Defensive Strategies
There are five direct issues that help define strategy. These issues will help organizations define what they are and what they want to accomplish.

(1) operational effectiveness is not strategy
(2) strategy rests on unique activities
(3) a sustainable strategic position requires trade-offs
(4) fit drives both competitive advantage and sustainability
(5) rediscovering strategy is an important issue for every industry.

The banking industries for the most part are continuing to use a defensive Internet strategy and are choosing to watch from the sidelines. The banks’ main motive to implement Internet banking is to prevent defection of their customers to other Internet banks or financial service providers. Banks are seeing the Internet as something that they cannot ignore, but “from which it will be difficult to actually make money”. Obviously, Internet banking is still in a stage of growth through experiment. Banks are still challenged with trying to automate their labor-intensive back-office operations. As a result, banks are finding it difficult to keep up with the Internet technology while competing with other banks and non-bank financial institutions for new products and new delivery systems.

Aggressive Internet Strategy
Banks will need to focus on the key elements of an aggressive Internet strategy. Banks need to offer incentives that will push the customer to switch to the online services and at the same time will satisfy the customer’s expectations and strengthen customer loyalty. Banks need to provide a higher quality of service and not to compete entirely based on price and costs. Banks need to determine their niche market, but they should pursue corporate as well as retail banking initiatives. Having strategic foresight is important for a more aggressive strategy by establishing what they are doing compared to what they could be doing to become leaders in their industries. Companies are taking a reactive approach versus a proactive approach to industry leadership. The banking industry must be willing to ask the right questions to see where they stand in their specific industries in order to take a proactive approach. For example, Hamel and Prahalad posed a question to some top officials of a U.S. company to find a trend in their industry that could change the industry as a whole. Once the company found the trend, they were asked if they could sustain a debate for a full day, among themselves, about the implications of this trend to your company and the industry. The company officials, unfortunately, were unable to perform this task. They were, however, able to perform the task on a much simpler question, such as: Could you sustain a debate for eight hours on the issue of how you allocate corporate overheads, set sales targets, and manage transfer prices? For example, Bayer Corporation, headquartered in Pittsburgh, Pennsylvania, is a type of company that does look into the future proactively. The company looks at what it can do for the industry. This has been proven through products the company has developed as well as receiving patents. This shows the community as a whole that Bayer is looking into the welfare of its future. This strategic foresight is not a procedure that can be done in a few hours of brainstorming. It is a procedure that takes time and effort to evaluate and research as much of the industry as possible. The banking industry needs to build a portfolio of information and use this as a continual learning tool. Most companies perform this continual learning, but only on certain issues. They may not realize the extent and importance of this, which will need to be performed in all functions of their business decisions. The banks that will be most effective are the ones with the strategic foresight which become aware and incorporate consumer wants into their digital business designs. Finally, banks need to implement technology that integrates front- and back-end systems. It is becoming evident that “more banks are starting to demonstrate the desire, capability, and strategic drive that will be required to win the e-banking race”

Banks must match their organizational structure to the strategy to ensure that the critical tasks and activities are organized most effectively. When implementing a new strategy, companies must also make sure that they have the right managers in the correct positions to best handle the change. Banks will need to make sure both management and staff have the skills necessary, and that there is proper leadership within the organization.

Bottom-Line Benefits to the E-Banking/E-Lending Industry
Up to this point, we have basically focused on what the customer wants and how banks can best develop strategies to position themselves to best satisfy those needs. But how exactly will banks themselves benefit on the bottom line from e-banking? Although the initial investment and start-up fees will be costly, costs will drastically decline for two main reasons. First, traditionally manually intensive work will now be automated. Second, the Internet is cheaper per transaction in comparison to the costs of the traditional ATM and telephone transactions. In addition, while the banks’ costs will decline, their revenues will rise. E-banking will improve customer relationships and therefore banks will experience greater retention. As a result of a more satisfied customer base and the added ability to reach customers in new geographic markets, banks will win new customers. Finally, banks will see an increase in the cross-selling of their products. All of these opportunities will result in more assets and higher balances per customer. As revenues grow and costs decline, banks will definitely see the benefits in the bottom line.

Diffusion of Innovations Theory
But how can banks be sure that their innovation will be adopted and accepted by society, especially by their niche market? Diffusion of Innovation gives a theoretical basis on how innovations become widely accepted within society by explaining the patterns of adoption and thus determining whether a new innovation will become successful or not. When discussing Diffusion Theory, it is important to remember that it is not one well-defined, comprehensive theory, but rather a combination of a number of theories from several disciplines.
The four main elements in the diffusion process include:
The innovation
Communication and promotion of the innovation
Time/rate of adoption
The members of a social system/niche market
There are five characteristics on how innovations are perceived: complexity, compatibility, trial ability, observability, and relative advantage. With more people using and becoming more comfortable on the Internet, e-banking will become less confusing and more people will perceive it as easy to understand. As banks continue to develop better privacy protection policies, e-banking will be less risky to the consumer and thus become more compatible with existing values. Banks that offer incentives such as free online banking will entice the consumer to try the product faster. The benefits of e-banking must be obvious to the consumer, and they must be better than the idea it is trying to supersede. Research shows that innovations like e-banking, which are easy to understand, offer several benefits, are available to use on a trial basis, and are compatible with current operations, will be adopted much faster and will experience an increased rate of diffusion.
Innovations must be communicated through certain channels, over time. The innovation will actually pass through five stages that include: knowledge, persuasion, decision, implementation, and confirmation. Banks should use mass media and creative marketing at the knowledge stage to promote, attract, and tempt users to try e-banking/e-lending. However, in order to actually sell the product and gain consumer acceptance, banks will need to persuade the customer through interpersonal channels of communication versus mass media. Once the consumer has developed a favorable attitude towards e-banking/e-lending and decides to use it, adoption has occurred. However, the process does not end there; banks will need to ensure that the implementation goes well and that there is adequate confirmation and reinforcement based on positive outcomes. Banks must keep in mind that the adoption of e-banking will go through a period of slow, gradual growth, then it will hit a period of rapid growth, eventually it will stabilize, and then decline. Therefore, the rate of adoption theory is very similar to the normal product lifecycle, and the banks that understand that will be able to better position themselves for each stage

Future Aspects of E-Banking/E-Lending
Imagine a day when a customer, while driving in his car in China on a business trip, can pick up his mobile phone or plug in his handheld personal computing device and complete all of his banking transactions in just a few minutes. He/she can move money from one account to another, review the status of all of his/her accounts, or open up a new account or even a new insurance policy. The range of services that can be offered is not only diverse and secure, but also more personal. The future technology roadmap for the banking industry includes acceptance, enhancement, and expansion in the field of e-commerce. Internet speed and information will undoubtedly fuel the continued growth of Internet-friendly households in the U.S. In addition, continued widespread wireless access and stronger privacy protection will turn current customers into more regular users, and will also increase the number of new online banking customers. These advances in technology, coupled with the explosive growth of the Internet, will create a more demanding customer. Banks that embrace the challenge and keep their focus on business development and growth as the primary goal, with new technology as the means, will no doubt survive in the future. It seems that digital-age Darwinism is here with a vengeance, and financial institutions that wait too long to integrate these communication channels into their e-commerce strategies are going to find themselves wondering what happened to their customers and will ultimately miss the wave of the future.