchise value of incumbent institutions.

3.2. Competition policy

a) Freer trade in financial services b) Defining markets c) More economies of scale d) Competition policy will require that authorities simultaneously define technology and information policy. e) Competition policy for financial services will increasingly need to be harmonized worldwide.

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3.3. Global public policy

a) Limits on cross-border financial services will become costlier and more distorting as the Internet expands its reach, the location of providers becomes more difficult to pinpoint, solicitation harder to define. b) As e-finance expands, less informed consumers will gain access to markets, raising issues for cross-border investor protection and transparency. c) Access of new trading systems to contingent financing is also unclear, especially on a global basis.

3.4. Impact on developing countries

a) Different entry barriers in developing countries pose different challenges for e-financial firms. b) E-finance will offer fewer choices to economies with poorly capitalized banking systems, weak regulations, and extensive guarantees on liabilities. c) E-finance will require a reassessment of the approach to financial sector development. d) E-finance offers opportunities to quickly widen access to and improve financial services.(Table 5 and Table 6) (Figure 8(I) (II))

Macaluso and Pillar (2001) argued that as e-commerce grew, more legal measures would be mature to accommodate the growth in e-finance. They showed that there were two trends going on at the same time. First, technology is escalating at an astounding pace. Secondly, the world market has been tie much more closely than ever. These two trends put more pressure on firms decision making process and increase the chance for firms to take a

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wrong growth path. These two trends also motivate financial service firms to go abroad, which have been more and more commonplace in the recent developments. However, Macaluso and Pillar listed three barriers that firms had to face: governmental, legal, and economic. Governmental barriers result from enactment of regulation and laws targeted at the financial services industry. These can be minimum capital investment requirements, restrictions on business activities, and disclosure and reporting requirements. Some barriers can be a result from lack of regulation in countries without sophisticated legal infrastructure. This may create uncertainty regarding enforceability of contracts or electronic signatures, inadequate intellectual property protection, and concerns over privacy and security. Economic barriers are those that will bring economic costs when financial services firms try to complete transactions across borders. A good example will be the cost of market access, or the aggregate cost of constructing the technical infrastructure to enable information technology components to be effectively utilized. These would include legal and regulatory costs. Another area that many e-finance reviews neglect is that the Internet financial services will also bring inefficiencies to the financial market. Barber and Odean (2001) show that even though ECNs bring more liquidity, more information, and more price transparency to the investors, it is not true that more information will lead to a more efficient market. As more and more uneducated investors come into the market, irrational behavior occurs in the market. Sometimes, such irrational activities can last a fairly long period of time before a more reasonable new equilibrium is established. Advancement in behavioral finance has shown much evidence that investors behave irrationally. More information might lead to an illusion of knowledge. Another effect from illusion of knowledge might lead to investors overconfidence about their skills, judgment and sometimes both. Evidence shows that those investors turn over positions more quickly, borrow on margin more aggressively, and create a more volatile stock market.(Figure 9) Barber and Odean (2000b) also show that the current movement and encouragement of online trading is actually hazardous to investors wealth. They found that from the

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sample of online accounts during 1991 to 1996, the most frequent trade accounts earned an 11.4% returns versus the market returns 17.9%. The average online account earned an annual 16.4%, with common stock portfolio tied towards high beta stocks. The evidence showed that e-financial services in online trading was adversarial to investors wealth. The reason for disappointing results may be many fold. But it does show that e-financial services may empower something that traditional financial services are avoiding. Market inefficiency from information overload may be more serious than we think. Lamont and Thaler (2001) shows that the market misprices technology stock carve-outs in the recent years. The obvious example is the 3Com carve out, which will give old 3Com shareholders with 1.5 new shares of the newly established entity. Interestingly, the market priced the new entity with about $60/share and a mid $40s for the parent company. The only possibility for that to occur is that 3Com has a negative worth. But by checking further with 3Coms financial strength, the company obviously has more than $300 million positive cash flows. The seemingly apparent mispricing lasted for 3 months with all the necessary information available to investors. Another interesting aspect of online trading is that it might create a clientele effect. Barber and Odean (2000a), (2001) show that more wealthy young investors are more likely to switch to online trading. Men trade more than their women counterparts. Their studies show that e-finance growth does reshape the way of thinking and behaving from all walks of lives, especially to those who feel self-competence and feel self-control valuable.

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4. Future of e-finance
We believe that e-finance will grow in any high agency cost industries with low entry barrier. In those industries, first mover will have greater advantages over followers. More importantly, lower barriers mean that incumbent face greater challenges from newcomers if they do not move first. This creates incentives for incumbent firms to move ahead. Brokerage and trading systems will further the current development and attract more customers at greater reach. Future models in banking systems (Mantel 2001) might include:

a) a universal bank that bundles a broad range of financial products and services under one roof for a broad range of customers b) an institution that focuses on the broad financial and nonfinancial needs of a narrow segment of the market c) a virtual portal or aggregator that uses technology to integrate financial services from a variety of specialized providers d) a traditional, financial institution, which focuses on a limited number of financial products Future payment systems framework might include a complex system as illustrated in Mantel (2001).(Figure 10) Federal Reserve Banks (central banks) will need to work more closely with each other around the world, as more globalization in trading systems and exchanges occur across countries. Supervisory work of the central banks needs more cooperation, and coordination. Legal rules need to be crafted more carefully for jurisdiction domain when cross border transactions occur. In the meantime, within the United States, both benefits and costs are to be evaluated from the recent innovation of e-finance. Much evidence is

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needed to show the pervasive changes in the market. More importantly, investors should have more education about risks involved in e-finance. Because e-finance does not only relate to some fields, but to many, the future growth of e-finance cant depend on one or two related areas to grow, but to all the related development of areas.

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References
Brad M. Barber and Terrance Odean (2001), The Internet and Investors, Journal of Economic Perspectives, 15 ( 1), Winter, pp. 41-45 Brad M. Barber and Terrance Odean (2000a), On-line Investors: Do the Slow Die First? Working Paper, UC Davis Brad M. Barber and Terrance Odean (2000b), Trading is Hazardous to Your Wealth: the Common Stock Investment Performance of Individual Investors, Journal of Finance, 55, pp. 773-806 Brad M. Barber and Terrance Odean (forthcoming), Boys will be boys: Gender, Overconfidence, and Common Stock Investment, Quarterly Journal of Economics John Y. Campbell, Martin Lettau, Burton Malkiel, and Yexiao Xu (2001), Have Individual Stocks become More Volatile? An Empirical Exploration of Idiosyncratic Risk, Journal of Finance, 56 (1), pp.1-43 Stijn Classens, Thomas Glaessner, and Daniel Klingebiel (2000), Electronic Finance: Reshaping the Financial Landscape Around the World, The World bank, September, Financial Sector Discussion Paper No. 4 Eric K. Clemons, Lorin M. Hitt, Bin Gu, Matt E Thatcher, Bruce W. Weber (2001), Impacts of the Internet on Financial Services: A Quantitative Analysis of Transparency, Differential Pricing and Disintermediation, CD-Rom, "Financial Ecommerce Conference," Feb. 23-24 Ian Domowitz (2001), Liquidity, Transaction Costs, and Reintermediation in Electronic Markets, CD-Rom, Financial E-commerce Conference, Feb. 23-24 Karen Furst, William W. Lang, and Daniel E. Nolle (2000), Internet Banking: Developments and Prospects, NBER Working Paper, 2000-9 Yong H. Kim (2001), Lecture Notes on Treasury Management, University of Cincinnati Owen Lamont and Richard Thaler (2001), Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs, Working Paper, University of Chicago Alan Levihnson (2001), Few Flock to E-finance, Strategic Finance, Jan., pp. 69-70 Michael Macluso (2001), E-finance and Cross Border Transactions, Banking Law Journal, 118 ( 1) Jan., pp. 41-47

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Brian Mantel (2001), E-money and E-commerce: Two Alternative Views of Future Innovations, Chicago Fed Letter, March, Number 163a Morgan Stanley Dean Witter(1999), The Internet and Financial Services, August David T. ONeill (2000), Evaluating Banks E-commerce Risks, American Agent & Broker, November, pp.37-46 Terrance Odean (1998), Volume, Volatility, Price and Profit When All Trades are Above Average, Journal of Finance, 53 , pp. 1887-1934 Setsuya Sato, John Hawkins, and Aleksander Berentsen (2001), E-finance: Recent Developments and Policy Implications, March, BIS James P. Weston (2001), Electronic Communication Networks and Liquidity on the Nasdaq, CD-Rom, "Financial E-commerce Conference," Feb. 23-24

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Table 1

Estimated future size of e-finance market in the United States and Europe

United States Billions of US$ Penetration %1 in 20032 Categories Savings/banking Mutual funds Brokerage Credit Card Car insurance Personal loans Mortgages Life and pensions Home and other General insurances 235 32 4 18 147 1 MSDW JPMorgan 2003 2000-2004 20 15-35 2-30 38 35-55 30 3-30 15 <1-30 <1-25 15 <1-10 15 <1-5 <1-25

Europe Billions of US$ Penetration % 1 in 20033 2003

158 192 4 11 24 37 9 8

33 19 19 13 11 6 2 7

Total
1

>500

442

15

Ratio of online sales to total sales. Estimates by Fassnacht and Archibald (2000) of JP Morgan for the Morgan Stanley Dean Witter (MSDW) (1999). Van Steenis (2000) of JP Morgan, based on forecasts for France, Germany, Netherlands, Italy, Spain,

United States indicate the growth of the penetration ratio from 2000 to 2004.
2 3

Sweden, Switzerland and the United Kingdom.

Table 2
Products Causes Set-up cost
1

Barriers to entry /small loans ** ** **** *** * ** *** Medium ** *** ** * ** *** Medium ** *** *** * ** **** Rather high ** * ** * ** *** Very low **** ** ***** ***** *** *** Very High * *** **** ** ** Low

Deposit Payments Credit card Mortgage Insurance Broking e-money /banking ** **** * *** ***** High
2

Physical location Scale-economics Network Externalities Switching costs Brand name Total

***

*none or minimal, **low, ***medium, ****high, *****very high

1 2

Technical costs (marketing costs are included under "brand name")

May take the form of ATMs

Source: Classens et al (2000)

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Table 3 Bank characteristics explaining the decision to offer Internet banking: first mover
[Dependent variable: INTOLD=1 if the bank was an Internet banking "first mover," i.e., if it Adopted Internet banking before Q3 1998] Variable All national banks Estimates -2.4616** (0.03) 8.102E-8*** (0.000) 1.1615*** (0.001) 1.6031** (0.047) 0.8186*** (0.000) -1.8007* (0.101) -1.6204 (0.493) -2.7173*** (0.001) -0.0818 (0.881) -0.3723** (0.026) 2346

Constant (p-value) Assets (p-value) Membership of holding company (p-value) Young (p-value) Urban (p-value) Deposits (p-value) Expenses (p-value) ROE (p-value) Inefficiency (p-value) Safety rating as of Q2 1998 (p-value) No. of observations Source: Office of Comptroller of the Currency ***Significant at the 1% level **Significant at 5% level *Significant at 10% level

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Cost per transaction

Table 4 Cost of Banking (US$) BAH $1.07 $0.54 $0.27 $0.02 $0.01 GSBCG $1.06 $0.55 $0.32 $0.14 $0.02

Average net interest margins

Physical branch Phone ATM PC-based dial-up Internet

Online banks

1.00%

Traditional banks

4.10%

Source: Booz, Allen & Hamilton (BAH), 1997; Goldman Sachs & Boston Consulting Group (GSBCG) cited in Classens et al September 2000; Morgan Stanley Dean Witter, August 1999

Table 5

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Table 6
Current issues

Public Policy Issue for the Financial Sector

Future issues
Banks are no longer special because many substitutes have emerged for deposit and lending products. Thus there may be less need for a public safety net, and correspondingly less need for prudential regulation and supervision. Government should increasingly allow the private sector to find mechanism to curb excessive risk taking. More efficient interbank markets reduce the need for lender of last resort facilities. Moreover, banks' special role in the payments system is declining as technology allows for the unbundling of payment and credit services. Thus authorities may want to separate payment from other credit services and allow for free entry to the payment system. With increased competition and the decline in franchise value, decapitalized institutions will have incentives to gamble for Resurrection. Thus governments need to strengthen failure resolution mechanisms and reduce extensive guarantees that often apply to all financial system liabilities.

Transition issues
Authorities should be wary of extending the safety net to nondeposit-taking activities and deposit substitutes. They should require financial service providers with non-deposit-takingactivities to adopt a bank holding company structure or a narrow banking structure.

Safety net Banks are considered special Because they extend essential credit to firms, provide payment services, and are inherently fragile and susceptible to runs Thus government have provided safety nets-regulation and supervision, deposit insurance, lender of last resort facilities-to minimize the adverse effects of bank failures. But safety and soundness regulation and deposit insurance pose barriers to the entry of new firms and favor incumbent firms. The safety net also raises moral hazard issues.

Continued on the next page

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Competition Policy

because banks are considered special, competition policy is subsumed under prudential policy. Competition policy aims to ensure an adequate franchise value for banks to enhance their soundness

As the safety net is eliminated, markets for financial services can be treated like any other product from a competition policy point of view. This means that:

and incentives for prudent behavior. Freer trade in financial services will become even more important. Tools of competition policy include minimum capital requirements, Scale and scope economies are capital adequacy, and fit and proper unlikely to be effective barriers to tests. entry. Sunk costs, externalities, and vertical integration may be barriers to entry and could hamper competition. Market and product definitions, which are critical for competition tests, will be difficult to define. With globalization, competition policy will Have to be coordinated worldwide. Consumer Policy Consumer protection issues relate to security risk, privacy, transparency of information, and investor Protection. Key product policy areas include defining consumer protection standards, defining minimum standards for self-regulating organizations, and ensuring incentives for enforcement of such standards. How to modify legislation and regulations to permit proper enforcement, including minimum disclosure.

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Figure 1

Growth in online US brokerage and banking accounts

In millions

16 14 12 10 8 6 4 2 0 1996

Brokerage Banking

1997

1998

1999

2000(e) 2001(f)

2002(f)

Source: McKinsay & Co. Figure 2

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Figure 3 Conceptual framework of E-finance

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Figure 4 Large banks offer a greater range of Internet banking services Percent of transactional internet national banks offering BASIC and PREMIUM service (Q3 1999)* Less than $100 million $100 million to $1 billion $1 to $10 billion Over $10 billion 0 10 20 30 Basic 40 14.1 17 41.1 41.5 50 49.3 58.5 60 70 42.4 60.4

Premium

* BASIC service includes balance inquiry, funds transfer, and bill payments. PREMIUM service includes BASIC and at least three other services. Source: Office of the Comptroller of the Currency Figure 5 Regional Trading Costs
100

90

80

70

60

50

40

30

20

10

0 Mar. 1996 Mar. 1998

N. Am. 68.2 32.3

W. Europe 52 43.2

Asia 99.1 81.6

Latin Am. 82.2 74.6

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Figure 6 OTC Trading Costs: Savings Due to Automated Execution

1.4

1.2

0.8

0.6

0.4

0.2

-0.2

-0.4

-0.6

-0.8 difference(%)

1992 -0.001

1993 -0.504

1994 -0.314

1995 1.137

1996 -0.668

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Figure 7

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Figure 8 (I)

Reliance on

Fraud /moneylaundering

Financial
supervision

technology
(outsourcing)

Figure 8 (II)

The Internet Slashes the Cost of Transactions

U.S. Dollars
1.2

0.8

0.6

0.4

0.2

0 Branch Telephone ATM PC banking Internet

Source: Goldman Sachs and Boston Consulting Group

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Figure 9 Monthly turnover and annual performance of individual investors

25 20 15 10 5 0 2 3 4

Gross return Net return turnover

Figure 10 Payment framework

286

S&P 500 index fund

1(Low Turnover)

Average Individual

5 (High turnover)