Saracens Blog

The Internet and financial services transactions

The Internet has had a substantial effect on the financial law services sector, inherently changing costs and capacity for marketing, distributing and servicing financial products and financial law services to be developed.

This is especially true for retail financial services where the implementation of the Internet communications and transactions makes it possible to reach customers in ways that were may have been too costly as little as 15 years ago. During pre-Internet attempts at the online distribution of retail financial services were outright failures in the mid-1980s.

When assessing the impact of the Internet on the financial law services sector, the weight has often been placed on the direct cost-saving effects of using the Internet to facilitate services. These cost effective methods may prove to be significant and in the long term, should lead to significant creation of value. Finally, many of these efficiencies are accompanied by improved customer convenience. To the extent that consumers respond by consuming even more services, particularly those that generate costs but not revenue, overall costs may not be substantially reduced.

To understand the true impact of the Internet on the financial service industry, it is therefore necessary to identify how the Internet affects the critical drivers of industry structure, and how it enables or necessitates changes in products and services. This will necessarily be difficult, as it is hard to isolate the contribution of the Internet separately from the effects of other complementary innovations, and to distinguish Internet effects from other of long-term industry trends and exogenous factors. While obtaining precise numerical estimates of the productivity effects will be hard, in many cases the direction and general magnitude of the impact on productivity, profitability and consumer surplus (consumer value) will be clear.

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