Banking is now not a mere organization for saving money but a device to explore and spread the digital communication in public sphere.

TABLE OF CONTENT

Definition of bank ………………….…………………………………………………………………………… 01

Social Channels of banks ……………………………………………………………………………………. 02

Products of banks ….…………………………………………..………………………….………………….. 03

Size of global banking industry ………………………………………………..…………………………. 03

Types of banks …………………………………………………………………………………………………….04

Globalization in the Banking Industry ……………….……………………………………………….  04

Social banking, a new trend ………………………….……………………………………………….….. 05

Conclusion ……………………………………………………………………………………………….………… 07

References …………………………………………………………………………………………………………. 08

 

Abstract:

Generally we know that banks are institutions where we save our money as deposits and seek loans on mortgage. But now a day’s banks are acting more than this. They have started social banking. They have made the whole system easier and convenient. Now we can accomplish all our banking needs from our home through computer or mobile phone.

Definition of bank:

The definition of a bank varies from country to country. Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as: ¹

• conducting current accounts for his customers
• paying checks drawn on him, and
• Collecting checks for his customers.

In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including checks, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking’. Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as checks does not depend on how the bank is organized or regulated.

The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in minds that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions:

1.  United Dominions Trust Ltd v Kirkwood, 1966, English Court of Appeal, 2 QB 431

 “banking business” means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] … or with a period of call or notice of less than that period;
2. paying or collecting checks drawn by or paid in by customers ²

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the checks has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the checks based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect checks.³

Social Channels of banks:

Banks offer many different social channels to access their banking and other services:

• Automated Teller Machines
• A branch is a retail location
• Call center
• Mail: most banks accept check deposits via mail and use mail to communicate to their customers, e.g. by sending out statements
• Mobile banking is a method of using one’s mobile phone to conduct banking transactions
• Online banking is a term used for performing transactions, payments etc. over the Internet
• Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses
• Telephone banking is a service which allows its customers to perform transactions over the telephone with automated attendant or when requested with telephone operator

2.  (Banking Ordinance, Section 2, Interpretation, Hong Kong) Note that in this case the definition is extended to include accepting any deposits repayable in less than 3 months, companies that accept deposits of greater than HK$100 000 for periods of greater than 3 months are regulated as deposit taking companies rather than as banks in Hong Kong.

3.  e.g. Tyree’s Banking Law in New Zealand, A L Tyree, LexisNexis 2003, page 70.

Products of banks:

Retail banking

• Checking account
• Savings account
• Money market account
• Certificate of deposit (CD)
• Individual retirement account (IRA)
• Credit card
• Debit card
• Mortgage
• Home equity loan
• Mutual fund
• Personal loan

Size of global banking industry

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial year to a record $96.4 trillion while profits declined by 85% to $115bn. Growth in assets in adverse market conditions was largely a result of recapitalization. EU banks held the largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks’ share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment banking totaled $66.3bn in 2009, up 12% on the previous year.⁴

4. “How Banks Make Money”. The Street. Retrieved 2011-09-08.

5. Banking 2010PDF (638 KB) charts 7–8, pages 3–4.

 Types of banks

• Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term “commercial bank” to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
• Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
• Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families.
• Postal savings banks: savings banks associated with national postal systems.
• Private Banks: banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account; however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.
• Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
• Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population.
• Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
• A Direct or Internet-Only bank is a banking operation without any physical bank branches, conceived and implemented wholly with networked computers.
• Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers.

Globalization in the Banking Industry

In modern time there have been huge reductions to the barriers of global competition in the banking industry. Increases in telecommunications and other financial technologies, such as Bloomberg, have allowed banks to extend their reach all over the world, since they no longer have to be near customers to manage both their finances and their risk. The growth in cross-border activities has also increased the demand for banks that can provide various services across borders to different nationalities. However, despite these reductions in barriers and growth in cross-border activities, the banking industry is nowhere near as globalized as some other industries. In the USA, for instance, very few banks even worry about the Regal-Neal Act, which promotes more efficient interstate banking. In the vast majority of nations around globe the market share for foreign owned banks is currently less than a tenth of all market shares for banks in a particular nation. One reason the banking industry has not been fully globalized is that it is more convenient to have local banks provide loans to small business and individuals. On the other hand for large corporations, it is not as important in what nation the bank is in, since the corporation’s financial information is available around the globe.

Social banking, a new trend:

 

 More and more banks are finding that reaching online-savvy consumers of all age’s takes a variety of new strategies – and most of them are online.

In Penny Crossman’s recent article in Bank Systems & Technology, “Channel Innovation: Building Online Relationships,” she explores the variety of new consumers – and how they view banks and money.

For example, there’s a whole liable of consumer that focuses on not consuming, such as “freeman” who strive to have no money and live “off the grid.” To reach this and other hard-to-reach markets, banks must up the ante on social and online marketing. For example, 18 to 30 year olds (Generation Y), a Cisco survey found, are heavily in debt, need help with their finances, and prefer communicating via their cell phones. They’re used to having Mom and Dad take care of the finances, and could use the most help from banks – but may not trust them as much.

Financial institutions must innovate to reach the hard-to-reach consumers; however, the good news is that half of all searches for financial products start on the Web, according to Terry Moore, Accenture’s North American banking practice lead. And online personal financial management is on the rise. These aggregators, such as Mint.com or Geezeo, help consumers keep track of budgets, discover new products, and manage accounts from a variety of providers in one place.

In a new trend, though, banks are building their own personal financial advice Web sites – sites that are nearly independent of the bank and that, in fact, barely mention the bank at all. For example, SunTrust’s Live Solid Network looks like a self-help site that could be associated with a women’s magazine.

Ron Shevlin, senior analyst at Aite Group, believes there’s a perfect storm creating demand for personal financial management tools, citing the recession, the regulatory environment and the impact of credit scores on consumers’ ability to get credit. “Consumers are becoming more aware and more diligent,” he says. “[Web sites such as] Mint, Geezeo and Wesabe have made these tools easier to use, and Generation Years are more online friendly – they want to manage their whole lives, including their financial lives, online. And thanks to all these other factors, there’s a general dislike of banks. [Banks] realize that [personal financial management] can add value to the customer relationship.”

According to Jaidev Shergill, CEO of Bundle.com and a former Citi executive, it’s a matter of trust. “What’s really behind some of this can be summed up in one word: unbiased,” he says. “When you think about the way banks dispensed information and advice two or three years ago, it typically ended up in a sales pitch for that bank’s product. People started wondering if they were really getting the right recommendations.

1st Mariner Bank in Baltimore ($1.4 billion in assets), however, recently became the first bank to sign up with Geezeo’s white-labled online personal financial management, which lets their customers access their 1^st Mariner accounts as well as their other financial accounts from one site.

Steve Kruskamp, e-commerce marketing manager at 1st Mariner insists that online personal financial management “creates a tool that makes the relationship stickier.”

Additionally, social media is a big part of 1st Mariner’s efforts to attract and retain younger customers. Kruskamp blogs and participate in social media networks regularly. Kruskamp posts messages and videos, including information about upcoming events and industry news, on behalf of 1st Mariner on Twitter, Facebook and YouTube. In fact, a year ago the bank introduced a checking account for Gen Y based on feedback received in social networks.

“We look at Twitter as an extension of communication with our customers,” Kruskamp says. “You no longer have the number of customers coming into the branches and having a one-on-one relationship with the managers. So we wanted to see if there was a way that we could get back those relationships that are somewhat lost. Twitter, the blog and Facebook offer a channel where our customers and prospects are already there.” The bank doesn’t use social media to market products but rather to carry out overall public relations, Kruskamp emphasizes.

Twitter lets 1st Mariner connect with local businesspeople and industry peers. Facebook, however, is more of an opportunity for the bank to interact with customers and prospects in a more social setting, where the bank shares pictures, promotes fundraising efforts and personalizes the brand.

“Facebook brings a transparency that didn’t exist before,” Kruskamp suggests. “Unless someone came to our back office or one of our picnics, they wouldn’t see what we’re doing, that we really enjoy what we do.”

Kevin Lynch, SVP of e-commerce at 1st Mariner Bank, stresses that social media efforts are inexpensive compared to traditional channels and they’re increasingly necessary. “The branch transaction level is continuing to decline, call center volumes have dropped from 65,000 to 70,000 calls a year to 59,000 or 58, 000,” he notes. But 1st Mariner’s online customers more than doubled, from 2,500 in 2008 to 5,500 in 2009. “People are interacting with us that are the business case.”

Like 1st Mariner, Atlanta-based SunTrust Banks ($172.7 billion in assets) is experimenting with both online PFM tools and social media. The bank’s mostly anonymous LiveSolid Network, which primarily targets 25-to-45-year-old women, went live Feb. 1. Broud Koun, director of digital marketing and direct mail, observes that the demographics of social media sites are sometimes surprising. “It would be incorrect to assume that Facebook, for example, is all about 19-year-olds,” he says.

Not every bank is jumping on the personal financial management bandwagon, however. A recent Aite Group survey found that only one in five banks overall — and only one in 20 large banks — offers online personal financial management. (Of the remaining firms, 60 percent said they will evaluate whether to offer such tools in 2010.) They cite lack of perceived demand and a hard-to-define return on investment.

For 1st Mariner Bank’s Lynch, however, the more important question is whether a bank can afford not to have these personal financial management tools. “Our perspective,” he says, “is that this is a requirement that customers may not know they need yet, but they will.”

Conclusion:

  In current time there have been huge drops to the barricades of global rivalry in the banking industry. Increases in telecommunications and other financial technologies, such as Bloomberg, have allowed banks to extend their reach all over the world, since they no longer have to be near customers to manage both their finances and their risk. The growth in cross-border activities has also increased the demand for banks that can provide various services across borders to different nationalities. However, despite these reductions in barriers and growth in cross-border activities, the banking industry is nowhere near as globalized as some other industries. In the USA, for instance, very few banks even worry about the Regal-Neal Act, which promotes more efficient interstate banking. In the vast majority of nations around globe the market share for foreign owned banks is currently less than a tenth of all market shares for banks in a particular nation. One reason the banking industry has not been fully globalized is that it is more convenient to have local banks provide loans to small business and individuals. On the other hand for large corporations, it is not as important in what nation the bank is in, since the corporation’s financial information is available around the globe.

 References

1.  United Dominions Trust Ltd v Kirkwood, 1966, English Court of Appeal, 2 QB 431

2.  (Banking Ordinance, Section 2, Interpretation, Hong Kong) Note that in this case the definition is extended to include accepting any deposits repayable in less than 3 months, companies that accept deposits of greater than HK$100 000 for periods of greater than 3 months are regulated as deposit taking companies rather than as banks in Hong Kong.

3.  e.g. Tyree’s Banking Law in New Zealand, A L Tyree, LexisNexis 2003, page 70.

4. “How Banks Make Money”. The Street. Retrieved 2011-09-08.

5. Banking 2010PDF (638 KB) charts 7–8, pages 3–4.

6. http://mbanking.blogspot.com/

7. http://blog.socialware.com/2010/06/22/social-banking-a-new-trend-in-2010/

8. http://www.social-banking.org/research/isb-paper-series/no-1-june-09/

10. http://www.bbc.co.uk/news/business-16016155

11.http://www.google.com/url?sa=t&rct=j&q=banking&source=web&cd=4&ved=0CFQQFjAD&url=https%3A%2F%2Fwww.bankofamerica.com%2F&ei=5FzaTsGoOJO4hAfS6cClBA&usg=AFQjCNFGlX_ZsDSVfW1iL9Vk7eslTYIZ7w&cad=rja

12.http://www.google.com/url?sa=t&rct=j&q=banking&source=web&cd=6&ved=0CG0QFjAF&url=https%3A%2F%2Fwww.chase.com%2F&ei=5FzaTsGoOJO4hAfS6cClBA&usg=AFQjCNHZkzy9qSMn4HUMoU59BdGrNxUDZg&cad=rja

13.http://www.google.com/url?sa=t&rct=j&q=banking&source=web&cd=7&ved=0CHQQFjAG&url=https%3A%2F%2Fwww.wellsfargo.com%2Fper%2Fmore%2Fbanking&ei=5FzaTsGoOJO4hAfS6cClBA&usg=AFQjCNGbSBZRdHBe2oFDY5oL7353-Lks1w&cad=rja

14.http://www.bls.gov/oco/cg/cgs027.htm

15.http://www.barclays.co.uk/PersonalBanking/P1242557947640

16. http://issuu.com/socialbanking/docs/certificate