E-Banking and ABC costing

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Over the last few years European banks have spent billions of euros on new electronic channels. However, after some years of excitement it was clear that the banks' long-awaited skyrocketing profits from this area would not be netted. Banks have also invested in expanding and improving the IT systems and a number of new e-banking services have been developed.


This article explores the implementation techniques of Activity-Based Costing (ABC) in the banking sector on the example of bank in order to analyze the cost structure for traditional and electronic channel transactions. The article shows how it is possible to implement ABC in banking and proves empirically that electronic channels help reduce the costs of both banks and their clients.
The setup and infrastructure to implement e-banking services requires a huge amount of initial outlay. Therefore, European banks have spent billions of euros into building direct channels like the Web, upgrading branches and call centres, and trying to integrate all these channels. Major financial futurists predicted bright prospects to electronic banking. But after some years of excitement it appeared that the banks' long-awaited sky-rocketing profits from this area would not be yielded. Around the world, Internet banks are faltering. This situation requires a profound analysis to be able to understand the real cost of e-banking, and e-bank transactions in particular.
All major banks have declared e-business as one of their core strategies for future developments. Until recently, most of the pricing decisions about e-bank services were made instinctively as the current financial management information systems did not support such analysis.
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