Final Project on Financial Services On Internet

Consumer behavior is changing partly because of more spare time. The way of use of financial services is characterized by individuality, mobility, independence of place and time, and flexibility. Financial transactions caused by purchases will more and more be carried out by non- and near-banks. These facts represent big challenges for providers of financial services. More and more the Internet is considered to be a "strategic weapon".

Financial services companies are using the Internet as a new distribution channel. The goals are:

♪ complex products may be offered in an equivalent quality with lower costs to more potential customers;

This means that financial institutions may enlarge their market area without building new offices or field services, respectively. Because of its image as an innovative corporation, better interacting possibilities, the usage of rationalization potentials, promotion of self-service as, the improvement of its competitive situation by development core competencies together with the construction of market entry barriers, it may be possible to increase profits and market shares.

One way of exploiting rationalization potentials is the implementation of the entire transaction (from purchase to payment) under a common user interface. Information collected in operative databases of financial institutions allows them to act as information brokers. Offering special information in closed user groups may result in more intense customer commitment, as well as customer bonding. Know-how that is built up by Internet presence may be used to facilitate Internet presence of smaller companies. With this we are going to start our further discussion.

Banking primarily the business of dealing in money and instruments of credit. Banks were traditionally differentiated from other financial institutions by their principal functions of accepting deposits-subject to withdrawal or transfer by check-and of making loans. It developed rapidly in the 18th and 19th cent. To support the expansion of industry and trade. The first bank in the U.S. was the Bank of North America, established (1781) in Philadelphia. Congress chartered the first BANK OF THE UNITED STATES in 1791 to engage in commercial banking and to act as fiscal agent of the government but failed to renew its charter in 1811. A similar fate attended the second Bank of the United States. In 1838 New York adopted the Free Banking Act, which permitted anyone to engage in banking, upon compliance with certain charter provisions. The idea spread rapidly, and from 1840 to 1863 all banking business was done by state-chartered institutions (state banks).

International banking grew in importance after World War II. The International Bank for Reconstruction and Development (World Bank) makes loans to governments and private investors, and the International Monetary Fund provides members with technical assistance in international banking. Many of the world's major banks operate branches in other countries

. Two major types of banks in the are commercial banks and mutual savings banks, but since the 1980s the distinctions between them have largely disappeared. The 12,000 commercial banks are the mainstay of the U.S. banking system. Known as full-service banks, they render a wide range of services, in addition to their primary functions of making loans and investments and handling demand (checking) as well as savings and other time deposits. Savings banks were exclusively state-chartered and accepted only savings deposits and made loans mainly for home mortgages.

Today they have the right to offer checking accounts, either as a result of legislation or indirectly through NOW (negotiable order of withdrawal) accounts; they may be federally chartered. A similar thrift institution is the SAVINGS AND LOAN ASSOCIATION. Types of financial institutions that perform one or more banking functions include building and loan associations, CREDIT UNIONS, and the investment companies known as NONBANKS, including mortgage companies, finance companies, securities brokers, and investment bankers. By the early 1980s, sweeping changes brought about by improved communications and computers enabled the nation's non-banks to pose a serious challenge to the traditional banks. The sharp rise of MONEY-MARKET FUNDS, the widespread use of COMMERCIAL PAPER for loans, and the creation of financial conglomerates siphoned off billions of dollars of banking business. Computers have also enabled the development of automated teller machines and various electronic banking services, including computer programs that permit individuals to pay bills through the electronic transfer of funds.

The Internet began as an experiment funded by the US Department of Defense to develop computer networks that could withstand nuclear attack. The idea was that if one route was damaged or destroyed, the network could send the data to the same destination over a different physical route. This flexibility is maintained as a basic feature of today’s Internet.

Gradually, academic sites with an involvement in this research were added, though at this stage the network bore no resemblance to the Internet we know today. It was however, a fertile development ground for electronic mail. On a network designed to facilitate information sharing, e-mail was – and remains – a key benefit.

Then in the early ‘80s came two significant milestones, which removed the barriers to easy use of the Internet. An industry standard communication protocol – TCP/IP – became the agreed way to transmit information between users on the network. At the same time, the Unix operating system was gaining popularity and swiftly emerged as the de facto standard software system used by most machines connected to the network. More tools became available to drive standards forward and provide easier methods to access Internet data resources, accelerating the growth of the Internet outside its original field.

During the mid ‘80s the spread of the Internet was rapid. The defense project had long since been overshadowed by the academic take-up of the network; ‘Internet’ had become the informal name for the interconnected networks which now spanned the globe, and the name stuck. By now costs were being borne by several government bodies, academic institutions and commercial service providers leasing data carrying capacity.

Saw the advent of the most significant development on the Internet, led by Tim Berners-Lee who was working at the European nuclear research facility in Geneva. The World Wide Web project developed a prototype tool, which allowed a user to browse through textual, and graphical resources held on machines around the world, without demanding computer literacy or a steep learning curve.

Details of the underlying technology are hidden from the user. Related information is connected with ‘hyperlinks’. Users selecting the links are transported directly to the next piece of information, bouncing from one side of the world to another to follow the thread of information, without ever being aware of the journey. From then on the growth of the Internet was unstoppable. In less than a year, businessmen and journalists were acknowledging the Internet as a potential opportunity, with the chance to present image-rich content to a technically unsophisticated audience. The rush was on to gain a presence on the network. There are now believed to be over 10 million host machines connected to the Internet – a number increasing all the time.

Research project funded by the US Department of Defense, under the aegis of the Advanced Research Projects Agency (ARPA), developed the first version of the Internet. Known as ARPANET, this linked a handful of military and academic sites, using new routing technology to direct the traffic of computer data from site to site.

TCP/IP (Transmission Control Protocol/Internet Protocol) made the standard for transmitting information between users on the network, removing a barrier to ease of use.

Number of hosts on the network increased from 1,000 to 100,000. To keep pace with this development, the US National Science Foundation established and managed the NSFNET, extending the communications ‘backbone’ throughout the US and providing easier access for the queue of establishments waiting to get connected.

Estimated number of hosts reached a million. NSF once again upgraded its backbone network, giving it more than 20 times the previous capacity. The World Wide Web project established.

Number of hosts increased by a million each year. Growth surged again during the latter half of 1995,

And in January 1996 there were believed to be over 10 million machines connected to the Internet.

The Internet is currently enjoying astoundingly rapid development and innovation. The World Wide Web has become a place where a large number of businesses are experimenting, feeding the users a rapidly changing menu of images and data. Figures published in summer 1995 suggested that over 32,000 commercial sites had been set up, with around 1,500 new businesses becoming connected each month. This makes commerce the fastest growing area on the Internet. User numbers are harder to pin down. Some estimates cite 35-40 million users worldwide. Certainly that number is increasing at around 10% per month. But what precisely is fuelling aggressive business take-up of the Internet?

The ‘Web’ is the focus of most activity on the network. Internet users have adopted the formats it supports en masse, as an easy way to convey sophisticated content to a large audience. Browser software, which deciphers the formats and displays them to users, is purpose-designed to be easy to use, requiring no special expertise on the part of the user.

Much progress has been made in building usable applications, which exploit the information delivery and presentation standards of the Web. Web browsers in particular are experience rapid development. In the fiercely competitive market to catch newly on-line computer users, Web browsers will undoubtedly drive most Internet development in the short term.

A growing market has also sprung up in Internet tools covering a number of areas: ‘Out of the box’ Internet access for users; Information server software and hardware for every size of business; Content preparation and maintenance software which constructs HTML Web documents; Security products which control access to Internet sites. The growing diversity of product supply and the professionalism of suppliers are major factors behind increasing business interest.

A sticking point for many businesses that are considering the Internet for disseminating corporate information has been the academic nature of the system, which makes it difficult to gain agreement or reassurance on service levels, availability and security. Yet as business usage has grown over the past two years, the funding for such infrastructure has increasingly transferred to the commercial arena. Until April 1995 the major Internet backbone in the US was controlled and funded by the NSF. From then on, responsibility for the management and maintenance of the links passed to a group of worldwide leaders in telecommunications and on-line service providers. With the main Internet links now in the commercial domain, pressures are growing for the same levels of service and accountability found within major private global networks.

Running parallel with this development has been the growth in numbers of service providers. Companies like BT and Pipex (aiming at medium to large corporate), or Demon and Atlas (targeting individual users and small to medium companies), have amassed a range of services to take on the administrative overhead of securing Internet access, registering a company with an Internet address, and providing access to the Internet backbone services. They supply their services to agreed levels of availability, removing another barrier to business take-up of the Internet.

Existing on-line service providers have encouraged many of the new users. Companies such as CompuServe have invested millions in providing Internet access to their subscribers. The latest new entrant, the Microsoft Network, offered full Internet access from the start of 1996, having officially opened for business only the previous

The Internet has been relentlessly peddled to the public, resulting in polarized views of the network as positive good, curate’s egg, or pernicious influence on society. A common response to such stories is curiosity to discover the truth. This allied to an increasing IT literacy among both the young and society in general, has certainly encouraged strong growth in the number of domestic PCs. Significantly, research shows the sophistication of home PCs outstripping that of office models.

As the sun goes down in a small town, a customer of a small community bank logs onto the bank's Internet banking system to pay bills. According to industry experts, this remote online banking customer is certainly not alone. More and more consumers are banking on the Internet, and so are an overwhelming number of businesses of all sizes. Why, then, do industry opinions and predictions about the future of Internet Banking vary so dramatically? On which statistics should bankers base their Internet purchasing decisions? What's smoke and what's fire in this new, blazing industry? This is a looming concern in the minds of today's bankers, especially community bankers, striving to remain competitive in a rapidly changing banking landscape. The mega-banks in the industry have been online for some time now, and many community banks have followed suit with transactional web sites. According to American Banker, more than two-thirds of the 227 transactional Web sites counted in June of 1998 by the FDIC are offered by banks and thrifts with assets of less than $500 million. While this remains a small percentage of community banks (there are over 10,000 in the U.S.), the rate of adoption of Internet Banking does not seem to be subsiding at this point.

The growth of electronic commerce as a whole speaks volumes about the potential growth for Internet banking in particular. By the end of 1997, 10 million people across the United States & Canada made purchases--from airline tickets to books and automobiles--on the World Wide Web, up from 7.4 million people just six months earlier. According to Forrester Research, 43% of United States households have PC's, and demand is growing among low-income consumers. In addition,

25% of United States households now have Internet access. The U.S. Department of Commerce also reports that Internet traffic is doubling every 100 days, and business use is growing fastest. As consumers and companies become more familiar and comfortable with making purchases online, this increase in knowledge and comfort level will benefit banks by bringing more retail and commercial consumers to their virtual branches. Even smaller banks and rural institutions will see more consumers moving online to take advantage of Internet convenience.

One of the most astonishing trends in recent technological history has been the speed with which the Internet has moved from being the sole domain of the computer nerd and the academic to a mainstream channel of communication. But while the technology and its potential to revolutionize age old patterns of conducting business are now much more generally recognized, there is still widespread ignorance within the business community as to just how rapid that change will be. None more so than within the banking industry where the technology offers the potential to bank at a fraction of the high fixed costs inherent to the existing business - a supply side revolution that will shake the relationship between the banks and their customers to its medieval foundations.

The surveys were conducted with North American and European banks that currently have bank sponsored Internet sites, and included savings institutions and credit unions. The response rate was 31 per cent in Europe and included responses from 29 per cent of the continent's largest 200 banks.

What was found is that Internet banking will almost certainly become a major fully-fledged distribution channel of banking services and products in Europe within the next three years? While current functionality is limited, 80 per cent of European survey respondents said that they planned to upgrade their web sites to facilitate most traditional banking transactions within that period. Moreover, mirroring US growth in banking Web sites which quadrupled last year, our survey in Europe found annualized growth running at 90 per cent, with a projection for more than 2000 European banking institutions being on line by the end of

The millennium. Ultimately, all banks will have a web presence, as the cost advantages are so huge that there is no reason not to try it out.

The cost of the average payment transaction on the Internet is just 13 cents or less. This compares with 26 cents for a personal computer banking service using the bank's own software, 54 cents for a telephone banking service and one dollar eight cents for a bank branch.

For the traditional players in the banking sector the technology offers the opportunity to add a low cost distribution channel for their myriad services. But it also poses a much more serious threat to their market share, as it neutralizes so many of their competitive advantages of having a traditional branch network. Furthermore, costs of integrating multiple channels are higher. For a green field player starting an Internet bank from scratch, buying the software off the shelf costs about one million dollars. But for the European dinosaur bank, integrating it with your existing systems will be much more expensive. Adding another channel - even a very low cost one - without reducing traditional channel costs, just adds to the overhead. The key challenge lies in re-engineering and optimizing the traditional branch network.

It is inevitable, therefore that the banks' relationship with its customers is going to have to be redefined, and if their most valued clients are not to be cherry picked by the new entrants. We estimate that by the turn of the century more than 15 per cent of US households will have Internet banking. And because these pioneers will largely be drawn from the upper-income (and more profitable) groups, they will embody 30 per cent of profits in the retail banking sector. In this brave new world of banking the customer will truly be king.

In Europe, computer ownership may not yet be as highly developed as in the States. But the cost benefits are so persuasive, that the trend is sure to similarly develop with minimal time lag, especially once concerns about security have been overcome. For the public no two words are currently less synonymous than the Internet and security. Consumers, business people and financial institutions alike are unnerved by the vision, given substance by the popular press, of the nerd demon hacking in to steal credit card numbers and drain accounts.

The reality, of course, is different. Internet banking will in fact make tomorrow's financial system more secure. Electronic check, in which the consumer uses a unique password protected digital signature, which is also digitally signed, by the customer's bank, will be a much more secure system than the paper based equivalent.

With credit cards, the Secure Electronic Transaction (SET) standard, recently adopted by Master Card and Visa, will perform a similar function to electronic check, in securing payments with the merchant never seeing a credit card number, only a message that the card has been issued by Bank A. The Internet will, in fact, reduce hugely the capacity for fraud. And even if the system gets cracked and an account is broken into, the only way to get money out is to transfer it into another bank producing an obvious paper trail. Effective security technologies are already here - the challenge lies in adopting the best set of operational processes and technologies to form a cost effective protection scheme. But it should be done in an integrated way, not on a single component basis.

Business-to-business commerce on the Internet is expected to grow forty-fold, from $8 billion in 1997 to $327 billion in goods and services traded between companies, by the year 2002, says Forrester Research. Mentis Corporation predicts that by the year 2000, an estimated 50% of all banks and 40% of banks with less than $1 billion in deposits will offer online services to their customers. The FDIC estimates that the number of financial institutions with transactional web sites will increase by more than 50% by the year 2000. According to some industry sources, however, the future is not so bright. Only an estimated 4-5% of online surfers currently bank on the Internet. In addition, a recent poll by PSI Global found that out of 1,000 online users who do not bank online, only 29 percent believe that online banking is safe. This perception from consumers merely tells banks those educating consumers on the safety and risks involved in Internet transactions are key to attracting and retaining more online clientele. Despite the message from industry soothsayers who predict that industry growth and consumer acceptance of Internet banking is still decades away, Internet banking continues to spread like wildfire.

Internet banking is going to develop much faster than most people imagine. In cost terms alone it is an irresistible force. The financial muscle of the pioneers will, without doubt, transform the traditional relationship between a banker and his customer where the latter is king. And with the revolution, a new financial system will evolve that in many ways will be far more secure than the one we have today.

1- convenience (including free online bill paying) and the fact that you wouldn't have to change banks if you relocated, and

2- free services such as 100% free checking. For the latter, the bank may require that you have one direct deposit a month.

To set up an online bank account, you can call your bank and ask to speak to their PC experts. Typically you'll be asked for specific information to verify that you are the account holder, so be sure to remember your name. They'll also likely ask you things like your mother's maiden name, your address, and so forth.

If you're just going to be checking account balances or using their stand-alone Web software, then that's pretty much all the info your bank is going to need.

If, on the other hand, you don't yet have a personal finance software package, then you're going to have to choose one: either Quicken or Microsoft Money. These are both excellent programs that have become increasingly easy to use as the software companies have benefited from customer feedback. Quicken still has the lion's share of the market.

You'll need to set aside time to familiarize yourself with the program, but whichever you choose, the great likelihood is that, over the long term, you're going to save yourself a heck of a lot of time and hassle by using one of these programs. Even if you one day (for some reason) decide that you'd just like to use an Internet-only interface, you'll still have the benefit of a solid foundation in the same principles that underlie that software. Your bank will also want to know which program you're using and whether you're using Windows or Macintosh.

You'll then need a PIN number (you'll either choose one or it will arrive in the mail) that will give you access to the bank's web site. You may also need a customer number, which appears on your ATM card and is separate from the PIN number.

♪ information presentation together with two way (asynchronous) communication (e.g. email to request further information)

♪ interaction with user(e.g. execution of programs with individual customer data)

♪ Private data have to been coded. Cryptographic algorithms used need to have certain characteristics. No third party should be able to quickly get access to messages or even to divert financial transactions.

♪ A digital signature is necessary to get binding legal contracts. These digital signatures have to secure the integrity of signed documents. It needs to be guaranteed that sender and receiver have the same intentions.

Some fundamental issues raised by the coming of electronic banking and E-Cash are:

E-cash is money that moves electronically. It moves outside the normal payment channels that have been traditionally offered by banks overseen by the Fed. It can be carried on the persons in the form of a smart card or stored-value cards or electronic wallets. It can be used at the point of sale or it can be used person-to-person. . Directly . . . without the intervention of any outside entity, as we do with physical cash today. It can be moved around or spent through telephone lines to bank or other provides or issuers. It can also be moved around or spent through links with interactive cable television. Perhaps most dramatically or with the biggest potential [to revolutionize], it can be moved around or spent through computers, personal computers.

1- E-commerce gives firms direct access to distant markets and promotes the globalization of commercial activity by opening up new opportunities for achieving economies of scale and by facilitating international rationalization of production and distribution;

2- It provides a new vehicle for the delivery of intangible products, blurring many of the current distinctions between domestic and foreign firms to a point where it becomes very difficult to determine where a transaction has actually been carried out, and under which jurisdiction it falls.

3- The growth of electronic commerce is being supported by the Internet, which has established a basic networking paradigm that could eventually allow the entire spectrum of commercial activities to be conducted electronically.

♪ The ability to offer a customer more than one method of retrieving information.

♪ Sophisticated technology systems will help to make a banking institute "future-proof."

· Hostile feelings of employees due to possible pending lay-off due to automation.

♪ Global expansion. This is an enormous market, which will be a great opportunity in the future.

♪ The ability to take advantage of the growing popularity of Internet banking.

♪ The primary interest of customers is to carry out purchases in a comfortable manner. Associated payments should be possible from home in a simple and efficient way.

♪ The dealer usually has to bear the costs of payment transactions. On the other hand he may benefit through an improved image (being innovative) and possibly higher sales. Also, he may be able to reduce branch offices and sales personnel.

♪ System architects are responsible for the development of payment systems. Their benefits consist of royalties and service fees. Wide acceptance and usage of their system is an important requirement.

♪ System providers are intermediaries. Dealer's sales are forwarded to the financial institution. The system provider is responsible for transaction clearance. Moreover, he provides supporting services (problem management, user training). Again, revenues consist of fees and service charges.

♪ Financial institutions may promote certain systems. As was already mentioned, confidence in electronic payment systems is a key success factor. Note, however, that a large number of financial institutions, typically smaller ones in regional markets, may have difficulties to participate due to high costs and know-how required.

♪ Trust center control digital signature keys. They are responsible for the integrity of transmitted data and the authenticity of contractors. Trust centers help to secure confidence in a certain payment system. Their revenues consist of royalties and other service fees.

The following requirements are implementation independent. They are useful in comparing different payment systems.

♪ Open systems need security features to manage electronic payments. Security may be realized by cryptographic methods in connection with transaction numbers (TAN).

♪ A large number of customers have to be able to simultaneously carry out payment transactions. The systems have to work with a large number of customers and should be easily expandable. Hence, scalability is an important criterion.

♪ Small and smallest payments (micro- and Pico-payments) should be possible. The corresponding accounting systems have to be efficient and effective. Therefore, it is necessary that costs per payment are low.

♪ The system has to be transparent. Customers have to be aware that payment actually takes place. System usage has to be simple.

♪ Private households should be able to accept digital money (micro-merchants).

♪ Electronic data transfers, as well as electronic payments may be traceable. Then it is possible to analyze e.g. payment information and to construct detailed customer profiles. In most cases customers wish to stay anonymous.

♪ Digital coins consist of a number of bits. Hence, there is some possibility that copies of the coins are made and eventually put into circulation. This phenomenon is known as the double spending problem. Hence, the payment system needs mechanisms to recognize and/or prevent repeated payments with the same digital coin.

♪ Digital coin-based payment systems have a nominal value problem. In order that a certain amount may be paid either coins with suitable values are needed or the payment system has to generate change in the form of new coins. Alternatively, all coins have the same smallest possible face value (e.g. one cent or even a fraction in the US). The last alternative requires that a large number of digital coins have to circulate and to be checked for authenticity.

♪ Digital money should be convertible into "real" money, whenever this is desired.

♪ Confidence in an electronic currency means that stable exchange rates between electronic and"real" currencies are necessary. If the exchange rates are unstable there is a chance of arbitrage profits. This, in turn, would reduce confidence since losses due to value fluctuations are possible.

♪ Digital money is stored locally on hard disks or other media. In case of disk crashes or other problems mechanisms to recover the original state are necessary.

♪ Using specific cryptographic method the anonymity of digital money may be achieved. Then, neither the financial institution nor the dealer may build up a connection between the customer and coins used by him. The financial institution only knows to which customer the coins are transferred initially

♪ Coins with customer identifying characteristics allow the financial institution to identify the customer and to follow up on payments where the coin has been used in.

♪ Also, the payment process may be classified into online and offline transactions.

♪ If an online payment takes place the coins will be checked immediately for authenticity. This implies that a digital coin is used only once. The financial institution needs to check the authenticity by using a list of all coins that have been issued or a list of all coins that have been sent in for credit.

♪ In case of offline payments the coins may be used more than once. To avoid double spending it is necessary to store information about the user or the users on the coin in order to be able to perform checks later. Anonymity may be guaranteed by so-called secret sharing. Then, the financial institution only gets information in case of double spending.

Digital coins may be used only once. E-Cash may be considered to be a currency of its own. Financial institutions have to use special accounts. They also guarantee conversion into "real" money. As a consequence central banks like the Bundesbank or the Federal Reserve Bank have difficulties in controlling money supply (financial institutions may create additional money and thereby increase the amount of money supplied; this is well-known in the case of so-called check book or deposit money

ECash security is achieved by using an asymmetric cryptographic algorithm. Account access may be protected additionally by using personal passwords. The storage of a coin's serial numbers does prevent double spending. There may be a problem with scalability, however. The costs of checking for authenticity of coins are relatively high because the check has to be done online. This means that the suitability for micro- and pico-payments has to be evaluated carefully. Each person who has an ECash-account may accept ECash coins. The blinding method, as was already indicated, guarantees anonymity.

The nutcase method is developed at the University of Southern California. One important goal of this project is the use of already existing accounting systems and procedures in financial institutions. This reduces initial investment costs. In contrast to ECash, this method is based on a decentralized approach. Consequently, problems associated with a large number of coins and participants may be solved more easily. Therefore, reduced anonymity is accepted and the cooperation of all participating financial institutions is required.

The system is based on independent distributed currency servers. Currency servers are locations to exchange anonymous into non-anonymous money. Each currency server possesses an account on an accounting server. The currency server does clearing. It is necessary that the integrity of the servers is certified and that currency servers accept coins from other currency servers. NetCash-coins have a face value and a serial

Figure4 shows the payment process using NetCash. The customer gets NetCash-coins from a currency server. These coins are encoded with a publicly and send to the dealer. Anonymity of the customer may be guaranteed by using a new session key for each message. The dealer transfers the coins received immediately to his currency server. From the currency server he either receives new coins or the corresponding value will be credited to his account. The currency server does final clearing.

The serial numbers of all coins that are not send back and are not yet expired are stored on the currency server in order to avoid double spending. This means reduced anonymity. Exchanging the coins at another server may increase anonymity. Security is reached by means of a hybrid cryptographic algorithm. Like ECash we have a method that requires a lot of communication. The usage for micro-payments, however, should be more efficient. Each person may accept NetCash-coins because the system allows free exchange of coins.

The Millicent method is developed by Digital Equipment Corporation (DEC) to manage small and smallest payments (e.g. payment for getting information from the Internet about news and stock quotations or payment for small programs like Java-applets)

The customer buys broker scrip with a defined value by using his credit card or by debiting a suitable bank or broker account. Such scrip is like a telephone card. At the time of purchase the customer exchanges parts of the scrip into a dealer's scrip. This scrip is then send to the dealer. The dealer collects all Scripps and exchanges them into "real" money. Figure5 shows the payment prosecuting Millicent.

To guarantee the security of this method one-way-hash-functions that may be evaluated quickly (e.g. MD-5) are used. Furthermore, the costs of illegally decoding scrip (this means finding the inverse of the hash-function used) are much higher than the scrip's value. A large number of transactions are possible at low costs compared to the other two methods discussed. In principle, each person may be registered at a broker and may then accept digital payments. There is no anonymity but there is the possibility to buy Scripps from different brokers. Then, no comprehensive user profile may be built.

What role could, or should, Central Banks play in the Internet payments industry? It is a difficult question, as it is not yet clear how, and to what extent, such industry will develop, and whether governments will allow such developments. According to some, Internet payments are a matter of private initiative, and the Central Bank should play no role at all. They dream of an unregulated world, where multiple currencies, as well as baskets of currencies and other assets, are equally accepted as means of payment. Others point out at the risks of such a scenario, and at the increased volatility and unpredictability of financial prices that it could cause.

Economic theory is not helpful either. Even though the payment system as a whole is crucial to economic stability, and is, indeed, one of the main concerns of Central Banks, it is seldom taken into account in economic models. It is normally considered as part of the institutional context or analyzed through its effects, mainly on the banking system, the monetary and financial markets, and the instruments of monetary policy. The problem with this approach is that it is static, as it considers the payment system and the institutional context as given. Furthermore, if the traditional Central Banking institutional model is clearly becoming rapidly outdated, elaborating a new one poses several problems. Globalization and the growing integration of national payment systems, as well as the increasing amounts of payments handled through private clearing houses requires an international approach, at least on a G10 level. However, as Mr. Padoa Schioppa, of the Bank of Italy, says, "the road to define a new institutional model must be different from the ones adapted in the past. At the beginning of this century, an agreement on how to manage a monetary system based on currency and deposits was only reached after a financial and monetary crisis. It would be extremely dangerous to pass through a similar learning process today, not least because payment systems in the industrialized world would amplify the problems of any single market operator, diffusing its effects to the whole economy".

Traditionally, Central Banks have four duties: they manage monetary policy, they supervise the payment system, they promulgate regulations, and, in many countries, they supervise the banking system as a whole. Each of there roles is going to be affected, in a way or another.

As a monetary authority, the Central Bank will have to adapt its procedures to the new context. I believe that its ability to control monetary aggregates will not be seriously thwarted, at least in the short and medium run. Internet payment instruments are indeed a new financial instrument, significantly different from traditional ones, but many innovations have changed and are changing the banking and financial industry. Furthermore, current and projected volumes for the next few years are not large enough to have significant macroeconomic effects. Probably changes and adaptations will be required in the econometric

Models used to predict the trends of economic variables, as variables such as the velocity of money, capital mobility, etc. could be affected.

Other effects could derive as a result of the current trend of institutional de-specialization. Today the monopoly held by banks over the payment industry is increasingly being threatened by non-banks. Department store credit cards are an example of such new competitors. Internet payment instruments, if provided by non-banking institutions, could increase this tendency. As Central Banks enforce monetary policy through their "special" relationship with banks, a decreased importance of such institutions could decrease its effectiveness.

The role of the Central Bank as supervisor of the payment system will be affected too. Central banks can take part in the payment system in three ways: through consulting and moral suasion it can spur market operators to adopt certain behaviors, which it believes to be positive for efficiency and stability it can promulgate rules which bind market operators to certain behaviors (ex. legal reserve requirements) it can choose to offer directly certain services, if the other two options are impossible or too costly (ex. the supply of currency).

It is yet unclear what approach the Central Banks will adapt towards Internet payment instruments. It is likely that, as long as Internet payment instruments are growing, Central Banks will refrain from imposing limits and regulations, to avoid impairing growth. And it is quite unlikely that Central Banks will ever offer Internet payment services. Before deciding to what extent Central Banks should be involved, a serious analysis of the effects of such instruments on the international settlement system should be done. Even if Internet payment instruments target the retail sector of the payment market, and therefore do not imply the same systemic risk of large value payments, at an aggregate level they could still become relevant.

Furthermore, current international settlement systems are not made to handle vast amounts of small payments. In the medium term, new ways of settling such payments should be devised. As a regulator, and as an advisor to the government, the Central Bank is faced with several significant questions: how to preserve the integrity of the payment system? Who is responsible for settlement? What settlement system

♪ How to protect customers from bankruptcy of a supplier of payment instruments? How to treat, from a legal point of view, the new digital instruments?

♪ How to avoid that the new instruments is used for tax evasion or money laundering?

As a supervisor of the banking system, the Central Bank has to rethink its special relationship with banks. As already said, institutional de-specialization currently implies that banking institutions face more and more competition from non-banks.

The industry of Internet payments is a typical example, as most of the companies who are offering payment services are non-banks. Whereas, in the past, it was sufficient to monitor banking institutions to guarantee the stability of the payment system, today too many payments are not being intermediated by banks any more. Therefore, the scope for offering settlement services and credit of last resort only to banks is becoming less and less relevant. In the future, if Internet payment instruments, as well as several other payment instruments managed by non-banks, are going to take off, it is foreseeable that the regulations applied to banks will be extended to all the companies who wish to operate in the payment industry. This

Would avoid unfair competition (if non-banks are not subject to the same rules as banks, they have an unfair advantage) and instability. This is the opinion expressed by the Payment System Task Force of the EU.

Furthermore, traditionally Central Banks only monitor national banks. The development of Euro markets has pushed the Central Banks of G10 Countries to extend their supervision to foreign subsidiaries of national banks. Internet payment instruments are a further step forward, being completely independent of physical location. It is possible for national companies to sell their products abroad, and for foreign ones to compete in the national market just like national operators. Suppose a European Bank located in Cayman Island starts selling US$ denominated payment instruments to customers in Japan. Which Central Bank, if any, should be responsible?

The problem is even more serious than for other international assets and financial instruments, as Internet payment instruments target families and consumers, and not just financial operators. This means that there is a stronger "need for protection" from risks.

It is, however, difficult for a Central Bank to extend its powers to foreign companies, as this would infringe the sovereignty of other States. There are, however, ways to exert some kind of control. For instance, Central Banks can use their powers of moral suasion. In the case of Internet payment instruments, Central Banks could decide to provide those operators who accept to submit themselves to Central Bank controls with a digital certificate proving the stability of the operator. Such certificates would tell customers anywhere in the world that they are accepting a payment instrument, which has been declared, secure by an independent, non-profit driven institution such as the Central Bank. Users would quickly learn how to distinguish between certified suppliers and uncertified ones. Such certification would prove to be extremely useful in the process of reputation building, essential to any payment instrument supplier, and could contribute in avoiding crisis of confidence.

To conclude, Internet payment instruments will significantly affect Central Bank operating procedures. For the moment, there are no risks of systemic instability, but as these new instruments take off Central Banks will have to adapt their behavior to take them into account, to avoid that certain behaviors become customs. Such changes will have to take place early enough to avoid that some crisis of one operator gives rise to an overall crisis of confidence in Internet payments.

Since the Internet IPO of the Spring Street Brewing Company earlier this year many have become intrigued by the possibility of issuing stock using the Internet. The relaxation of SEC regulations and the appearance of several companies supplying Internet IPO services hold promise for businesses hoping to conduct an Internet IPO. Other innovators plan on pushing the boundaries of electronic commerce on the Internet even further. Within the next year we may see the appearance of the world's first fully functional Internet stock exchange, this will be the true test of what electronic commerce on the Internet can offer.

This survey was designed to explore the concept of Internet-based stock exchanges by measuring investors' opinions on issues ranging from Internet security to their willingness to use an Internet-based stock exchange. In total the data from 42 respondents was collected, 22 respondents were MBA students while the remaining 20 respondents were collected from the Internet. Respondents from the Internet were recruited primarily through newsgroups and mailing lists. Because all respondents for this survey are self-selected the survey data cannot be assumed to be a representative sample of either Internet users or the investment community. All data was collected during the month of October 1996.

The results of the survey bode well for the future of Internet stock exchanges. While security of transactions remains a major concern, respondents also voiced a strong belief that Internet stock exchanges offer a number of advantages over their conventional counterparts.

Whether an Internet stock exchange would have any advantage over a conventional exchange 88.1% or respondents replied that it would. Not a single respondent said that Internet stock exchanges wouldn't have any advantages over a conventional exchange, the remaining 11.9% was undecided. Several possible advantages of an Internet exchange age. Benefits listed were primarily lower costs and access to a broader market. Ease of marketing and information provision was also mentioned as benefits.

Security of Internet transactions is still a major concern for respondents. When asked to list any disadvantages that an Internet stock exchange would have the most common responses were security problems, fraud, and hackers. The effectiveness of on-line security was viewed as critical to the success of an Internet stock exchange; a statement 95.2% of those surveyed agreed with. Respondents seem uncertain whether today's technology can provide the levels of security needed. Only 29.3% of respondents felt that today's security / encryption was good enough to build an Internet stock exchange. It appears that beliefs about the ineffectiveness of Internet security present one of the biggest challenges to widespread electronic commerce.

The results of this survey suggest a very important step, which can be taken to reduce the barriers, posed by Internet security concerns. It was found that the concern about security was strongly related to user familiarity with security/encryption technologies. In this survey respondents' familiarity with these technologies was measured by asking whether they were familiar with PGP encryption. Whether or not people were familiar with PGP encryption had a striking influence on whether they viewed the encryption/security technologies of today as suitable for an Internet stock exchange. Of PGP-familiar respondents 75% felt that security/encryption technologies were good enough to build an Internet stock exchange. This contrasts with PGP-unfamiliar users of which only 10.3% felt the security was good enough. This striking difference is statistically significant at the P <. 0002 level.

The difference that a familiarity with PGP makes to the perception of security suggests that disseminating information about security and encryption systems is one way of greatly reducing fears of Internet security. Educating users and providing them with descriptions of the security measures in place and how these measures function is likely to go a long way in reducing concerns about Internet security. Much of the fear related to security issues may simply be due to a lack of familiarity with the technologies used to make Internet transaction more secure. Internet Stock Exchange Operation and Features

This survey explored opinions on features, which could be included in an Internet stock exchange. There are several definite conclusions, which can be drawn about the features that users of an Internet stock exchange would like to see. Results indicate that respondents prefer to have a diverse range of stocks and payment options available to them. When respondents were questioned about the types of stocks they would like to see listed on an Internet stock exchange, most responded that they would like to see all types of stocks available. When respondents suggested specific categories of stocks, small-caps, hi-tech, or high-risk stocks were frequently mentioned. Similarly, the majority of respondents felt that all currencies should be accepted as a form of payment on an Internet stock exchange. When specific currencies were mentioned they usually included one or more of US$, DM, Yen, Br. Pound, ECU, Fr Franc, Swiss Franc, Can$, Austr$, and NZ$. However, those surveyed did not support the creation of a new publicly traded digital currency for the purposes of exchange transactions. Only 19% felt this was a good idea while 50% opposed it, often citing that this introduces an additional layer of complexity to transactions.

Another point which respondents felt very strongly about was that it would be a valuable feature for an Internet stock exchange to allow the trading of stocks from other exchanges such as the NYSE and NASDAQ. 41 out of 42 respondents thought that this would be a valuable feature. Those surveyed also felt that it was important to have multiple methods of trading. 64.3% of respondents felt that another means of trading (other than the Internet) should exist to allow users to trade on the exchange. Other means of trading which were suggested included telephone, fax, ATM, on-line computer, and mail/courier. Despite the fact that many considered this an important addition, 60.5% of respondents said that they were not likely to use these alternative means of trading as their method of choice.

The majority of those surveyed seemed to prefer a stock exchange, which was somewhat, regulated. A near-majority (46.3%) of respondents believed that an Internet stock exchange should be subject to the regulation of a single government while 29.3% disagreed. Additionally, only 28.6% of respondents believed that tax benefits would be a major incentive to participate in an Internet stock exchange. It appears that freedom from regulation or taxation is not considered a likely option amongst people who would be using Internet stock exchanges. On the contrary, several alternative advantages appear to form the basis of attraction for the majority of respondents.

The respondents surveyed are a diversified group. Investment experience ranged from none to over 20 years. Sizes of typical investments were skewed to the lower end with no investors having typical trades with a value greater than $99,999. Ages ranged from 21 to 65+. Incomes were also evenly distributed with several respondents earning as high as $100,000 - $199,000. As is common with surveys over the Internet, the respondents were predominantly male (86.1% vs. 13.9%).

Overall, results seem to suggest a very bright future for Internet stock exchanges. A number of advantages possessed by Internet stock exchanges prompted many to suggest that Internet exchanges would someday compete directly with the world's largest conventional exchanges. However, one issue, security, complicates this picture somewhat. Major concerns about security, fraud, and hackers mean that the Internet commerce is perceived as off-limits for many respondents. While time-tested systems with a track record will satisfy some; the security issue is likely to delay widespread use of Internet stock exchanges for some time. Education and an explanation of security technologies may speed the process of acceptance. Lastly, there are a number of features people would like to see in an Internet stock exchange. Convenience is the norm, and respondents prefer access to a wide range of stocks (from other exchanges), currencies, and other means of executing trades. If the results of this survey are any indication, Internet stock exchanges will soon fill a valuable niche in the area of electronic commerce on the Internet.

Since its inception in 1971, The NASDAQ Stock Market has been the industry innovator. Introduced as the world’s first electronic stock market, NASDAQ long ago set a precedent for technological trading innovation that is unrivaled.

Now poised to become the world's first truly global market, The NASDAQ Stock Market is the market of choice for business industry leaders worldwide. By providing an efficient environment for raising capital, NASDAQ has helped thousands of companies achieve their desired growth and successfully make the leap into public ownership.

Trading on the NASDAQ Stock Market—the world’s first electronic stock market began in 1971. Today, NASDAQ is the fastest growing stock market in the United States—and ranks second among the world’s securities markets in terms of dollar volume. How did NASDAQ achieve so much, so fast? By constantly evolving to meet the changing needs of investors and public companies. Here's a brief look at our history: In an effort to improve overall regulation of the securities industry, Congress asks the U.S. Securities and Exchange Commission (SEC) to conduct a special study of all securities markets.

♪ 1971 NASDAQ celebrates its first official trading day on February 8th—the first day of operation for the completed NASDAQ automated system, which displays median quotes for more than 2500 over-the-counter securities.

♪ 1975 NASDAQ establishes new listing standards—which it requires, all listed companies to meet—effectively separating NASDAQ-listed securities from other OTC securities.

♪ 1980 NASDAQ begins to display inside quotations—the market's best bid and offer prices—on-screen. As a result, both displayed and published spreads decline on more than 85 percent of NASDAQ stocks.

♪ 1982 the top NASDAQ companies split off to form the NASDAQ National Market, which requires higher listing standards. The NASDAQ National Market also offers real-time trade reporting, which provides investors with broader access to market information.

♪ 1984 NASDAQ introduces the Small Order Execution System (SOESSM). Designed to automatically execute small orders against the best quotations, SOES enhances NASDAQ’s trading capacity and efficiency.

♪ 1986 The Federal Reserve Board grants NASDAQ National Market stocks marginality, meaning that customers can purchase these securities on credit extended by a broker/dealer.

♪ 1990 NASDAQ formally changes its name to "The NASDAQ Stock Market. "Creation of the OTC Bulletin Board SM (OTCBB) gives investors information on and access to securities not listed on NASDAQ.

♪ 1991 NASDAQ National Market securities attain virtual parity with the NYSE and AMEX on blue-sky laws—applicable state laws concerning the registration and sale of new securities. (Note: The National Securities Market Improvement Act of 1996 mandated that all states must exempt NASDAQ National Market securities from state blue-sky regulations).

♪ 1992 NASDAQ International lSM Service begins operation, allowing NASDAQ National Market securities to be traded during early morning hours, when the London financial markets are open. Real-time trade reporting is initiated for The NASDAQ Small Cap Market SM.

♪ 1994 A landmark year: The NASDAQ Stock Market surpasses the New York Stock Exchange in annual share volume.

♪ 1997 The SEC approves NASDAQ’s request to begin quoting in 1/16ths of a dollar for stocks trading above $10. NASDAQ implements new order handling rules. In combination with NASDAQ’s move to quoting in 1/16ths, these rules produce better prices and an average spread reduction of 40%.

♪ 1998 Merger between the NASD and the AMEX creates The NASDAQ-Amex Market Group.

The NASDAQ Stock Market closed 1998 with the NASDAQ Composite SM Index gaining over 20 percent for a fourth consecutive year, closing up 39.6%. In 1998, NASDAQ® had nine days with more than one billion shares trading hands.For the year, share volume reached 202.0 billion, up 23 percent from 163.9 billion in 1997.

The market value of the 5,126 companies listed on NASDAQ stood at $2.6 trillion, up over 44 percent from year-end 1997. This year saw 273 initial public offerings that raised just under $14 billion.

The market's best index performers were the NASDAQ Computer and Telecommunications, up 83.3 percent and 63.4 percent, respectively.

The Nasdaq-100 Index® was up 85.3 percent over 1997. The NASDAQ Composite at year-end stood at 2192.69, up 39.6 percent from 1570.35 in 1997.

The dollar value of trading on NASDAQ in 1998 surpassed the previous record of $4.5 trillion in 1997 by 28 percent; 1998 trading was valued at $5.8 trillion.

Average daily share volume on NASDAQ reached over 802 million shares in 1998, up from 648 million shares in 1997.Twelve non-U.S. companies listed on NASDAQ in the fourth quarter of 1998, bringing the total number of foreign companies listed to 440, more than on any other U.S. market.

It specializes in executing large block orders for pension funds, mutual funds, insurance companies, and asset management companies, among others.

It focuses on both the companies and the investors of a particular region. The regional market maker

It gives the company the advantage of specialized, in-depth knowledge of the stocks and investors of a particular area of the country, providing more extensive coverage than might be available elsewhere.

It trades shares for institutional clients as well as for other broker-dealers which are not registered Market Makers in a company's stock, but need to execute orders in that stock for customers. They help create liquidity for a company's stock by being an important source of shares for retail, institutional and regional

Electronic communication networks (ECNs) are the newest market participants in NASDAQ’s inclusive marketplace. These private trading systems were incorporated into the NASDAQ market structure in 1997, when NASDAQ implemented the SEC's Order Handling Rules. To trade on NASDAQ, ECNs must be certified with the SEC and registered with NASDAQ and NASD regulation^s.

When a Market Maker uses an ECN to represent an order, the order is first routed through the ECN to check for matches, and is then posted electronically in NASDAQ as an ECN quote. The forwarded order can then be executed on NASDAQ or matched with a new order through the ECN

Buy and sell orders, which are represented in NASDAQ through ECN quotes are either public order forwarded to the ECN by subscribing broker/dealers, or orders from institutions subscribing to an ECN. The best ECN buy and sell orders, or "top of book," will frequently drive the inside market, meaning they represent the best bid and ask prices for a security. Additionally, ECNs provide institutions and Market Makers with an anonymous way to enter orders for stock into the marketplace.

As NASDAQ market participants, ECNs foster heightened competition among Market Makers and further enhance the market’s liquidity. The result? Better prices for investors.

ECN	Market Participant Identification Code
Archipelago L.L.C	#ARCA
Attain	#ATTN
B-Trade Services L.L.C.	#BTRD
The BRASS Utility	#BRUT
Instinet Corporation	#INCA
The Island ECN	#ISLD
NexTrade	#NTRD
Spear, Leeds & Kellogg	#REDI
Strike Technologies	#STRK
As of 4/99
Certified by the Securities and Exchange Commission (SEC), ECNs must be registered with NASDAQ and NASD Regulation to participate in the market.

Until recently, trading activity on The NASDAQ Stock Market was quotation-driven: NASDAQ Market Makers competed for investor orders by displaying their quotations—or offers to buy and sell stock—on screen. On more traditional markets, trading activity is likely to be order-driven, instituted by the flow of incoming orders to buy and sell stock.

In 1997, NASDAQ implemented new order handling rules which require certain customer limit orders to be displayed in both Market Maker and ECN quotes. As a result, NASDAQ is now both quotation- and order-driven, and has evolved to incorporate features of what is sometimes referred to as a "hybrid" market.

Hybrid Market

Screen-based market structure

Quote- and order-driven

Competing market participants

Capital commitment from multiple firms

Corporate finance

Retail sales

Institutional sales

Research analysts

Continuous order flow

NASDAQ’s trading information is simultaneously broadcast to more than 500,000 computer terminals worldwide. This allows all NASDAQ participants equal access to the market and to market information through a simultaneous broadcast of quotes and orders.

If an investor wants to buy or sell stock at the current market price, he or she places what is called a market order. The multiple Market Makers in a NASDAQ stock continuously quote prices at which they will buy and sell the stock. The "bid" is the price at which a Market Maker will buy the stock; the "ask" (or "offer") is the price at which a Market Maker will sell the stock. The current market price reflects the best of the prices displayed by the multiple market makers—the highest bid and the lowest ask of all the market maker quotes. This is also known as the "inside market" or the "inside quotes." (An investor, therefore, sells at the highest bid price and buys at the lowest ask price.)

An investor wants to buy 200 shares of ABCD stock at the best current market price—or the lowest ask quotation displayed by any of the Market Makers in the stock. To do this, she calls her broker/dealer and places a market order for the 200 shares, which is then executed by a Market Maker at the best (lowest) ask price. In this example, the current "inside" market is 10 1/4 Bid—10 3/8 Ask. The investor receives the best ask price and buys 200 shares at 10 3/8. (An investor placing a market order to sell 200 shares of ABCD at the same time receives the best (highest) bid price and sells at 10 1/4.)

Orders can also be initiated online through the Internet. In this case, the investor uses an online trading account and places the order electronically with an online brokerage. A Market Maker or an ECN at the current best price then executes the trade.

If an investor wants to buy a certain number of shares at a specified price, they place what is called a limit order. NASDAQ’s limit order visibility was enhanced with the implementation of SEC Order Handling Rules in 1997. Investors' limit orders, when priced better than the Market Maker quote, can now set the inside spread.

Let's suppose an investor wants to buy 200 shares of ABCD stock, and the current best quotes in the market are 10 1/4 to buy 10 1/2 to sell.

The investor is not willing to pay the asking price of 10 1/2 and only wants to pay 10 3/8. The investor decides to place a limit order with a broker for 200 shares at 10 3/8.

At 10 3/8 to buy, your limit order is now the most favorable Bid Price. Under this rule, the Market Maker must either change its bid quote to display your price and order size (200 shares at 10 3/8), immediately execute your order at your price or ship the order to an ECN. Your displayed limit order participates directly in the market as the most favorable price to buy and appears on the trading screen for all market participants to see.

Odd lots - orders of less than 100 shares. Odd lot orders may be accepted and executed by individual firms' proprietary systems. All-or-none limit orders - limit orders either to buy or sell a security, in which the broker is directed to attempt to fill the entire amount of the order or none of it. Immediate execution is not required. Firms may accept and execute all-or-none limit orders internally.

Mixed lots - orders not in 100-share increments (325 shares, for example). Mixed lot orders are rounded to the next lowest 100-share increment.

Orders either to buy or sell a security that remain in effect until canceled by the customer or until executed.

Customer orders to buy or sell a security that expire automatically at the end of the trading day on which they are entered.

Orders executed at less than the full amount. An investor may place an order to buy 500 shares of ABCD stock at $45 and get a partial execution if the broker is able to buy only 300 shares at that price. Partial execution or fill orders occur according to market conditions. The remaining shares are subject to size conditions.

Sometimes Market Makers "sell short," meaning they will sell shares to an investor or another Market Maker without having the shares in his or her trading account. This legitimate trading strategy allows qualified Market Makers to sell short in anticipation of a market down-turn, then buy the shares back from customers who want to sell when a "down" market finally takes hold. By selling short, Market Makers can provide stabilizing liquidity for a company' stock—while satisfying customers' selling interest—during down markets.

NASDAQ’s "Short Sale Rule" was designed to protect investors and prohibits NASD members (and their customers) from selling a NASDAQ National Market stock at or below the current inside bid when that bid price is lower than the previous inside bid. (The bid price is the amount at which a Market Maker or investor is willing to buy a stock).

Instituted to prohibit short selling when there is a "down" market (short selling that is aimed at driving a stock's price down), the Short Sale Rule allows qualified Market Makers to sell short when providing a benefit to the market by engaging in bona fide market making activity

The Small Order Execution System (SOES) SM is an automatic execution system for orders of up to 1,000 shares. An important safeguard for all investors in your company's stock, SOES was designed to guarantee that all eligible orders will be automatically executed at the best possible bid or offer price available in NASDAQ at the time the order is placed, even in turbulent market conditions.

When an investor places an order that is entered into SOES to sell up to 1,000 shares,

SOES will direct the order to the Market Maker currently offering the best bid price and execute the order with that Market Maker. SOES ensures that an order will be executed automatically according to the Best Displayed Price.

Participation in SOES is mandatory for all Market Makers in NASDAQ National Market securities.

Suppose you wanted to buy an airline ticket. You would simply tell your travel agent your destination and travel dates, and the system would automatically identify the distributor (or airline) with the lowest price quoted at that time and buy your tickets for you. SOES works much the same way for small share purchases. Plus, it's an important safeguard of investor confidence in The NASDAQ Stock Market, ensuring that small orders of individual investors always receive fair treatment.

By offering Market Makers greater flexibility in executing orders, NASDAQ’s SelectNet system provides an efficient, electronic mechanism for trading larger orders. Through SelectNet, a Market Maker can send a stock order to another Market Maker in that particular stock, or broadcast the order to all Market Makers through NASDAQ’s electronic marketplace.

A screen-based negotiation feature allows Market Makers, who receive these orders to accept, reject or counter them. After the parties have agreed to the terms of a trade, SelectNet will lock in the trade details for clearance and settlement and simultaneously generate a trade report.

The NASDAQ Market Watch Department was established to facilitate regulatory oversight of The NASDAQ Stock Market, in order to protect the integrity of the marketplace. Market Watch surveils market activity by monitoring news and market information disseminated to the public and by exercising trading halt authority when appropriate. In order to fulfill its broad regulatory function, Market Watch is divided into two distinct sections: Stock Watch and Trade Watch. To learn more about click on the Market Watch subsections below.

The Stock Watch section of Market Watch provides real-time surveillance of issuer activity in The NASDAQ Stock Market. This service protects investors and NASDAQ companies by helping to maintain an orderly market.

How does Stock Watch provide this service? Stock Watch reviews material news in press releases issued by NASDAQ-listed companies. It also monitors price and volume activity in NASDAQ securities.

The NASDAQ Stock Market rules 4120, 4310(c)(16) and 4320(e)(14) require that, except in unusual circumstances, NASDAQ-listed companies promptly notify the public of any material information. These rules also require issuers to give Stock Watch advance notice of certain news events.

Stock Watch can then assess press releases for materiality and in certain circumstances, temporarily halt trading to allow for even dissemination of material news.

The Trade Watch section of Market Watch provides real-time monitoring of trading activity in The NASDAQ Stock Market, helping to maintain an orderly market and ensure integrity in the marketplace.

Using automated detection systems, Trade Watch analysts monitor and process all trading alerts, resolve locked and/or crossed markets, and makes sure certain price and volume information is reported accurately by member firms.

In addition to being responsible for immediate resolution of real-time issues related to trade reporting, Trade Watch is frequently consulted by NASD member firms for information regarding general trade reporting rules and various NASD (and SEC) rules and regulations. All suspicious activity noted by Trade Watch is immediately referred to NASD Regulation for further review and investigation.

A distinction must be drawn between ‘person to service’ and ‘business to business’ transactions. Security scares in the media most often concern the former, where customers are invited to pass their credit card numbers to retailers over the public Internet. ‘Front end’ transactions such as these are dependent on security standards to make then more widely acceptable.

‘Business to business’ or ‘back end’ transactions face similar issues of security, but on a larger scale. Transactions between businesses often involve high value orders or business-critical data. The integrity of a business can rest on the integrity of its transactions. Currently, private network service operators handle most inter-business communications. The Internet cannot yet offer the same guarantees of dataIntegrity, delivery or minimum service levels as the private networks.

Undoubtedly the current model of public Internet transactions and private network inter-business transactions will persist, although interest in EDI over the Internet will continue to grow as more business software products deliver this capability. However, it seems unlikely that the Internet will usurp existing commercial networks as the main carrier of high value business to business transactions.

Up until now, retail sites typically have allowed payment by credit or charge card. The most popular mechanism involves registering as a potential customer over traditional channels – telephone, fax or post. Part of the registration process involves divulging credit card details, which are lodged in a database at the retail site and not transmitted over the Internet. The registered customer is given a password to be used before any future visits to the retail site. Internet purchases are dealt with at the ‘checkout’ area of the site. The password relates directly to the credit card record and levies a charge to the card as part of the standard back office operations. Customer details are accessed from the same code and passed on to distribution.

This method works well in practice but still relies on passing card details as a separate process and sadly, in many cases the extra steps this involves on the part of the purchaser are enough to discourage further purchases. The ideal method is to pass the payment details directly over the Internet. In fact this may well be safer than passing details by post or telephone, but with the existing concerns regarding Internet security, businesses cannot be seen to take risks in such a sensitive area. Certainly there is Rooms for some positive work to reassure customers in this respect.

Because of its development history, the Internet carries a regrettably all too compelling image of an anarchic and insecure network. It is true that the barriers to entry are low, to anyone with the appropriate computer equipment and a link to the network. It is also true that the network has been a training ground for hackers and virus authors over the years. But at times the coverage of security issues in the media has been rather overplayed. A sensible and thorough approach is all that is necessary to appraise the risks to the corporate network and data – and deal with them effectively.

The virus threat is there whether or not you are connected to the Internet. But in addition to the constant threat of infected floppy disks being passed onto the corporate network, the Internet opens up the possibility of downloading infected software to company machines or receiving e-mail with a virus-infected file attached. The procedure to tackle this is essentially the same as for a stand-alone network – a regime of virus-checking each machine at regular intervals, strengthened by a policy which dictates that each individual software package or file attachment downloaded from the Internet must be checked using the same software. By using Internet security products, the means to download software from outside the corporate network can be barred, to some or all users. E-mail attachments are harder to monitor and their treatment should be specified in acceptable use guidelines.

The second major security issue relates to unauthorized access to company systems. The fear is that hackers on the Internet can exploit insecure loopholes in machines on the corporate network and gain access to the network in order to disrupt the system, gain access to sensitive data or deposit viruses. The key point to note is that the level of vulnerability of the corporate system depends on the operating systems in use. The operating system gives a computer its basic personality and controls low level operations as well as, in some cases, user access and network connections.

The operating system, which controls most of the hosts on the Internet, is Unix, which was developed extensively during the ‘70s and ‘80s, becoming a robust and reliable de facto standard for machines connected to the Internet. But thanks to this development history, some implementations of Unix have a number of features which, if not explicitly checked and secured, could allow a hacker to gain access to the operating system and from there, to the data on the machine and on any others attached to it. The loopholes in the system are well documented, so it is important that an expert configures and secures it.

There are other products recommended to secure the corporate system and protect it from unwanted guests. There is currently a growing market for so-called ‘firewall’ products, designed to shield the company network from the general Internet at the point where the company network is connected to the global network, and act as sentries, checking the data which passes by them (see “Securing the network”).

The use of e-mail is widespread as an effective and efficient way to communicate. Indeed, it has proved so successful that many companies are investigating the Internet as a low-cost means of delivering electronic messages, not only from employee to employee but to business partners, suppliers or customers.

Using global e-mail for company business raises some important issues, not least that as it stands; electronic mail over the Internet is not secure. Standards controlling the transmission of basic mail send messages as a stream of plain text, which could be intercepted by a third party. The likelihood of this occurring is slight, but not impossible. Internet e-mail may pass over many different networks on the journey to its destination. At several points along this path someone might seize the opportunity to monitor the data traffic.

There are ways to counter this threat by restricting e-mail to a limited user base, establishing content guidelines which set out what may and may not be communicated via Internet mail, or using security products which encrypt mail traffic before it passes onto the public network.

‘Firewall’ products have been developed to secure the interface between a private network and the Internet. They work by examining the format of packages of data, which pass through the communication channel. Each package typically carries the address of the source and destination machine, and may also hold additional information on the type of application transmitting the data. The basic firewall looks up the addresses within the data package, checks them against a table of permissible users held internally, and either routes the data onwards or drops the package. More sophisticated packages keep tracks of the applications sending data through the channel and applies more complex rules before accepting or dropping the package.

The most advanced attempt to spot suspicious activity at an early stage, and lead any intruder through a series of blind alleys whilst gathering more information about the source of the attack. A large range of firewall products is available. Virtually all provide the basic functionality described above. Costs run from a few thousand to several tens of thousands of pounds for the most sophisticated systems.

Risks of a very different kind, but which are still worth highlighting here, are those of a more general business nature. These can apply equally to other technology projects but are nonetheless vital to the ultimate success of your endeavor.

Our own research and experience has shown that support and buy-in at a high level in the company, is a crucial pre-requisite for successful Internet development. Future strategy may depend on the perceived success of a pilot site, so you must get sponsorship and leadership from the appropriate function within the company before proceeding.

A statement of business need should drive every project. Once potential applications have been identified, drive them forward to provide the maximum quality at the optimal cost. If an Internet project is ever to be worth publishing to the world, it must be done well or not at all. Strong leadership is essential; research shows that initiatives, which lack direction and sponsorship, are short-lived and quickly become out of date. The Internet is like any other media channel – users quickly tire of a site, which becomes stale and are unlikely to visit it again.

The Internet is the ultimate global computer network. What is the legal issues affecting its use? Intellectual property may be exploited by electronic licenses, but is subject to the risk of digital manipulation and copying. Professional advisers can provide services over the Internet, but what is their liability? Service providers may be liable for copyright infringement and for defamation in respect of the actions of their users. UK proposed legislation would limit the liability of innocent disseminators such as service providers, but US proposals suggest service providers should be liable for the content of their bulletin boards. EU legislation protecting databases need to be considered. Data protection and privacy issues are crucial. Electronic Data Interchange will be facilitated but what are the legal consequences?

How secure is your Internet system and could its use lead to a breach of client confidentiality?

Computer misuse –although unlawful access to computer systems (hacking) is a criminal offence, how can you prove that this has occurred and find the culprit over the Internet? Where should you sue? The legal issues are international and will involve choices of jurisdiction. The Internet makes positive contributions but carries legal risks.

Information placed on a Web server is instantly accessible by a potential audience of millions. Too many homepages are dull and unimaginative, offering nothing more than can be obtained by conventional means like catalogues or press releases. Understand the true potential of the medium and exploit it to create the best quality Web site you possibly can. Keep the information fresh and lively, and people will return to your site over and over again.

Most companies have strict publishing guidelines; covering the use and positioning of company brand images or trademarks, along with layout and formatting style guides. Develop a style guide specifically for the medium. And remember that user expectations of Internet sites are high – arresting imagery is the norm.

Innovation is recommended. The entire impression of your company and its products is dictated by what is presented on a computer screen. On the Internet, brand and image are everything. Unauthorized content must not be allowed to dilute or damage brand identity. Absolute quality should be the aim.

The initial development of an ‘electronic marketplace’ on the Internet may well be part of a broader strategy to investigate and develop other channels of communication, service and delivery to your customer base. A pilot site may deliver a successful and high quality service, but fall short of the strategy when the wider issues are considered. Our research reveals that the delivery of the content to the consumer is often not supported by robust operational procedures. Too often, serving the Internet customer is ‘bolted on’ to existing roles and responsibilities, leading to inefficiencies and poor service. The burden of keeping information consistent, accurate and up-to-date can quickly break down such ad hoc processes.

Many Internet developments provide a sophisticated face to the market, but have not addressed the back end systems needed to service this channel. Though such refinements are on the wish list of several Internet site operators, few have committed to making this change. As the Internet audience grows and diversifies such developments will become more easily justified. In the meantime, the data coming in from Internet customers is processed by temporary procedures. Maybe these will suffice in the short term, but there is a real risk of users becoming disgruntled with this level of service. The immediacy of Internet access engenders the expectation in users of an equally speedy response. The challenge for commerce is to compress the processing and delivery time scales to match user expectations.

To counteract this concern, several standards have recently emerged which offer a high degree of transaction security between purchaser and vendor: Secure Sockets Layer (SSL) from Netscape;

Secure HTTP (S-HTTP) from Terisa Systems; Secure Transaction Technology (STT) from Microsoft and Visa. In practice the difference between the systems is very slight and of little consequence to the user. Netscape’s SSL has become the dominant standard, due mainly to Netscape’s dominance of the Web browser market and its healthy market share of Web information server software. Many retail sites now use Netscape’s technology to secure the passing of credit card details. Customers use their browsers to enter credit card and personal details on an electronic form. The security technology takes this information and encrypts it before transmission, so that only the vendor can read the details. This direct retail experience could indicate the shape of things to come for electronic commerce.

Of course, the other side of the credit transaction is the authentication and authorization of credit details by the relevant financial institution. High street retailers have for some years used small point-of-sale terminals, which connect, directly into banking systems to confirm card purchases. Standards are now emerging that allow Internet retail operations to authorize transactions with a card processor whilst on-line

to a customer. Products using this technology will become more widespread, to give merchants the same degree of protection they enjoy with traditional authorization schemes.

Despite the advances in credit card usability, there are still many areas of business for which credit cards are not suited. The growth of the Internet has been paralleled by the growth in on-line information resources. Commercial providers have developed these sites to offer a wide range of information – for example, short business reports or computer graphics libraries. Many of these sites are experimenting with charging methods, but are limited by the small charges they wish to levy for the purchase of their products. Overhead commission from credit card operators reduces the profitability of the sites and raises the cost of entry to the marketplace. Given these constraints, content providers have the option to charge up front for an extended period of use or a fixed volume of product. Alternatively, there are two electronic payment methods currently in use. First Virtual is a bank set up specifically to target business use of the Internet. Users open an account with First Virtual, giving payment card details for settling transactions. The user receives a pass code and when an Internet service is encountered which uses the First Virtual system, the user simply types in the pass code to ‘pay’ for the service. At the back end the transaction is authenticated and First Virtual charges the user’s card, passing on funds to the vendor.

A second electronic cash system is currently being trailed by DigiCash, based on the use of software at the client end, which acts as a purse. Users sign up for the service by giving personal and payment card details to DigiCash outside Internet channels of communication. Once this is done, the customized DigiCash software is used to ‘buy’ electronic currency, which is stored at the DigiCash server and charged against the user’s plastic card. The ‘e-cash’ is downloaded to the user’s computer as it is required and can be spent on goods offered by vendors who support the system. DigiCash uses high security encryption technology to ensure the integrity of transactions.

The electronic currencies in development are a sophisticated attempt to overcome some of the problems, which the Internet poses for electronic commerce, though many involve extra complexity or require technical sophistication, which could stand in the way of wider acceptance.

Many banks are studying the feasibility of selling financial products and providing banking services using on-line channels (such as the World Wide Web and Internet). The technology necessary to do this is now widely available, but little is known about how to identify potential customers for on-line banking.

For many consumers, purchasing financial products is a complicated process. Not only do a majority of consumers not have a clear understanding of the financial choices available to them for satisfying their financial needs, they also do not fully trust financial intermediaries such as agents, brokers, and financial planners. Further, the quicker-paced life that consumers lead constrains them from allocating time to establish trusting relationships with the financial intermediary. Consumers therefore are looking for alternative ways of buying financial products and controlling their financial future. One of the alternatives they can turn to is the electronic channel; however, their adoption of this channel is predicated on overcoming risk perceptions associated with using the electronic channel.

Financial institutions are keenly aware that electronic commerce is here to stay and will experience tremendous growth in the immediate future. For example, "explosive" growth in the number of retail users of electronic financial services is forecast by a study from Meridien Research. This study estimates that the number of retail customers for electronic finance will reach five million in the U.S. by the year 2000. In another study, DeLoitte and Touche estimates that half of all U.S. bank branches will be substituted by electronic banking within the next 10 years.

Financial institutions that are at the forefront of using electronic commerce have been developing expensive security protocols (such as data encryption, server authentication, and message integrity) for providing a secure on-line banking or trading solution to their customers. They have also been investing in marketing databases to support cross selling and up sell campaigns to existing customers and decisions support systems to analyze back-end marketing program expenditures. For

example, American Express has invested close to $100 million during the last five years for this purpose. The Principal Financial Group is currently engaged in a multi-million dollar project to evaluate electronic commerce potential for their products.

While financial institutions have been making huge investments in building the infrastructure and technology needed for facilitating electronic commerce, they have not spent an equal amount of effort for identifying the customers who may be motivated, willing and able to use electronic channels. Markets in the physical world generally know how many (and which) customers they have. The electronic commerce market for financial products and services, however, may be the first major market in history not to have a clue about the identities of their customers. The primary purpose of this research is to help practitioners with identifying consumer attitudes and experiences that influence their current use of on-line channels for buying financial products.

When identifying potential customers for on-line sales channels, the results of the current study suggest that managers should concentrate less on demographics and more on consumers who have the opportunity, ability and motivation to buy on-line. Increasing Opportunity. We found that the presence of a PC at home significantly affects consumer opportunity to participate in on-line sales channels. Although it may be difficult for an individual company to increase their current customer's

opportunity to purchase on-line, knowing that PC ownership is important enables companies to identify potential customers for on-line financial services. Increasing Ability. Consumer confidence in their own ability to make financial decisions significantly affects their ability to purchase financial services on-line. Increasing customer ability may also prove difficult for companies, but it does provide insight into identifying customers who are more likely to purchase on-line. Increasing Motivation. Finally, the need for face-to-face contact with financial agents significantly decreases the likelihood that customers will purchase on-line. This means that customers that do not have this need can be identified as potential customers for on-line financial services. There are also marketing strategies that companies can use to motivate their current customers to purchase on-line. They can pull customers toward the new channel by informing them that it can be more convenient than other options. Monetary savings also help increase motivation to use. For example, if transaction fees arenormally charged, transaction fees may be lowered when the on-line channel is first available. Also, product and service prices may be decreased during the introductory period for the on-line channels. Obviously, once the consumers have seen that the on-line channel is useful, they are more likely to purchase than if they never have seen it.

Consumers who use the on-line channel for gathering financial information are more likely to be on-line buyers of financial products. In other words, consumers who get their information the traditional way are less prone to use the on-line channel. It is also interesting to note that consumer willingness to use the channel has no influence on their current information gathering or on-line purchase behavior. From a managerial perspective, these findings suggest that targeting efforts should focus on current information seeking practices of potential customers. Overall, consumer opportunity to use on-line channels, and their ability to do so, increase as electronic commerce (with its associated electronic markets and sales channels) becomes more common place. The key for organizations competing in an environment where on-line markets are available is attracting (motivating) consumers to access their on-line presence (Internet and/or Web) to increase the likelihood that they will buy. It is apparent that identifying potential on-line customers strictly based on demographics will be a far less successful marketing

Web Privacy (The Cookie Method)

Citibank have come up with this method for its customers. In order to provide better service or to address security hazards, we will occasionally use a "cookie." A cookie is a small piece of information, which a Web site stores on your Web browser on your PC and can later retrieve. A Web site other than the one that set the cookie cannot read the cookie. We use cookies for a number of administrative purposes; for example, to store your preferences for certain kinds of information or to store a password so that you do not have to input it every time you visit our site. Most cookies last only through a single session, or visit to our site. None will contain information that will enable anyone to contact you via telephone, e-mail, or any other means. You can set up your Web browser to inform you when cookies are set or to prevent cookies from being set.

1812 was beginning of Citibank As a result of its geographic significance; New York City had become the nation's largest port. But with only six banks, it was severely disadvantaged by a lack of capital for merchant trade. The largest of the city's banks in 1811 was the Bank of the United States, established by Congress at the request of Alexander Hamilton to finance and promote the development of commerce and industry. It also held nearly all government deposits. Since most of the bank's stock was held abroad and a war with Britain were on the horizon, Congress did not renew the bank's charter. The demise of the Bank of the United States was a major blow to the local merchants, prompting proposals for new banks, including that of City Bank. The first petition to organize a sixth New York City bank was defeated in the State Legislature in March 1811, due to internal rivalry in the Republican Party (not to be confused with today's political party of the same name).

Colonel Samuel OSG, a senior statesman of the Republican Party, stepped forward to unite the rival factions behind the City Bank petition. He wrote: "If a republican bank be incorporated, surely it ought to be done on principles that will tend to harmonize the republicans of the City of New York."

Colonel OSG was distinguished by a long and notable career in public service. He counted among his close friends George Washington and Alexander Hamilton. His career spanned the birth and infancy of the United States of America, and included:

OSG was well established in banking, serving as a director of the Bank of North America in 1781 and as cashier of the Massachusetts Bank in 1784. In 1799, he helped Aaron Burr establish the Bank of the Manhattan Company, where he remained a director until 1803. As a result of Colonel OSG’s intervention, each faction within the Republican Party named six members to the new bank's board of directors, helping the second petition to sail through the State Legislature. On June 16, 1812, with $2 million of capital, City Bank of New York (now Citibank) opened for business at 52 Wall Street. Colonel Samuel OSG was the bank's first president.

♪ 1812 June 16: Two days before the outbreak of war between the United States and Great Britain, New York State chartered City Bank of New York with authorized capital of $2 million and paidin capital of $800,000.

♪ September 14: City Bank opened for business at 52 Wall Street to serve a group of New York merchants. Its president was Colonel Samuel OSG, who had fought beside George Washington in the Revolution. Samuel OSG was elected president

♪ Farmers' Fire Insurance and Loan Company was founded, the first incorporated trust company in the U.S. Its name became Farmers' Loan and Trust Company in 1835, and it merged with National City Bank in 1929.

♪ In the second financial panic, 985 banks in New York State failed, but City Bank added depositors.

♪ A troubled nation plunged into civil war. President Lincoln turned to the New York banks to solicit $150 million for the Union.

♪ City Bank joined the new U.S. national banking system and became The National City Bank of New York. National banks were required to meet the federal government's high standards of solvency and liquidity, but could also, in New York City, accept national banks' required reserves as deposits.

♪ the first transatlantic cable was laid. National City president Moses Taylor was a leading figure in the venture.

♪ 1891 James Stillman was elected president (1891–1909). He also served as chairman (1909–1918).

♪ National City became the largest bank in the City of New York, with $34.4 million in deposits and assets worth $38.9 million.

♪ First major U.S. banks to establish a foreign department; began foreignexchange trading.

♪ 1908 After 96 years, the bank moved to larger quarters in the former U.S. Customs House at 55 Wall Street. It served as headquarters from 1908 to 1961.

There has been an unprecedented move towards Internet-based, business-to-business solutions by companies large and small. Market conditions demand corporations seek and implement the operational and cost efficiencies that e-commerce bring to businesses.

CitiCommerce.com takes business-to-business e-commerce solutions one step further. It extends operational efficiencies provided by internal MRP and ERP systems that you may already enjoy, to your entire business relationship, through to finance and treasury functions. Giving you a complete business-to-business transaction cycle with your customers and suppliers.

With Citibank's industry-recognized expertise in Cash Management Services and industry-standards security, CitiCommerce.com offers you operational and cost efficiencies through your entire business cycle. You will enjoy seamless integration to your existing systems, in addition to a global network of support and services.

Optimizes the Seller to Buyer relationship. Our service addresses the needs of both parties, providing a solution that supports your entire supply chain.

You use the Buyer solution to buy from your suppliers and the Seller solution to sell to your distributors. In turn, your distributors use CitiCommerce.com's buyer solution to buy from you and the Seller solution to sell to their retailers, who then use the Buyer solution to buy from them. A single data translation and transport engine supports all aspects of the relationship.

An individual order can trigger a series of orders backward through the back-office systems of all partners in the supply chain. This will reduce the time required for orders to be processed down to a matter of hours, if not minutes. Citibank provides the hardware, software and bandwidth to support CitiCommerce.com. This will enable registration for approved business partners, hosting and browsing of catalogs, a transaction engine for order processing, invoice inquiry, invoice payment and accounts receivable transaction matching.

And with our renowned cash management services like Citibank Speed collect, Citibank PayLink embedded into this solution, you can get connected to 1000 clearing zones in Asia and over 100 countries. CitiCommerce.com is a global banking solution with local support.

As at the end of September 1997, Australia had 52 banks. Of these, only two banks have started Internet banking services. These are Advance Bank and Commonwealth Bank. ANZ and Metway propose to introduce the service by end of this year. As per press reports, ANZ is still negotiating with Internet banking specialists Security First Technologies and would be offering the same services as are offered by Commonwealth Bank. What is surprising is Australia’s biggest and most profitable bank, National Australia Bank has yet to start Internet banking. Commonwealth Bank is providing services like account balance, transaction history. order statement, taxes and interest, funds transfer, bill payment, create payee list and edit payee list on line. Advance bank, which was the forerunner in Internet banking in Australia, is offering full services over the Internet. It has also added the service of e-cash, which allows customers to use cash to buy electronic cash and to store it on their PC to make payments on the Internet. If one looks at the service from user friendly point of view, however, much needs to be done. The site seems to have been constructed assuming that every user is a computer engineer !!!. They must get rid of the technical jargon off from that site and stop frightening the average customer who enters the site by way of curiosity. It is important that the whole thing is made plain and simple. The banks will do well to conduct periodical surveys and take customer views on the simplicity and ease of operation of the Internet banking. Compared to Commonwealth Bank site one finds the Advance bank site a bit easy to operate. It is important that the site is not cluttered with information, which gives a feeling of the whole thing being complicated affair. The banks must tell up front whether the service is free or otherwise instead of hiding this info in a maze of legal, computer and other technical jargons. The banks need to know that home banking will be done by housewives and old persons as well who will like the whole thing reduced to a couple of clicks here and there instead of being required to read through the instructions and download things they cannot understand. Make a survey and find out how many housewives know about acrobat and system configuration and all that stuff. Still the Australian banks want them to do Internet banking !!!

Although developments in Internet technologies have been rapid and expansive over the last twelve to eighteen months, and the technology has become more mature for use in commerce, there are still some rough edges in the provision and presentation of Internet services which need to be addressed. Future trends are likely to focus on eliminating these shortcomings and driving the Internet forward as a more viable option for business use.

Since April 1994 the provision of the primary Internet backbone service has ceased to be the responsibility of the US National Science Foundation and has passed across for management and development to the commercial providers MCI, Sprint and America On-line. If the Internet continues to be the broadly deregulated entity it is now, we can expect to see an influx of commercial operators into the marketplace, competing to provide high speed business links which are supported by service and reliability level contracts, availability guarantees and help desk support. The net benefit for business users will be better value-added services, delivering higher performance and service levels approaching those of the private networks – but at much reduced cost.

The increasing involvement of the major global telecommunications players will further accelerate the convergence of the computing and communications industries. The rapid digit station of traditional broadcast and telecast media is reducing the barriers separating the two industries, to the point where large vertically integrated operators are seeking to provide a total service, with digital content – be it television, radio, text, graphics, data, software or a complex mixture of all of these – traversing the same high speed network.

Since the Internet data will run over the same networks that supply telecomm services, opportunities will increase for integrating other emerging and enabling technologies into the same infrastructure - such as videoconferencing, voice conversations and voice-enabled applications. Knock-on benefits to the user will be in the areas of reduced tariffs, improved service levels and a network approaching the reliability of the private networks that currently support back office applications like transaction processing and electronic data interchange (EDI).

Yet given the historic diversity of the interests controlling the ‘backbone’ of the Internet, it seems unlikely that we will indeed get the same service level, availability and reliability guarantees as those provided by private network services. The trend may instead point towards the use of the public Internet as a global electronic marketplace – the interface between consumer and commerce. Private networks will probably continue to provide the bulk of supporting ‘electronic commerce’ services, such as private secure mail, EDI and transaction processing. Clearly, increased use of a global public network for business processing support must be allied to tighter security. We have already seen developments in this direction from Netscape and Terisa Systems with their encryption products. A future accommodation by the Internet, of EDI standards allied to better Internet security could open up business use of the network for low cost processing of low-value business transactions.

Convergence may impact on the Internet in other ways. Cable operators in the UK currently control networks, which could be adapted profitably to provide a very large bandwidth for Internet access provision, or value-added data services. BT – a national and global force in telecommunications – has spent billions of pounds in recent years upgrading its network to modern digital standards. Recently BT has also developed and trialled new interactive television services, which deliver a digital service to homes through television sets equipped with set-top boxes. These could be modified further to support World Wide Web services. In these two areas, the move of the Internet from the PC to the TV would herald a major shift in the demographic reach of Internet ‘electronic marketplaces’, and be a major driver for expanded commercial interest in multimedia delivery of business services. The growth in take-up of BT digital ISDN lines by business has soared over the past year, and increasing use of the Internet may be a driver for heavier private use of ISDN digital lines and an enhanced drift towards a completely digital network, from phone to phone. The improved performance of digital lines for data transport will feed back into the Internet by enabling greater use of multimedia content.

On-line services have not been slow to realize the potential threat posed by the growth of the Internet. Until now, the major on-line services like CompuServe and America On-line have been able to control the delivery channel, in that they operate their own private data network (the access channel), distribute end user software which gives exclusive access to their service, and host commercial presence’s on behalf of other businesses. They have benefited by operating usage-based pricing, locking in customers through proprietary access software, and levying commission on revenues from third party businesses.

As the Internet has experienced exponential growth, on-line service operators have been quick to provide access to the Internet using their network as a gateway. The Internet services are limited in the sense that they run alongside the private network without any integration between the two. This has not mattered at all to users. They have continued to use the private networks of the on-line service providers as a delivery channel and have paid for the privilege, whilst the on-line services have enjoyed handsome increases in user numbers. When America On-line introduced an Internet access service to the US public in January 1995, their user base numbered around 1.2 million. Over the following months the number of new accounts at times reached fourteen thousand per day. The user base all but doubled over a six-month period. The short term future for the on-line service providers lies not in providing Internet access as an adjunct to their current offering, but in investing large sums of money to integrate their private network more closely to the Internet’s World Wide Web structure. Support for hyperlinks into HTML-based content and for switching between proprietary display standards and HTML, point the way forward. This process has begun and is in its early stages. The future Internet will feature large tracts of open access areas as it has now, but with major areas closed to non-members and operated by the current on-line services. The nature of the content offered by these providers in the future may well change completely. Third party content providers, wooed by the low cost of entry to the Internet at large, could defect and set up their own sites. It is possible that on-line providers will start to seek content and image-rich companies to form vertically integrated organizations capable of producing a greater quantity of value-added information by themselves, without relying on third parties.

The convergence of high technology and communications will lead to the development of better global directory services for the Internet. There are several well-known sites which contain indices of documents held around the World Wide Web, and others which can return locations of data held generally on the Internet - but no one ‘super index.’ The quality of the Web indexing sites has not gone unnoticed. Two of the most well known, ‘Yahoo’ and ‘WebCrawler’, were absorbed recently into businesses, having been developed initially by academic institutions. America On-line bought out the ‘WebCrawler’ site and thus gained a high profile foothold on the Internet by acquiring a rich content source with a strong brand identity and image. The success of a much-expanded Internet depends on the development of these sites – most probably in competition – to deliver rapid and easy access to the desired resources. Content presentation

The delivery of content will change radically over the short term and beyond. Despite its openness as a standard and its excellent ability to reproduce information and provide multimedia to users, HTML is a relatively blunt instrument. Progressive refinements have resulted in the HTML 3 standard, which provides further support for more advanced text formatting and the presentation of information in tables. Netscape, the company currently riding the crest of the Internet wave, is moving quickly to incorporate more sophisticated features into its browser software. The company intends to support several other multimedia presentation formats within the framework of its Netscape product – all in a manner, which will be transparent to the user. This will increase the richness of the image that can be delivered to the user and support more diverse content preparation tools. Meanwhile, Microsoft is hard at work developing its own content preparation tools, which are expected to include support for World Wide Web formats. Sun Microsystems has developed on a technology called Java, which enables browsers to support new presentation standards dynamically, by adjusting automatically to the type of content they receive. Current browsers support only those formats where support for them has been coded into the product. This latter development will mean that a multiplicity of presentation formats can be developed for publishing over the World Wide Web, giving greater freedom to developers and harnessing existing multimedia skills. The software on the viewer’s desktop will recognize each format as it arrives and switch seamlessly between them. By extending support to a larger range of content types, the floodgates are opened to new wave of creativity and innovation, where each content provider has the opportunity to make its image uniquely identifiable.

Growth of the Internet to date has been fuelled by a co-operative ethic, which has been its lifeblood. The Internet has reached its current level of importance because it allows any user to be heard by any other user across a vast level playing field. Costs of access and barriers to entry are both low. Though global telecommunications operators maintain the backbone links, access is controlled by a great number of providers who lease the data-carrying capacity from them. Historically, these operators have offered fixed tariff access to the Internet and have striven to connect their pieces of network to the networks operated by the other service providers. The big picture is important. The Internet has grown through co-operation and a common desire to see the network grow whilst remaining open to all. Businesses of all sizes have taken to it because it lowers the barriers to open competition, giving access to a global marketplace and allowing unmediated customer contact. The future success of the Internet lies in the endurance of this ethic of co-operation towards a common goal of open communications, and in realizing the value of the synergy which binds together global communities of interest.

Currently most financial institutions use the Internet as a presentation medium. Often there is a possibility to request additional information or to perform individual calculations. Business transactions are rather rare at least in most European countries. On the other hand, a lot of effort is devoted to construct solutions to manage financial routine transactions like money transfers, opening and closing of accounts, implementation undulation of standing orders and much more. Payment systems are developed to facilitate electronic commerce. In order to realize significant rationalization potentials no isolated but integrated solutions that support existing business processes are required. Collaboration between competing financial institutions may be necessary to cut down development costs

In general, financial institutions have to decide on their Internet presence. Is it worth to invest significant sums? It can be shown that there are not necessarily first mover advantages. On the other hand, fast reactant actions of competitors are difficult since significant know-how is required to quickly build up an Internet presence. This implies that waiting too long may be extremely harmful and expensive. Consequently, a good strategy should be to build up know-how by means of small or medium pilot projects. Actions of competitors, as well as the development of the Internet should be monitored closely.

From its academic beginnings, the Internet has grown to a stage where it is pointing the way forward for future business communications. Its current success rides largely on the flexible and user-friendly World Wide Web presentation of information.

The increasing availability of commercial-strength tools for content preparation and management, network security and secure electronic commerce answer the most pressing business needs, while new developments in World Wide Web multimedia support point to the increasing sophistication that tomorrow’s Internet will offer.

We are living through a paradigm shift. Convergent technologies are pushing commerce towards a landscape where the consumer has more power than ever before and where the traditional notions of marketing, sales and distribution channels are being challenged by a more direct and unmediated access to the customer. In this new paradigm of business communications, the layers, which previously separated a business from its customers, are diminished. The need for intermediaries is reduced or eliminated as temporal and geographic issues no longer dictate customer relations.

This increasing ‘disintermediation’, where little or nothing stands between a business and its customers, requires a new mindset and a holistic approach to re-orienting the business towards the new opportunities. To succeed in attracting, retaining and delivering value-added services to a more discerning and sophisticated public requires great flexibility, creativity, and a long term vision of what new computing and communications technology could mean for the organization. The new paradigm is driven by innovation, where quality is a key success factor – quality of presentation, quality has service, quality of delivery and quality of support. In such a highly competitive business environment, the success stories will be told by those who are prepared to explore now what lies ahead, and adapt most readily to the changes and challenges that the Internet is bringing.

[1] Internet Banking - An OverviewBy Juergen Seitz and Eberhard Stickel Email: jse@euv-frankfurt-0.de

[2] KPMG GROUP AT WWW.KPMG.CO.UK

[3] The Internet Banking Horizon: Bleak or Bright for Community Banks? By Jackie Cuevas

E-mail: jcuevas@qup.com

[4] The Internet Will Shake Banking's Medieval Foundations By Claus Nehmzow Nehmzow_Claus@bah.com. Claus Nehmzow is a Principal in the Information Technology Group in London at Booz Allen & Hamilton,

[5] Internet Banking - An Overview By Juergen Seitz and Eberhard Stickel

[6] Internet Banking - An Overview By Juergen Seitz and Eberhard Stickel Email: jse@euv-frankfurt-0.de

[7] Internet Banking - An Overview By Juergen Seitz and Eberhard Stickel

[8] The Use of "Internet Money" By Dr Supriya Singh ssingh@circit.vut.edu.au

[9] By Georges Ferné Email: Georges.FERNE@oecd.org Georges Ferné

[10] The Role of Check Images in Internet Banking By Madeleine Tausk Email: MHTAUSK@AOL.COM

[11] By Madeleine H. Tausk and Carol A. Watson URL: MHTAUSK@AOL.COM

[13] The Role of the Central Bank in the Growing Industry of Internet Payments by Mauro ipparonemcippa@netnerds.prestel.co.uk http://www.geocities.com/WallStreet/2486

[14] Internet Stock Exchange Survey By Alan Majer networks@vir.com

[15] Internet Stock Exchange Survey By Alan Majer networks@vir.com

[16] Business Guide to the Internet - Is electronic commerce safe on the Internet? By KPMG group UK

[17] kpmg.co.uk

[18] Troy J. Strader, Department of Management, Iowa State University, and

Troy J. Strader, Department of Management, Iowa State University, and