“Does the trend of banking change in the light of local needs of local market”- Explain & Illustrate in the world wide aspect

1. Introduction

The trend of Banking changes worldwide in the light of local needs of local market. This phenomenon is actually the result of modern banking system and globalization. Banks are one of the most important financial institutions of a country. This institution is important for the economy as a whole for the local and global communities.[1] The term “Bank” is derived from the French word “Banco” which means “a Benchor Money exchange table”. In olden days, European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging. A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it. Oxford Dictionary defines a bank as “an establishment for custody of money, which it pays out on customer’s order”.[2]

Generally in past days, banks were only known as institutions where we save our money as deposits and seek loans on mortgage. But now a day’s banks are acting more than this.[3] Since the beginning of the 21st century, the biggest banks in the industrial world have become complex financial organizations that offer a wide variety of services to international markets and control billions of dollars in cash and assets. Supported by the latest technology, banks are working to identify new business niches, to develop customized services, to implement innovative strategies and to capture new market opportunities. With further globalization, consolidation, deregulation and diversification of the financial industry, the banking sector is going to become even more complex in the future.[4] The banking system is a crucially important and vital part of the in general economy. By, encouraging saving, and through the allocation of savings to borrowers, the financial system plays a key role in the investment procedure, which is a major determinant of the economy growth and future productive aptitude.[5] The modern banking industry has brought greater business diversification. Some banks in the industrialized world are entering into investments, underwriting of securities, portfolio management and the insurance businesses. Taken together, these changes have made banks an even more important entity in the global business community.[6]

Modern banking operations are basically to ease the movement of goods across the political boundary of countries. Banking system came beside with the enlargement of money as an institution. In today’s world no country can afford to do business without whichever in the field of international trade or in international banking. Since international trade is directly correlated to modern banking, quantity of international trade (imports and exports together) is a determinant of the growth of modern banking and the relationship is direct.[7] Today banking is an industry in change. Rather than being something in particular, it is continually becoming something new- offering new service, merging and consolidating into much larger and more complex business, adopting new technologies that seem to change faster than more of us can comprehend, and facing a new and changing set of rules as more and more nations cooperate to regulate and supervise the banks that serves their citizens.[8]

1. 1.    Global 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.[9]

Although, the banking industry does not operate in the same manner all over the world, most bankers think about corporate clients in terms of the following:

2.1.                     Commercial banking:

Commercial banking covers services such as cash management (money transfers, payroll services, bank reconcilement), credit services (asset-based financing, lines of credits, commercial loans or commercial real estate loans), deposit services (checking or savings account services) and foreign exchange;

2.2.                     Investment banking:

Investment banking covers an array of services from asset securitization, coverage of mergers, acquisitions and corporate restructuring to securities underwriting, equity private placements and placements of debt securities with institutional investors.

Over the past decade there has been an increasing convergence between the activities of investment and commercial banks, because of the deregulation of the financial sector. Today, some investment and commercial banking institutions compete directly in money market operations, private placements, project finance, bonds underwriting and financial advisory work.[10]

1. 2.    Role of Commercial Banking in the Economy:

Commercial banks play an important role in facilitating economic growth. They are the main providers of credit to the households and corporate sectors and operate the payments mechanism. Commercial banks deals with both retail and corporate customers have well- diversified deposit and leading books and generally offer a full range of financial services. The largest banks in most countries are commercial banks and they include households name such as Citibank, HSBC, Deutsche Bank and Barclays. While commercial banking refers to institutions whose main business is deposit taking and leading it should always be remembered that the largest commercial banks also engage in investment banking, insurance and other financial services areas. They are also the key operator in most countries retail banking markets.[11]

1. 3.    Traditional Banking moving towards Modern Banking:

In the earlier period of time bank’s activities are very little. Banks were the place of saving and lending money. It was the mare organization for saving money securely. People come to the bank for preserve their money or lend money for business. No digitalization concept was there or other source of communication happens.[12] The term bank today refers as much to the range of services traditionally offered by depository institutions as to a specific type of institutions.[13] Now-a-days, the trends of banking especially commercial banking changes basically in the light of local needs of the local market, but due to huge exposure to the globalization and the well-communicated global banking industry, these changes are actually occurring in the world wide aspect in overall the countries of the world.[14]

1. 4.    Trends of Modern Banking in Local Market Worldwide:

The trends of global banking are changing according to the needs of the local market from various aspects like- digitalization of the banking communication process, new varieties in the banking operations / services, updated versions of the laws & statues / acts regarding banking industry etc.[15]

4.1.Digitalization of the Banking Communication Process:

Digital communication is a modern concept. It means communicate through digital interface using modern technology. Communicate with a people without physical appearance. To communicate with the mass people it’s a very useful and fast way to send all form of necessary information and messages. The activities of bank are not limited by only saving money and giving loan. Now a bank does a lot of work for providing service in spreading digital communication.[16] The latest addition in the digital communication process of modern banking are-

4.1.1.      Internet Banking / Online Banking / E- Banking:

E- Banking is a term used for performing transactions, payments etc. over the internet.[17] Online banking allows customers of a financial institution to conduct financial transactions on a secure website operated by the institution, which can be a retail or virtual bank, credit union or building society.[18] To access online banking, the customer would go to the financial institution’s website, and enter the online banking facility using the customer number and password. Some financial institutions have set up additional security steps for access, but there is no consistency to the approach adopted.[19]

Internet Banking is growing popular day by day in Bangladesh. Since early 1990s, a number of private as well as local banks are going online now considering the demand and necessity of fast banking.[20] Citidirect® was the first in introducing E- Banking in BD with online direct debit transaction process, information reporting, comprehensive payment transaction solution etc.[21] In Bangladesh currently 29 banks have launched Internet Banking. Amongst those SCB, HSBC, City Bank, EBL, BRAC Bank, Bank Asia, Jamuna Bank, Janata Bank, Southeast Bank, AB Bank, First Security Bank, Mercantile Bank, Premier Bank etc are in action already.[22] These banks of BD are providing the facilities of Automated Teller Machine (ATM), Debit/Credit card, Smart/Memory/Chip card, account checking, fund transferring, ordering cheque books, bill payment, mobile recharging, depositing & withdrawing money, accessing account information 24/7, online shopping etc. through online banking.[23]

4.1.2.      Mobile Banking / M- Banking:

Mobile banking is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered over SMS, a service known as SMS banking. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers.[24] Many parts of the world with little or no infrastructure, especially remote and rural areas, in countries where most of their population is unbanked, where banks can only be found in big cities, and customers have to travel hundreds of miles to the nearest bank, Mobile Banking is considered as a Banking process without bank branch which provides financial services to unbanked communities efficiently and at affordable cost.[25] Various both developed & developing countries in the world like- USA, China, Kenya, Brazil, Canada, Iran, Pakistan, India, Bangladesh, Mexico, Zane, Guatemala, Somalia etc. are using M- Banking technology.[26] Mobile banking is an alternative to the traditional banking through which banking service can be reached at the doorsteps of the deprived section of the society.[27]

Bangladesh is a country of 160 million people, only 14% of which are banked. Mobile penetration stands at 55% while mobile coverage is at 90% of the population, sowing the seeds for great potential for M- Banking.[28] M- Banking was still a dream for our country despite of such huge exposure of mobile to our general people, until Dutch Bangla Bank Ltd. (DBBL) had launched the very first mobile banking service in our country on 31^st Mrch, 2011 with the agent & support from two of the leading mobile oprators of Bangladesh “Banglalink” & “Citycell”.[29] DBBL started M- Banking with a goal of moving banking activities out into rural areas to bring around economic inclusion in order to provide banking and financial services, such as cash-in, cash out, merchant payment, utility payment, salary disbursement, foreign remittance, government allowance disbursement, ATM money withdrawal through mobile phones.[30] After DBBL, BRAC Bank launched Bangladesh’s first complete mobile financial service provider “bKash ltd.” on 21^st July, 2011 with a partnership agreement with one of the leading mobile operators of BD “Robi Axiata Ltd.” with a purpose of providing truly transformative payment solutions & banking services via mobile phones to both unbanked and banked people of the country.[31] Currently 10 leading banks of Bangladesh have started providing M- Banking service to their customers.[32]

4.2.                     New Horizons of Banking Sector:

The trends of modern banking have not only introduced digital communication in banking industry, but also created immense opportunities for various new & special horizons/branches of banking sectors which are not usually exactly similar with the regular concept of banking, but still those horizons have now-a-days become an integral part of the banking industry.[33] The two most effective & mentionable form of banking from those new concepts is like-

4.2.1.      Micro Level Banking:

Micro Level Banking is extension of standard banking facilities to those doing small scale businesses, those living in poverty and those inhabiting rural areas without demanding collateral.[34] In recent time micro level banking has become a very popular banking among poor people. It gives loan to poor people without taking any collateral.[35] In Bangladesh Micro level Banking is known as micro credit policy. And Bangladesh is a living example that the microcredit policy has reduced the poverty status in rural areas of our country with a bank known as Grameen Bank.[36] Noble prize owner Professor Dr. Mohammad Yunus, the founder of Grameen Bank is also the creator of the idea of Micro-level Banking/Micro Credit in 1983.[37]  Microcredit is widely used in developing countries and is presented as having enormous potential as a tool for poverty alleviation in countries like- Ghana, Kenya, Malawi, Nigeria, Bangladesh etc.[38]

To reduce poverty micro level banking has very strong forces, and it has become very popular banking system in our country. It is based on the recognition that the latent capacity of the poor for entrepreneurship would be encouraged with the availability of small-scale loans and would introduce them to the small-enterprise sector. This could allow them to be more self-reliant, create employment opportunities, and, not least, engage women in economically productive activities.[39] The schemes are characterized by relatively small loans, a few hundred dollars at most. The repayment period is relatively short, about a year or so. Women are a major beneficiary of micro-credit activities, and the destination of the funds primarily includes agriculture, distribution, trading, small craft and processing industries. The administrative structure is generally light and the entire process is participatory in nature.[40] Due to Micro-level Banking, there has been a growth in the recognition of the importance of empowering all people by increasing their access to all the factors of production, including credit. In addition, the value of the role of non-governmental organizations in development is receiving more attention.[41]

4.2.2.      Social/Ethical Banking:

Social banking is also known as “Ethical/Alternative/Civic/Sustainable Banking”. It is basically concerned with social and environmental impacts of investments and loans of the banks.[42] Social Banking describes the provision of banking and financial services that consequently pursue, as their main objective, a positive contribution to the potential of all human beings to develop, today and in the future. In Social Banking, the focus is on satisfying existing needs in the real economy and the society simultaneously taking into account their social, cultural, ecological and economic sustainability. Generating a monetary profit is not an end but a frequent prerequisite to guaranteeing the necessary flexibility for pursuing its objective in a continuously changing environment.[43] Social Banking is always conscious of its responsibility in dealing with money as a formative medium. It understands money, banking and finance as means that are conceived and that can be further developed by humans to achieve its objective. Social Banking describes a process, not a steady state.[44] Social banks are part of a larger societal movement toward more social and environmental responsibility in the financial sector. This movement includes: ethical investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, boycotting, etc.[45]

Recently, the famous social networking website Facebook has teamed up with Australia’s Commonwealth Bank to develop a banking app for the social media site and within days, Citigroup (NYSE: C) got into the act by asking its fan base if they would do their banking via Facebook indicating that the age of social banking is coming.[46] The Commonwealth bank has demonstrated a beta Facebook banking application that will allow customers to do all their banking transactions, including paying others and collecting money without leaving the social network. Users will be able to see statements, pay with Bpay, transfer money between accounts and request payments from friends or groups. The service is likely to be launched by December 2012.[47]

4.3.                     Updated Versions of Banking Laws, Policies, Statues & Acts:

In order to keep pace with the changes in the global banking sector and to adopt those trends of modern in the light of local needs of the local market, for any country it is a must to have a very much strong, well-regulated and mostly a enough level of flexible Banking Laws, Policies, Statues & Acts which can be updated time to time as per the need of modern banking trends for local and global market as well. In the developed countries law and order systems are updated in almost every seconds, but in our country it is a little bit difficult to update/modify the laws as our judiciary system is not that much flexible/adoptive/responsive towards trends of changes.[48] But now-a-days, that typical scenario has changed a lot as there have been significant changes and modification has been made in our banking laws & acts. Negotiable Instruments Act 1881[49], Bank Company Act 1991[50], Money Loan Court Act 2003[51], Micro Credit Regulatory Authority Act 2006[52], Bangladesh Payment & Settlement Systems Regulations 2009[53], Money Laundering Prevention Act 2012[54] etc. are all modified & updated for the purpose of protecting banking rights in Bangladesh and because of all these updated version of laws and policies today our country has become enable to take part in the trend of modernization of the global banking industry even taking into account all of our local needs.[55]

1. 6.    Conclusion:

Now-a-days, Banking like the global economy itself, is becoming an increasingly integrated, worldwide system. Today banking is an industry in change. Rather than being something in particular, it is continually becoming something new- offering new service, merging and consolidating into much larger and more complex business, adopting new technologies that seem to change faster than more of us can comprehend, and facing a new and changing set of rules as more and more nations cooperate to regulate and supervise the banks that serves their citizens.[56] In spite of vast exposure of globalization, still the banking industry is considered based on it’s local market for it’s local at first and also the changing trends are adopted after considering the effectiveness of those for the well-being of the local economy and market.