Banks, brokerages and mutual fund providers, among others, are introducing new products and services for electronic markets. While banks have been working furiously to position themselves to provide electronic commerce, a rather unkempt clan--Internet commerce providers--has entered the scene. Internet commerce will affect financial markets in many ways because of three underlying principles: It is less expensive to create a presence, the presence can impact business globally, and the impact can occur almost instantaneously. While there are certainly many opportunities for new products and services, there are also new risks. Banks have traditionally offered customers a sense of stability, even while operating in rapidly changing electronic markets. What must bankers learn to offer Internet services warranting similar levels of customer confidence? Bankers may choose to heed the call of open interfaces and retool their systems and personae from staid providers of a stable suite of services, and embrace the Internet. But security remains a pressing issue. While new security mechanisms are being developed at a furious pace, hackers still inhabit the Internet domain. Information security for Internet commerce is vital and yet is inhibited by laws attempting to safeguard society against other threats such as those from organized crime and terrorism. But if the best security is available outside the United States, what will that do to the U.S. financial services industry?
The global Internet economy will only complicate the already difficult questions of jurisdiction and regulatory uncertainty. It is very possible that a Web site may reside in a country that has regulations favorable to banking. This is not new to banking because countries such as Switzerland have already established a perceived global comparative advantage in privacy and security. But now the Internet can enable all Americans to have a Swiss bank account, just as Security First Network Bank has become an alternative to a community bank in some markets.