There is no denying, hiding or changing from the fact that the internet has changed the life of every man, woman and child in the developed world. We spend most of lives on it looking for information, spurious gossip or even watching over people via YouTube. Yes it’s fair to say the internet is the biggest cultural revolution since the invention of the car.
But by connecting millions of people around the world has it broken down barriers and led to a truly global market place?
Are the phone lines paved with gold or has it allowed those with a monopoly to strengthen their dominance and also given new opportunities to a generation of ‘cyber-criminals’?
Some of the biggest changes have been seen in the stock market and in the area of personal banking. A good way of looking at the impact of the internet and whether or not it’s been a force for good or bad can be made by looking at these markets as well as looking at the growth of cyber crimes and the use of the web for traditional crime.
The growth of internet based automated stock brokering systems and services have had a profound impact on how investment is made on the stock market. The internet has allowed greater access to foreign markets for investors. Many chose to invest directly in these newly available markets making a saving on commissions and allowing them to further diversify their portfolios.
The broadening of the market and greater access for all has changed the way that investors trade. Before the growth of web services ‘day trading’ was the preserve of professional investors and speculators but it has grown to become very popular with casual traders. The average person who would be at work during the opening hours of an investment firm would not be able to carry out day trading in their domestic market very difficult. However now Joe Blogs working in the UK can finish his day at work and go home and use the web to day trade on the US markets from the comfort of his home.
While this change has given casual traders greater control over how they trade it could be tainted gift. While day trading provides the opportunity for great profits it can also lead to huge losses. Many professional investors and speculators who day trade are underwritten by large companies and the stories of those who walk away with massive earnings are few and far between.
A number of internet based stock brokering services, such as Selftrade and AWD Moneytrader, have been set up over the last decade. The internet has also allowed a number of foreign stock brokers to enter international markets and it has allowed other financial providers to offer stock brokering services. Because web services are direct and can be done without a face to face meeting they remove the intimidation that visiting a traditional brokerage could pose to the casual trader. As a result there are now greater opportunities to trade on the stock market for the average person.
This threat from the new entrants has led to established brokerages changing their attitudes and offering web based solutions. For example Charles Schwab and Morgan Stanley now offer investment opportunities via their website aimed at casual traders. Quite clearly the internet has made investing on the stock market a lot easier for a great number of people.
Because internet based brokerage services are based in an information rich and execution only environment they offer a great number of advantages that again open up the market. Also because they are offering a standard product it is a price sensitive market. Therefore the growth of the internet has led to a cheaper more convenient service for consumers.
This is also true for web based services across a number of other financial services. Internet banking has made it easy for customers to carry out transactions such as money transfers and bill payment from their home. For working professionals who would find it difficult to get to banks during the week or at the weekend this has made personal banking far easier.
However, while there have been many benefits due to substitute or additional services offered via the internet there are also unwanted negative repercussions. While online brokerages are convenient and price sensitive it can be very difficult and expensive to move from one broker to another. So although the growth of internet based services means there is now greater competition and choice once a customer has signed up with a brokerage it is very difficult to make a change in the future.
As far as internet banking is concerned the popularity of online and telephone banking has led to the widespread closure of branches or the introduction of limited services. In the UK the number of branches per 10,000 people has fallen from 2.13 in 2002 to 1.88 in 2007. Very often the branches closed are those in rural or isolated areas, it is these areas that will also have the most limited access to the internet and lower speeds of connection. The sad reality is the growth of online banking is making personal banking for the people who need it most and are least likely to be able to benefit from the new services the medium offers.
It has been argued that the internet could eventually lead to brokers becoming obsolete and that the customer could deal directly cutting out the middle man. While the web does offer the technology and the opportunity this is a barrier that is unlikely to broken down.
Currently to become a broker there are a number of exams and rigorous training that must be carried out. In the US the Series 7 examination must be taken and in the UK two separate papers must be passed to become ASI qualified – Unit 1 Financial Regulations and Unit 2 Securities. For brokerages to be rendered obsolete every person who wanted to trade direct would have to be forced to first get the relevant training. The time and effort required would make this extremely unappealing.
Additionally the prospect of the internet leading to the end of a financial institution such as a brokerage seems highly unlikely when you look at the opportunity for corruption the web has offered. Money-laundering has been aided by the growth of the internet as has the practice of defrauding people via the web and in particular the crime of ID theft. Because the internet has proved adept at removing traditional barriers that, as well as offering greater opportunities to people, can be exploited by the criminal element there is a fertile environment for a new generation of criminals
There has been an attempt to create new barriers in order to counter act this for example regarding the crime of money laundering the Financial Action Task Force (FATF) was established at a G7 summit in Paris in 1989 and has set forth a number of recommendations which have been revised at intermittent periods in order to adapt to changes in techniques.
But as the web continues to grow so do the opportunities for corruption. One of the biggest developments has been the growth of virtual worlds like ‘Second Life’ where virtual money is used as real money. It is possible for real world criminals to use the real estate and banking facilities that are part of that virtual world to clean their money. The issue has been raised by the England and Wales Fraud Advisory panel which has called for an investigation into how virtual worlds could be used to commit crimes.
There have also been examples of virtual crimes being carried as all around the world in countries such as Brazil and Korea. Additionally as online payments become more common place and a greater amount of personal details are stored on the web the number of cases of fraud have increased. Recently released figures by the FSA in the UK showed that online fraud using phishing scams was up by 8,000 percent.
The sad truth is that as the internet has broken down barriers some people have seen the opportunity to take advantage of this for criminal gain. The ever increasing and relentless use of phishing scams on those who use online banking and the twisting of a non financial activity such as Second Life for money laundering has shown that the freedom offered by the internet can, and is, regularly misused.
However, it would be a criminal act ignorance to neglect or underplay the opportunities that the growth of the internet offers to the average person in terms of financial services. As with anything that changes the fabric of society it’s about hoping the greatest number of people feel the benefits and in time we will discover how many people feel these benefits and if they outnumber those who lose out.