Virtual Communities in Banking Customer Retention

Abstract

Although it is difficult to measure the e-commerce economy precisely, its size is estimated to be relatively small (some $26 billion United States) at present, but it is expected to grow very rapidly and approach $1 trillion by 2005. E-banking represents a significant share of the overall e-commerce activities. Five strategic and tactical reasons exist for banks to invest in e-commerce. The first one is cost reduction in transactions between bank and customer. Second, the image of the bank can be promoted and visibly increased globally. Third, new services can be introduced, either standalone or as added features to existing products. Fourth, market expansion and reach is increased. Recent changes in the regulatory framework have enabled many banks to expand their services into non-traditional banking areas. For instance, many banks have already moved into or are in the process of moving into insurance and stock brokerage. Finally, communication costs through online transactions and global information distribution are lowered (Dannesnberg & Kellner, 1998; Quelch & Klein, 1996; Prescott & Van Slyke, 1997; Mandeville, 1998). Traditionally, banks use the branch system and mass marketing techniques. Due to the emergence of new technologies and increased competition, banks need to develop one-to-one relationships with their customers and to improve the quality of their services. This, however, can only be possible if they can organise and establish their own Internet-based Virtual Communities (VCs).