Cost-Benefit Analysis and Risk Assessment

Financial institutions should base any decision to implement e-banking products and services on a thorough analysis of the costs and benefits associated with such action. Some of the reasons institutions offer e-banking services include:

  • Lower operating costs,
  • Greater geographic diversification,
  • Improved or sustained competitive position,
  • Increased customer demand for services, and
  • New revenue opportunities.

The individuals conducting the cost-benefit analysis should clearly understand the risks associated with e-banking so that cost considerations fully incorporate appropriate risk mitigation controls. Without such expertise, the cost-benefit analysis will most likely underestimate the time and resources needed to properly oversee e-banking activities, particularly the level of technical expertise needed to provide competent oversight of in-house or outsourced activities. In addition to the obvious costs for personnel, hardware, software, and communications, the analysis should also consider:

  • Changes to the institution's policies, procedures, and practices;
  • The impact on processing controls for legacy systems;
  • The appropriate networking architecture, security expertise, and software
  • tools to maintain system availability and to protect and respond to unauthorized access attempts;
  • The skilled staff necessary to support and market e-banking services during expanded hours and over a wider geographic area, including possible expanded market and cross-border activity;
  • The additional expertise and MIS needed to oversee e-banking vendors or technology service providers;
  • The higher level of legal, compliance, and audit expertise needed to support technology-dependent services;
  • Expanded MIS to monitor e-banking security, usage, and profitability and to measure the success of the institution's e-banking strategy;
  • Cost of insurance coverage for e-banking activities;
  • Potential revenues under different pricing scenarios;
  • Potential losses due to fraud; and
  • Opportunity costs associated with allocating capital to e-banking efforts.

 

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