New trends in banks


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New trends in banks

  1. 1. New Trends In Banks EXECUTIVE SUMMARY There has been a tremendous change in the banking sector and these changes include phone banking, online banking, ATM, bancassurance, mutual funds etc. There was a time when banks used to perform only the basic functions but today the scenario is not the same. There is an increasing competition in this field and banks are aiming to offer more and more products and services to their customers. This change has led to convenience and customers are at ease. This change is possible because of the trust which the people have in banks. Indeed technological and regulatory changes have had such an impact on the banking industry that a good case can be made for saying that they are the most important changes to have occurred in the industry, apart from ones that are directly due to the changing nature of society itself. The precise nature of the impact technology has had on the banking industry since the early 1980’s is difficult to assess, because the intimacy of the relationship between the industry and its technology means that it is impossible to separate the two. Technology is a much part of the banking industry today as the ship’s engine is the part of the ship. And, like the ship’s engine, technology drives the whole thing forward.
  2. 2. New Trends In Banks BANKS INTRODUCTION A bank is an institution that provides financial service, particularly taking deposits and extending credit. Currently the term bank is generally understood as an institution that holds a banking license. Banking licenses are granted by bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so called non-banking financial company. The start of banks – the only banks which appeared earlier: - • June 2, 1806: The Bank of Calcutta established. • January 2, 1809: redesignated as Bank of Bengal. • April 15, 1840: Bank of Bombay established. • July 1, 1843: Bank of Madras established. • 1861: Paper Currency Act passed. • January 27, 1921: all three banks amalgamated to form Imperial Bank of India. • July 1, 1955: State Bank of India formed; becomes the first Indian bank to be nationalised. • 1959: State Bank of India (Subsidiary Banks) Act passed, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries.
  3. 3. New Trends In Banks Banks have a long history, and have influenced economies and politics for centuries. The word bank is derived from the Italian banca, which is derived from German language and means bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out-of-business bank, having its bench physically broken. Money lenders in Northern Italy originally did business in open areas, or big open rooms, with each lender working from his own bench or table. Traditionally, a bank generates profits from transaction fees on financial services and from the interest it charges for lending. In recent history, with historically low interest rates limiting banks' ability to earn money by lending deposited funds, much of a bank's income is provided by overdraft fees and riskier investments. Services typically offered by banks earlier Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include:  Taking deposits from their customers and issuing checking and savings accounts to individuals and businesses  Extending loans to individuals and businesses  Cashing cheques  Facilitating money transactions such as wire transfers and cashiers checks  Issuing credit cards, ATM, and debit cards  Storing valuables, particularly in a safe deposit box
  4. 4. New Trends In Banks Trends in banking  India adopted a socialistic model of development with centralized plans for implementing the objectives of balanced growth. For this purpose, banks were nationalised to ensure that the flow of credit followed the pattern required for economic growth.  Nationalisation of banks led to the expansion of the banking network in the country with the banks recording a multifold growth in the mobilization and deployment of finance. However, with the growth of the network, there also arose concerns over the efficacy of such directed credit and the cost of operations in conducting banking in the public sector.  In line with the liberalization of the Indian economy in the 1990s, the financial sector was also liberalized in order to allow greater competition leading to efficiency in the banking system.  This has led to developments such as: - the entry of new private sector banks. - greater leeway to foreign banks in operating in the country and - gradual sale of government equity in PSU Banks (without ceding government control) Apart from the increasing competition, the banking sector in the country is currently in the throes of change being impacted by events such as economic recession leading to rising NPAs and problems of achieving capital adequacy. This has made banks extremely cautious about lending to industry (especially to the small and medium enterprises) restricting the growth of a number of these enterprises.
  5. 5. New Trends In Banks Latest trends in banking Banks today have moved towards universal banking. Banks today include investment services in addition to services related to savings and loans. 1.Universal Banking The concept of universal banking refers to the provision of most or all financial services under a single, largely unified banking structure. Financial activities may include:  Intermediation  Trading of financial instruments, foreign exchange, and their derivatives  Underwriting new debt and equity issues  Brokerage  Corporate advisory services, including mergers and acquisitions advice  Investment management  Insurance  Holding equity of non-financial firms in the bank’s portfolio. Universal banking can be divided in four parts: 1) The fully integrated universal bank: supplies the complete range of financial services from one institutional entity. 2) The partially integrated financial conglomerate: able to supply the services listed above, but several of these (for example, mortgage banking, leasing, and insurance) are provided through wholly –owned or partially owned subsidiaries. 3) The bank subsidiary structure: the bank focuses essentially on commercial banking and other functions, including investment banking and insurance, which are carried out through legally separate subsidiaries of the bank.
  6. 6. New Trends In Banks 4) The bank holding company structure: a financial holding company owns both banking (and in some countries, non banking) subsidiaries that are legally separate and individually capitalized, in so far as financial activities other than “banking” are permitted by law. The holding company often owns non-financial firms, or the holding company itself may be an industrial concern. Universal Banking includes not only services related to savings and loans but also investments. However in practice the term 'universal banks' refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc. Universal banking is a combination of commercial banking, investment banking and various other activities including insurance. If specialized banking is the one end universal banking is the other. This is most common in European countries. Universal banking has some advantages as well as disadvantages. The main advantage of universal banking is that it results in greater economic efficiency in the form of lower cost, higher output and better products. However larger the banks, the greater the effects of their failure on the system. Also there is the fear that such institutions, by virtue of their sheer size, would gain monopoly power in the market, which can have significant undesirable consequences for economic efficiency. Universal banking in India In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sectoral needs and also providing long-term resources at concessional terms, while the commercial banks in general, by and large, confined themselves to the core banking functions of accepting deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking. Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial institutions for greater harmonization of facilities and obligations. Also report of the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues
  7. 7. New Trends In Banks considered by the Khan Working Group. The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an universal bank. Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy for universal banking, including a case-by-case approach towards allowing domestic financial institutions to become universal banks. Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit their plans for transition to a universal bank for consideration and further discussions. FIs need to formulate a road map for the transition path and strategy for smooth conversion into an universal bank over a specified time frame. The plan should specifically provide for full compliance with prudential norms as applicable to banks over the proposed period. 2.Electronic banking In the wake of recent developments in information and communication technologies, majority of banking operations have been computerized by most of the commercial banks, both in the private and the public sectors especially in the last ten years and the process s still on for extension and upgradation of computerization of banks in India. The computerization is done for front-office operations involving interface with customers as well as back office operations involving internal house keeping (accounting and books balancing), external accounting and settlement with other branches and banks/institutions. Electronic banking provides a bouquet of new channels like internet banking, telephone banking, ATM banking – which are different from the traditional ‘brick and mortar’ branch banking and which have made possible ‘anywhere and anytime banking’ and contributed to speed, accuracy and confidentiality of customers’ transactions while enhancing customers convenience. Funds transfer; cheques clearing and collection of bills of exchange are also done electronically with accuracy, speed and safety. Internal house keeping is done accurately and much faster through programmed packages/software at the branch and also at centralized platforms involving several branches of a region or zone. 3.Globalization of banking
  8. 8. New Trends In Banks In addition to universal banking and electronic banking, globalization has emerged as a prime mover in the Indian banking system. This has come about as a result of the policy of liberalization and opening up of banking and other sectors pursued after 1991 in India. Foreign banks that wish to set up their offices/branches in India have been granted licenses by RBI on liberal and on reciprocal basis. Their business in India has increased manifold, due to scores of Multinational Corporations setting up their manufacturing/trading bases in India and also due to India’s increased foreign trade. Similarly, Indian banks are also opening their offices/branches abroad, particularly in countries whose banks have opened offices in India. Banks have now changed their approach towards technology, products and the services offered by them. Technology development Banks have started using the latest technology to keep up with the competition. The advancement in the technology has helped the banks to reduce the workload. There are so many activities, which are taken over by machines. Employees are no more loaded with paper work. With the advancement of technology and the birth of competition, banks are in the race of becoming the best in the country. With an eye upon customer satisfaction policy they are providing best of the best services with the minimum hazards.
  9. 9. New Trends In Banks Banks like ABN AMRO introduced banking with a coffee. It made a tie-up with one of the best coffee bar in the country, Barista and remained open till late evening for customers with a setup of a coffee bar in the premises. Few banks have introduced world ATM card to make travelers across the globe more safe and secure. What else. Internet and Phone Banking is the call of the day for banks. Products and services 1.PHONE BANKING Banking now a days is a phone call away. Pick up the phone to access a host of Bank services, day or night. You can pay bills and transfer funds and buy and sell open-end mutual funds. 2.ONLINE BANKING Online banking (or Internet banking) is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website. This allows customers to do their banking outside of bank hours and from anywhere where Internet access is available. In most cases a web browser such as Internet Explorer or Mozilla Firefox is utilized and any normal Internet connection is suitable. No special software or hardware is usually needed. Features Online banking usually offers such features as: • Bank statements, with the possibility to import data in a personal finance program such as Quicken or Microsoft Money • Electronic bill payment • Funds transfer between a customer's own checking and savings accounts, or to another customer's account • Investment purchase or sale • Loan applications and transactions, such as repayments
  10. 10. New Trends In Banks • Account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions. There are a growing number of banks that operate exclusively online. Because these online banks have low costs compared to traditional banks they can offer high interest rates. Security Protection through single password authentication, as is the case in most secure Internet shopping sites, is not considered secure enough for personal online banking applications in some countries. Online banking user interfaces are secure sites (generally employing the https protocol) and traffic of all information - including the password - is encrypted, making it next to impossible for a third party to obtain or modify information after it is sent. However, encryption alone does not rule out the possibility of hackers gaining access to vulnerable home PCs and intercepting the password as it is typed in (key logging). There is also the danger of password cracking and physical theft of passwords written down by careless users. Many online banking services therefore impose a second layer of security. Strategies vary, but a common method is the use of transaction numbers, or TANs, which are essentially single use passwords. Another strategy is the use of two passwords, only random parts of which are entered at the start of every online banking session. This is however slightly less secure than the TAN alternative and more inconvenient for the user. A third option, used in many European countries and currently being trailed in the UK is providing customers with security token devices capable of generating single use passwords unique to the customer's token (this is called two-factor authentication or 2FA). Another option is using digital certificates, which digitally sign or authenticate the transactions, by linking them to the physical device (e.g. computer, mobile phone, etc). While most online banking in the United States still uses single password protection, the FDIC has issued regulations requiring that banks implement more secure authentication mechanisms by the end of the year 2006. Banks in many European countries (including the Scandinavian countries, The Netherlands, Austria and Belgium) are offering online banking for e-commerce payments directly from customer to merchants.
  11. 11. New Trends In Banks Fraud Some customers avoid online banking, as they perceive it as being too vulnerable to fraud. The security measures employed by most banks are never 100% safe, but in practice the number of fraud victims due to online banking is very small. Indeed, conventional banking practices may be more prone to abuse by fraudsters than online banking. Credit card fraud, signature forgery and identity theft are far more widespread "offline" crimes than malicious hacking. Bank transactions are generally traceable and criminal penalties for bank fraud are high. Online banking can be more insecure if users are careless, gullible or computer illiterate. 3.ATM
  12. 12. New Trends In Banks An automated teller machine or automatic teller machine (ATM) (also called cash machine, cashpoint, ATM Scrip to Cash machine, "hole in the wall", "bank machine" or "ABM", "autoteller" or guichet) is an electronic computerized telecommunications device that allows a bank's customers to directly use a secure method of communication to access their bank accounts, order or make cash withdrawals and check their account balances without the need for a human bank teller (or cashier in the UK). Some ATMs allow withdrawals funded by clerical staff in retail merchant locations. The clerical staff are not considered bank tellers. Many ATMs also allow people to deposit cash or cheques, transfer money between their bank accounts, top up their mobile phones' pre-paid accounts or even buy postage stamps. The ATM industry is an evolving one which has seen radical and business-changing events occur frequently in its first three decades. Here's our attempt to look into the crystal ball of ATMs of the future, with the help of some of the most forward-thinking minds involved in ATMs. 4.Credit cards A credit card system is a type of retail transaction settlement and credit system, named after the small plastic card issued to users of the system. A credit card is different from a debit card in which, during every transaction, the money from the users's account is removed. But in case of credit card, issuer lends money to the consumer (or the user). It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), that require the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. 5.Debit cards A debit card is a card which physically resembles a credit card, and, like a credit card, is used as an alternative to cash when making purchases. However, when purchases are made with a debit card, the funds are withdrawn directly from the purchaser's current/checking or savings account at a bank or credit union. 6.Cheque Cards
  13. 13. New Trends In Banks It is a card given to the customer by the bank that he must show when writes a cheque which promises that a bank will pay out the money written on the cheque. Under ‘cheque cards ‘system, the card holder is given a card and a cheque book. He has to use the cheques, while purchases are made and the trader gets guaranteed payment. The customer does not get free credit, he has to keep sufficient balance in his account or the bank will provide overdraft upto a specified limit, of course on interest payment basis. 7.Charge Cards A small usually plastic provided by an organization with which one may buy goods from various shops, etc. The full amount owed must then be paid on demand. in credit cards , the card holders get credit or loan for payment of periodical bills when sufficient balance is not available in their accounts . In a charge card such credit facility is not available .the periodical bill amount is paid off by charging it to customers’ account. A fee is also payable by the card holder to the card issuing institution. 8.Smart Cards With the use of credit cards, we may avail of credit facility on our purchase of goods or services from approved sales outlets. A smart card enables the cardholder to perform various other banking functions apart from credit purchases. For an example, with, smart cards, we can draw cash from ATMs; we can verify entries in our accounts, etc. This is possible because the card has an integrated circuit with microprocessor chip embedded in the card for identification purposes. The card can also perform calculations and maintain records. The credit card customers are typically extended an unsecured credit for at least 30 days. Beyond this period, the bank charges interest on outstanding bills. However, some cardholders may prefer to pay off their dues before the free credit period. Such cardholders are called convenience users. 9.BILL PAYMENTS Save time and money with payment services offered by banks
  14. 14. New Trends In Banks It's easy to pay your bills with their help. Some banks have agreements with over 600 companies for payment services. Payments can be made easily and conveniently over the internet, on the phone, at any branch or by using an ATM. What can you pay through a Bank? 1.Bills - access nearly 600 companies with their services. 2.Utilities - an easy way to manage household expenses. 3.Income Tax - pay income tax through a Bank's ATM network. How do you pay? Invoices from more than 100 companies can be paid by internet banking. Payments can also be scheduled for future dates. At the branch - bills can be paid at the branch counter service or you can take advantage of the convenient Express Deposit Box service kept by some banks. Over the phone - just call the Phone Banking Center. ATM bill payment - all you need to do is select "other services" on the machines and have your bills handy. 10.INVESTMENTS Mutual funds If you want attractive returns and are prepared to take a higher risk - one alternative is to invest in mutual funds. The banks give you access to the funds 24 hours a day with ATMs and Phone service and when you choose to sell - you'll get your money the next day.
  15. 15. New Trends In Banks Mutual funds can invest in many different kinds of securities. The most common are cash, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as technology or utilities. These are known as sector funds. Bond funds can vary according to risk (high yield or junk bonds, investment-grade corporate bonds), type of issuers (government agencies, corporations, or municipalities), or maturity of the bonds (short or long term). Both stock and bond funds can invest in primarily US securities (domestic funds), both US and foreign securities (global funds), or primarily foreign securities (international funds). Most mutual funds' investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts the future performance of investments appropriate for the fund and chooses the ones which he or she believes will most closely match the fund's stated investment objective. A mutual fund is administered through a parent management company, which may hire or fire fund managers. Mutual funds are subject to a special set of regulatory, accounting, and tax rules. Unlike most other types of business entities, they are not taxed on their income as long as they distribute substantially all of it to their shareholders. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal bond income are also tax-free to the shareholder. Taxable distributions can either be ordinary income or capital gains, depending on how the fund earned it. Investing in Bonds Government bonds and Corporate debentures provide a regular and reliable source of income and it's easy to invest through Banks. You can buy and sell government bonds or corporate debentures through branches. A government bond is a bond issued by a national government denominated in the country's own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds. Government bonds are usually referred to as risk-free bonds, because the government can raise taxes or simply print more money to redeem the bond at maturity. A corporate debenture is a long-term debt instrument used by governments to obtain funds.
  16. 16. New Trends In Banks 11.UNDERWRITER Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the process of providing access to their product like providing equity capital, insurance or credit to a customer. In banking, underwriting is the detailed credit analysis preceding the granting of a loan, based on credit information furnished by the borrower, such as employment history, salary, and financial statements; publicly available information, such as the borrower's credit history, which is detailed in a credit report; and the lender's evaluation of the borrower's credit needs and ability to pay. Underwriting can also refer to the purchase of corporate bonds, commercial paper, Government securities, municipal general obligation bonds by a commercial bank or dealer bank for its own account, or for resale to investors. Bank underwriting of corporate securities is carried out through separate holding company affiliates, called securities affiliates, or Section 20 affiliates. Guarantee the sale of stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital markets activities such as mergers and acquisitions. 12.PROVIDING CAPITAL TO FIRMS Merchant banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike Venture capital firms, they tend not to invest in new companies. 13.BANCASSURANCE
  17. 17. New Trends In Banks Bancassurance is the term used to describe the sale of insurance products in a bank. The word is a combination of "banque or bank" and "assurance" signifying that both banking and insurance is provided by the same corporate entity. The usage of the word picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalised recently. It is a controversial idea, and many feel it gives banks too great a control over the financial industry. “Bancassurance” your Trusted Service- insurance provided by banks through their tie ups with insurance companies. Bancassurance is the term used to describe the sale of insurance products in a bank. The word is a combination of "banque or bank" and "assurance" signifying that both banking and insurance is provided by the same corporate entity. The usage of the word picked up as banks and insurance companies merged and banks sought to provide insurance, especially in markets that have been liberalised recently. It is a controversial idea, and many feel it gives banks too great a control over the financial industry. Banks gives you peace of mind with Bancassurance. Receive coverage and save money at the same time. You can choose the right option which benefits you the most.
  18. 18. New Trends In Banks Life Insurance Policies They are life insurance policies which give your family a financial stability. They provide both protection from insurance policies and great savings plan at the same time. Life insurance policies play a major role for investments. 14.Currency Exchange Services Great rates, great services A customer can now buy or sell notes, travelers’ cheques and drafts in all major currencies at selected branches. Changing currency is fast and easy using the currency booths and currency exchange machines. The banks today have competitive rates with efficient service. 15.Online Government Tax Payment An online government tax payment and filing service is available seven days a week, 24 hours a day, using a financial institution's Internet site. It enables participating financial institution customers to electronically submit RST return cards and payments via the Internet. This service is currently offered by many financial institutions to customers who have an account with them. Benefits of Online Tax Payments Convenience and Reliability - available 24 hours/day and 7 days/week. Avoid late payment of taxes by post-dating your payments.
  19. 19. New Trends In Banks Less paperwork - no cheques or remittance forms required. 16.Trust Services  A legal entity that can hold and manage assets for one or more beneficiaries over time.  A bank can act as an agent for the trustee to invest funds according to the directions of the trustee.  A bank can handle employee benefit programs, personal trusts and estates, and corporate trusts. Employee benefit programs include profit sharing plans, defined benefit plans, and defined contribution plans. 17.INTERNATIONAL BANKING Indian banks have extended their activities beyond the national boundaries. The extension may take place in the form of borrowings as well as lending and it may take place through official or private or commercial channel. In the process of internationalization, the domestic financial institutions participate in foreign financial markets and the foreign institutions participate in domestic market to a significant extent. In other words, the domestic and foreign financial markets get integrated and interlinked and the supply and demand curves of funds assume a different character. In India ,foreign exchange dealings of banks are 6 to 7 times, sometimes, 50 times, their merchant base. Day to day foreign exchange transaction in India are handled by scheduled commercial banks who are authorized and licensed dealers in foreign exchange.
  20. 20. New Trends In Banks International lending  Syndicated loans  Large loans that enable borrowers to obtain large amounts of funds and lenders can diversify their credit risk. Lead bank can earn fee income for management services.  Letters of credit  Import letters of credit are issued by a bank in favor of a firm in most cases. An export letter of credit is issued by a foreign bank to a firm in the U.S. Letters of credit The letter of credit is a document from a bank that says it will pay the exporter when the conditions in the letter are met. In effect, the bank’s credit is substituted for the importer. The issuing bank pays the seller through the advising (paying) bank. The importer pays the issuing bank a fee for its services. Foreign exchange markets  Interbank market of money center banks and major foreign banks.  Foreign exchange brokers facilitate currency trading.  Credit risk associated with the counterparty (bank or broker) failing to meet its obligations. Changes in normal sevices
  21. 21. New Trends In Banks 1.OPENING ACCOUNTS A savings, current or fixed account now opens up a world of new products and services - giving the customers access to your funds 24 hours a day, 7 days a week. With a savings or current account in place you can choose a ATM or Debit Card for everyday access to your funds. 2.LOANS No matter what you need, there is a loan or a line of credit to give you the borrowing power you want. Home Loans? You do not need to worry about the huge investments needed to purchase a new home. Personal Loans? Today banks also give personal loans and you can use this to renew your furniture, finance an education or buy a new car. Mortgage Work?
  22. 22. New Trends In Banks You can be an informed borrower and find out how your mortgage works. What are the benefits and what are the interest rates. 3.BRANCHES You don’t have to travel far to enjoy a Bank’s fast and efficient service. With the most extensive branch networks, officers are always close by to offer you banking products and services that match your needs. The branches of a bank are connected to their computer mainframe via our state-of-the-art electronic network. This means a customer gets consistent service with fast and efficient transactions at any branch. Certainly, it is true that, in general, customers use bank branches less and less. Many customers visit their bank only once a month or, even much less, while some hardly bother going into the branch at all. Yet, while the demand for branches is certainly reducing all the time, this does not mean that branch banking is necessarily fated to disappear entirely, any more than the increasing proliferation of mobile telephones mean that landline telephone will disappear completely. It is possible though not certain that, just as there will always be people who need to use telephone (apart from anything else, people may have lost or mislaid their mobile telephones or may have left them at home), there will always be people who need to visit their branch. Furthermore, branches remain comparatively popular to organizations with corporate accounts (including small businesses), mainly because businesses like to be able to discuss things in person with a banker in a branch. Also,
  23. 23. New Trends In Banks some older people (including some older, wealthier people) like to be able to ‘pop in’ to their branch. There is a need for some good research about why this is: if it is simply that older people are less adept with new style technology than younger ones, then, of course, in time, by a natural process, the need for branches will start to erode. However, if, as may well be the case, older people inherently feel more comfortable with being able to do their banking at a physical branch, this may limit the extent to which banks can afford to get rid of branches entirely, especially branches that cater to wealthy customers. A NEW SECURITY DEVICE Some banks have started with a new security device. This device brings in confidence in a customers mind while using internet banking. How does the Security Device work? To log on to your account on Internet Banking, you need to enter your existing username and password as usual, followed by the unique security code generated by the Security Device. The Security Device provides you an enhanced level of security as access to your Internet Banking account is now based on a 2-step authentication process:
  24. 24. New Trends In Banks Since the Security Device is in your possession and the username and password is known only to you, only you can access your account online. Simple to use and easy to carry, the Security Device ensures you can access your financial information online, in a completely secure environment. The Modern Banking System (Where does money come from?) "If the debt which the banking companies owe be a blessing to anybody, it is to themselves alone, who are realizing a solid interest of eight or ten per cent on it. As to the public, these companies have banished all our gold and silver medium, which, before their institution, we had without interest, which never could have perished in our hands, and would have been our salvation now in the hour of war; instead of which they have given us two hundred million of froth and bubble, on which we are to pay them heavy interest, until it shall vanish into air... We are warranted, then, in affirming that this parody on the principle of 'a public debt being a public blessing,' and its mutation into the blessing of private instead of public debts, is as ridiculous as the original principle itself. In both cases, the truth is, that capital may be produced by industry, and accumulated by economy; but jugglers only will propose to create it by legerdemain tricks with paper."
  25. 25. New Trends In Banks Bank Systems & Technology September 20, 2004- an article The nine-year history of Web-based online banking in the U.S. has witnessed a number of innovations, from Web-based check imaging to inter-FI transfers and beyond. But a number of these innovations first arrived in Web banking earlier than most realize. A gap persists between the introduction of Web banking features at one bank and the widespread awareness and adoption among all banks. This gap points to the broader market and consumer trends. Inter-FI transfers -- the ability for a customer to transfer money to an account that the customer holds at another institution -- have been a hot topic at large banks for over a year. But inter-FI transfers have been a staple of many community banking offerings for more than eight years. The underlying technology is used routinely in offline transactions, so it is not surprising that inter-FI transfers appeared so early in the development of Web banking. But most community and regional banks still don-t offer the feature. Moreover, there is a gap of at least seven years between its first appearance and the August 2003 launch of inter-FI transfers at Citibank Online -- its first appearance in a top 10 retail bank-s consumer offering. What explains this slow rollout? One hindrance was the argument offered by a number of traditional banks that by launching inter-FI transfers, the bank would lose funds, as customers
  26. 26. New Trends In Banks will move money to other institutions that pay higher interest. This argument, dubious at first, has over time become essentially moot. Over the last several years, online brokers and Internet-centric banks such as E*Trade Bank launched inter-FI transfers. These are institutions whose customers faced the greatest challenges in depositing money and institutions that are offering seductive returns on deposits and investments. The customer who wants to transfer money to an account at one of these institutions has, by construction, access to inter-FI transfers at these institutions. The bank isn’t stopping the flow of funds by not offering the service itself. Another gap persisted between the launch of Web-based check imaging for consumers at some Internet-centric and community banks and the wider adoption of this service, especially among large banks. Web-based check imaging for retail customers first arrived in 1995. But, when the legacy Wachovia bank, once the 15th largest retail bank, launched check imaging in 2000, it was the largest retail bank at that point to launch check imaging. Now, check imaging is the rule rather than the exception. All medium-size and large banks that are currently the exception now are launching check imaging themselves. A number of forces combined to take check imaging from a feature confined for years to Internet-centric banks and select community banks to a necessity for large banks. First, digital check image capture is required for Web-based check imaging to be feasible, but many banks did not capture digital images when Web banking first rolled out. Second, the proportion of customers using Web banking was small enough at a number of banks that the benefits were not worth the cost of systems re-engineering needed to bring images to the Web. With the natural progression of systems and the growth in the number of online bankers, check imaging became a popular initiative. The advent of Check 21 legislation encouraged these developments, but before the law was
  27. 27. New Trends In Banks even enacted, let alone in effect, more than half of the top 10 banks offered consumers online check imaging. The rise in 2000 of account aggregation and its fall in later years, and the failure of wireless banking to catch on, confirmed a truth of Web banking: There is little to no first mover advantage in online banking, even for the largest banks. Instead, it is often useful to wait for another bank to prove out a speculative idea, such as the notion that customers will adopt wireless banking when they have yet to adopt other wireless services. But the debunking of the first-mover myth would be the wrong lesson to learn from the slow rollout of inter-FI transfers and check imaging. Banks that offered check imaging early on received uniformly strong, positive feedback from customers on the feature. With inter-FI transfers, the benefits to Internet- centric banks such as E*Trade Bank is clear, but even community banks that rolled out inter-FI transfers tended to stick with it in the early years, unlike wireless, aggregation, news tickers and third-party brokerage partnerships. Yet, other banks were very slow to adopt either service. Rather, the lesson is that the different technologies, customer bases and business goals of two banks can result in an innovation that makes sense for one bank long before it makes sense for another bank. As your banks systems, customers and goals change, old ideas make new sense. The next enhancement you should consider for your Web banking offering may not be the one that all the other banks are considering right now, but an earlier innovation that you should now reconsider. Top ten banking groups in the world ranked by assets Figures in U.S. dollars, and as at end-2004 1. UBS — 1,533 billion 2. Citigroup — 1,484 billion
  28. 28. New Trends In Banks 3. Mizuho Financial Group — 1,296 billion 4. HSBC Holdings — 1,277 billion 5. Credit Agricole — 1,243 billion 6. BNP Paribas — 1,234 billion 7. JPMorgan Chase & Co. — 1,157 billion 8. Deutsche Bank — 1,144 billion 9. Royal Bank of Scotland — 1,119 billion 10. Bank of America — 1,110 billion Top ten bank holding companies in the world ranked by profit Figures in U.S. dollars, and as 2003 1. Citigroup — 21 billion 2. Bank of America — 15 billion 3. HSBC — 10 billion 4. Royal Bank of Scotland — 8 billion 5. Wells Fargo — 7 billion 6. JP Morgan Chase — 7 billion 7. UBS AG — 6 billion 8. Wachovia — 5 billion 9. Morgan Stanley — 5 billion 10. Merrill Lynch — 4 billion Top ten banks in the world ranked by market capitalisation Figures in U.S. dollars, and as at 26 July 2006 1. Citigroup — 235 billion 2. Bank of America — 230 billion
  29. 29. New Trends In Banks 3. HSBC — 200 billion 4. JPMorgan Chase — 150 billion 5. Mitsubishi UFJ — 145 billion 6. Wells Fargo — 120 billion 7. UBS — 110 billion 8. Royal Bank of Scotland — 100 billion 9. China Construction Bank — 100 billion 10. Mizuho — 95 billion Future of banks Banks will have to change dramatically from today's traditional institutions if they want to survive in the networked world. They are currently introducing Internet banking to try to keep customers, but the move to digital electronic cash, held perhaps by the customer or an independent third party, will mean that the cash can be quite separate from the transaction agent. Cash does not need to be stored in a bank if records in secured databases anywhere can be digitally signed and authenticated. The customer may hold it on his own computer, or in a cyberspace vault elsewhere. With digital signatures and high network security, advanced software will put the customer firmly in control with access to any facility or service anywhere. In fact, no one need hold cash at all, or even move it around. Cash is just bits today, already electronic records. In the future, it will be an increasingly blurred entity, mixing credit, reputation, information, and simply promises into exchangeable tokens. Any corporation or reputable individual may easily capture the bank's role of keeping track of the credit. It is just one service among many that may leave the bank. As the world becomes increasingly networked, the customer could thus retain complete control of the cash and its use, and could buy banking services on a transaction-by-transaction basis.
  30. 30. New Trends In Banks The key is flexibility; none of these services need be fixed any more. Banks will not compete on overall package, but on every aspect of service. Worse still (for the banks), some of their competitors will be just freeware agents. The whole of the finance industry will fragment. The banks that survive will almost by definition be very adaptable. Services will continue and be added to, but not by the rigid structures of today. Surviving banks should be able to compete for a share of the future market as well as anyone. They certainly have a head start in many of the required skills, and have the advantage of customer lethargy when it comes to changing to potentially better suppliers. Many of their customers will still value tradition and will not wish to use the better and cheaper facilities available on the network. So as always, it looks like there will be a balance. Firstly, with large numbers of customers moving to the network for their banking services, banks must either cater for this market or become a niche operator, perhaps specializing in tradition, human service and even nostalgia. Most banks however will adapt well to network existence and will either be entirely network based, or maintain a high street presence to complement their network presence. Any serious discussion of the future of the retail banking industry eventually raises a basic question: will future customers still need banks? The answer, it turns out, depends on banks themselves. With technology and non-bank businesses providing new options for safeguarding and managing their finances, customers will continue to depend on banks only as long as banks can provide service and value that cannot be found anywhere else.
  31. 31. New Trends In Banks There are already signs that customers are questioning the ability of banks to look out for their financial well-being. As a result, banks have begun to rethink what, where and how they serve an increasingly informed and demanding customer base. At the same time, a confluence of industry developments, including consolidation, regulation, industry specialization, changing workforce needs and new technologies are putting additional pressure on banks’ operating models and raising questions about traditional strategies for growth and value creation. So, what will the future look like? How will banks continue to grow revenues and remain profitable? What will it take to create and maintain advantage in this highly competitive industry? The future will require superior efficiency and operational excellence from all banks, while industry leadership will be attained by those institutions most adept at harnessing product, service and process innovation to anticipate and meet customer needs. Ultimately, banks will have to focus on their core strengths—those activities in which they excel —and partner with best-in-class specialists for everything else: achieving more by doing less. Through market research and interviews with industry executives, the IBM Institute for Business Value identified five major industry trends that will impact the retail banking industry: • Customers redefine the rules of the game • Universal banks and ultra-focused niche players thrive • Changing workforce composition dictates new approaches • Regulatory burdens intensify
  32. 32. New Trends In Banks • Technology improves inexorably. In this emerging environment, innovation will take many forms, including advances in products and services, markets, operational processes, customer intimacy, and new channel and diversification strategies. But innovation will not be possible, nor will it have the desired impact, unless banks create the requisite conditions for innovation development. There are four strategic imperatives banks must follow to cultivate innovation and position themselves for sustainable growth: • Focus on core strengths and partner for everything else • Optimize the potential of each customer relationship • Harness the potential of the workforce through effective performance management • Recognize that technology will be a critical element of success. By 2015, the results of two prominent competitive forces will be clearly visible: a "middle squeeze" of traditional banks, and the emergence of far greater numbers of industry specialists and non-bank banks—each with distinct competitive growth strategies. Winning through specialization As competitive forces intensify, it is clear that banks will have to become far more responsive to changing market conditions and emerging competitive threats, not to mention a more empowered customer base. They will need to take dramatic steps to redefine their business models to assemble the best
  33. 33. New Trends In Banks capabilities in the market – becoming specialized enterprises that focus on critical, differentiating business components within the firm. Non-core tasks should be distributed to external specialists that can provide functionality in open, flexible ways. As the open networked economy allows banks to strike alliances quickly with nimble service providers, capital will be freed up for ongoing reinvestment in strategic capabilities. Ultimately, banks can benefit tremendously from the industry paradox: achieving more by doing less ANNEXURE 1) What makes your Bank different from the other banks in the market? 2) What are the New trends followed by your Bank? 3) How does your Bank keep up to the latest technology? Does the bank have any tie ups with software companies? 4) What are the new products and services offered by your Bank? 5) How does the bank maintain customer relationship? 6) Explain –your Mutual funds and the improvements made. 7) How does the trading website of your Bank operate? 8) How is the branch managed? 9) Can you give me some general information about this branch?
  34. 34. New Trends In Banks REPORT ON BANKS VISITED THE COSMOS CO-OPERATIVE BANK LTD MALAD (EAST) BRANCH There are three types of banks:  Co-operative Bank  Nationalized Bank  Privatised Bank Cosmos Bank is Co-operative Bank. It is 100 year old Pune based branch.It is a Multi-state Scheduled Bank. Other banks are having centralized solution that they have taken up. This bank have taken up new trends such as SMS facility, Internet Banking, Phone Banking, etc. This bank is having a tie-ups with FINACLE COMPANY (INFOSYS) as an software company. There is no difficulty to any customer. There is customer friendly relationship with every customer.There is no Mutual Fund. The branch is managed in two shifts. Staff is managed on Saturday and Sunday also. Total 9 staff are working. Due to modern technology there are no extra staff required.The Branches are situated at Maharashtra, Andhra Pradesh, Baroda, Gujarat(Ahemadabad), Karnataka, Madhya Pradesh and Mumbai.The trading websites of this bank is Interviewed by person Mr. Mayuresh (Manager)
  35. 35. New Trends In Banks ABHYUDAYA CO-OPERATIVE BANK LTD MALAD (EAST) BRANCH Abhyudaya Bank is dealing with small traders. All their branches are in rural areas and interior areas. This bank is dealing with mass-banking. The new trends followed by this bank are ATM, RTGS (Real Time Gross Settlement), Franking Machine (since 1 year), NFT (National Fund Transfer). The RTGS is above 1,00,00 and NFD is below 1,00,000. This bank has started core banking from Mumbai to Pune. This bank has tie up with ING Vyasa for Insurance. They had started a new product called Abhyudaya Gold Growth Scheme for fixed deposit on 15th July, 2007 and which was opened till 1 month in which rate of interest was 10.5%. They achieved a good feedback from the customers and there was a tremendous response from the customers and they had achieved lots of deposits. This bank has personalized customer relation. They are giving Phone banking service to any customer for any clearing cheques. They inform the customer at the same day for clearance. They attend immediately to customers call. Two managers Mr. Jayant Shetty and Mr.S.S Rane manage the Branch. There are 40 staff members. The branches are at Dadar Branch (W), Hill Road Branch (Bandra), Kher Nagar Branch (Bandra) and many more. The trading website of bank to operate is Interviewed by person Mr.JayantShetty (Senior Manager)
  36. 36. New Trends In Banks PUNJAB NATIONAL BANK MALAD (EAST) BRANCH This Branch is empowered to render value added services:  Multicity cheques.  Connected with 2600 net worked branches.  Debit card which can be used over 25,000 ATM.  Banking from your home/ office through Internet Banking.  Facility of Inter bank Transfer through RTGS online.  Earning interest on your current account.  Online trading in stock market with Depository services.  Deposit of your taxes online.  Obtaining life / non-life insurance cover. This Bank is having tie up with INFOSYS. There are 20 staff members working. The trading website to operate on this bank is Intervie
  37. 37. New Trends In Banks BIBLIOGRAPHY BOOKS 1) Banking theory and practice – Srivastava.P.K Himalaya publishing house 2) Banking products and services – Indian trust of banking and finance Taxmann publication Pvt. Ltd. 3) Modern Trends in Global Banking Development - Viatcheslav V.C. 4) Banking and financial services in India – Sobti, Renu 5) Recent Trends In Indian Banking – C. M. Choudary WEBSITES 1) 2)
  38. 38. New Trends In Banks DECLARATION I, Miss ANKITA .R. GALA of Shri Chinai College of Commerce and Economics T.Y.B.B.I. (Semester V), hereby declare that I have completed this project on NEW TRENDS IN BANKS in the academic year 2007 – 2008. The information submitted is true and original to the best of knowledge. (Signature of student) ____________________
  39. 39. New Trends In Banks CERTIFICATE I, Miss VINITA PIMPLE hereby certify that Miss ANKITA .R. GALA of T. Y. B. B. I. (Semester V) has completed the project on NEW TRENDS IN BANKS in the academic year 2006 – 2007. The information submitted is true and original to the best of my knowledge. (Signature of (Signature of Project Guide) Principal of college) __________________________ ______________________
  40. 40. New Trends In Banks ACKNOWLEDGEMENT I sincerely thank the University for introducing a degree course in B.Com for Banking & Insurance. This has given us an opening to gain knowledge on the insights of the Banking & Insurance industry. A special thanks to our esteemed coordinator Professor VINITA PIMPLE for being a guide in the right sense of the word and motivating me during the project. I would also like to thank the librarian of Shri Chinai College of Commerce and Economics who helped me out in finding out various books on the topic. It would be my pleasure to thank Mr.Jayant Shetty, who is the senior manager of Abhyudaya Co-op bank, Malad Branch, Mr. Mayuresh, who is manager of Cosmos Bank, Malad Branch and Miss.Nayna Shah, who is Customer Care Officer of Punjab National Bank, Malad Branch for giving me all the support. This project was highly educational and a great learning experience.