loans

Government and municipal bonds

admin — Wed, 07 Oct 2009 09:39:12 +0000

These may be attractive to sections of retail investors paying tax as such bonds are often tax exempt. They may also have a longer maturity than deposits offered by banks. They are, however, relatively difﬁcult for the average retail depositor to buy and sell individually.

Mutual funds

admin — Thu, 01 Oct 2009 09:38:03 +0000

These are funds, marketed and managed by asset management companies such as Fidelity, Putnam and Merrill Lynch Asset Management, that invest in a mix of bonds and stocks. They allow individual investors to diversify their portfolio holdings.
These asset managers spend large amounts on advertising. Many of the largest players have global brands.

Direct investments in the stock market

admin — Fri, 25 Sep 2009 09:32:21 +0000

Investors maintaining equity portfolios by buying individual stocks through a brokerage ﬁrm. The proportion of the US population directly invested in the stock market rose steadily during the 1990s. The advent of Internet-based no-frills (discount) brokerages offering low, ﬁxed cost transactions has made trading on the stock market accessible to a younger mass market.
The collapse in prices of technology and telecommunication stock prices and general weakness of stock markets around the world in the early part of the twenty-ﬁrst century led to large losses for many investors. This dampened the appetite of many to invest in stocks.

ACCOUNT CHARGES

admin — Sat, 19 Sep 2009 09:28:40 +0000

In most countries as deposit rate liberalization has progressed banks have moved to offset the cost of higher rates that competition has produced by introducing account charges for selected retail deposit accounts. The most common fee structure is for the bank to impose account charges if the balance in a low or non-interest-bearing account falls below some speciﬁed minimum amount.
Many companies prefer to pay charges than be required to leave non-interest-bearing compensating balances with a bank. The charges are tax deductible while foregone interest has no tax beneﬁt.
The structure of these charges varies between banks and also between countries. Banks love fees and are always looking for ways to extract more of them from customers. Retail customers hate bank fees and in many countries have got used to the idea that basic bank-such as the number of checks written, standing order instructions and bounced (or returned) checks.
In many businesses an approximate 80:20 rule applies, that is 80% of a company’s proﬁts come from 20% of its customers. At many retail banks in developing markets this is probably more like a 150:20 rule, with the other 80% of customers loss making. This can have important social and competitive implications. Banks play an important social role in any economy. Large domestic banks in developing markets cannot turn away mass-market customers simply because they are unproﬁtable. They also ﬁnd it difﬁcult to impose onerous account charges because of political considerations.
The more sophisticated foreign banks do not generally experience such constraints. They try to impose high minimum balance requirements in order to “cherry-pick” the most proﬁtable customer segments while avoiding having to service those that are loss making.

Direct marketing

admin — Sun, 13 Sep 2009 09:28:32 +0000

Retail banks often claim that sophisticated “data mining” tools allow them to leverage their investments in Customer Relationship Management (CRM) systems to identity potential fee-paying customers. These people are then inundated with direct marketing materials and unsolicited phone calls and e-mails.
In the early stages of the development of credit cards some US banks did not wait for customers to apply for credit cards but simply mailed them credit cards with a pre-approved credit limit. This practice was subsequently made illegal by legislators concerned about the impact on consumer indebtedness.

Service stations/Convenience stores

admin — Thu, 03 Sep 2009 09:26:46 +0000

Citibank, for example, has been able to circumvent regulatory restrictions on branch openings in a number of countries by making agreements with outlets such as convenience stores, service stations and taxi ﬁrms, to display application forms for Citibank credit cards and accounts.

Internet and other electronic banking

admin — Wed, 26 Aug 2009 09:25:30 +0000

During the period of the Internet boom a number of stand-alone Internet banks were established by non-bank companies. Their business model was based on rapidly attracting a large, retail deposit base by marketing aggressively and offering higher rates than traditional banks. They then planned to market mortgages, credit cards and other retail products to that base. Other less ambitious operators chose to offer specialist services such as searching the Web to get the best terms for a mortgage loan, car loan or insurance policy. Only a few of the hopeful new entrants have survived the test of time.
Larger, established banks saw the Internet as less of a threat than an opportunity. They already had the customer relationships and multiple distribution channels that would make it difﬁcult for new entrants to compete. Some did establish their own “Internet bank” with different branding from their parent (and these are among the few survivors) but most eventually decided that it was better to simply use the Internet as one more delivery channel.
Some estimates put the cost to a bank of a customer making a transaction through the Internet at less than 1% of the cost of having it done through a branch. The emergence of Internet banking has had three major effects on competition. The ﬁrst is that it has raised customer expectations on pricing and availability of service. The second is that it is helping to force banks to strive for an optimal balance between providing services through branches, ATMs and other delivery channels. The third is that it has increased the level of potential scale economies and hence pressures for consolidation.

Phone banking

admin — Thu, 20 Aug 2009 09:24:25 +0000

In many countries, phone banking has become highly automated providing similar functionality as an ATM machine. Call centers have become increasingly sophisticated and automated. A few banks established stand-alone phone-based banks differentiated from their parent through branding and pricing. The loss of business due to cannibalization of customers in their traditional bank has to be balanced with the new business gained by attracting customers from other traditional competitors. The reduction in telecommunication costs has also enabled large, global banks to locate call centers in countries where labor costs are low. India, for example, has a relatively well- educated English-speaking workforce but labor costs are but a fraction of those in OECD countries.