How to Use Your Bank Brochures in Marketing for Banks

As one of the most traditional forms of bank marketing, everyone knows that the point of a bank brochure is to offer more information about a product or service. But what you may not know is that how you use your bank brochures is just as important as having readable content and an eye-catching design. Check out four ways to use your brochures for greater bank marketing success.

Point-of-Sale
When a customer opens a new account or starts a new service, a bank brochure should be given to them to explain the product/service they just signed up for. While you will explain the product/service to the customer when they are there, having a brochure to take home is a useful reference when they have questions or need to review what they’ve signed up for.

Response
Response brochures should be sent to customers who request more information about one of your bank’s specific products or services. As a bank marketing piece, these brochures can have an impact on whether or not interested customers choose a product/service from your bank. Provide information related to the inquiry, along with other relevant information and instructions on how to get more information or how to sign up for the product or service.

Direct Marketing
A direct marketing bank brochure can be sent out as part of a direct mail campaign to provide information and motivate recipients to request more information or sign up for a product or service at your bank. Be sure to match the design and feel of your other direct mail pieces in the campaign, even if that means ordering new brochures. These brochures can be targeted to a certain demographic using a specific mail list or can be sent to an entire neighborhood, depending on your bank marketing goals.

Account Management Support
When your account managers are working with prospects to turn them into customers, a bank brochure is a useful tool to have on hand. This type of brochure should provide general information on your bank’s products and services as well as information that has been discussed in conversations with the customer and the account manager’s business card.

Brochures are a staple of bank marketing practices because they are convenient and can be used to promote just about anything. Provide your bank brochures to customers at the right times and tailor your content for each situation to improve the impact they have on your marketing goals.

Banking Innovation: What’s the Same, What’s Different, In the Developed and Developing World

If there wasn’t enough focus on it already, the financial crisis has taken innovation to the top of most banks’ agendas. In mature as well as emerging markets, banking institutions are differentiating their value proposition from that of their competitors by innovating upon their offerings, benefiting both customers and the organization in the process.

The pursuit of globalization and global standardization by banks has meant that innovations that originate in a particular region make their way quickly across the world, so that banking customers everywhere enjoy a similar, if not the same, usage experience.

That being said, there are many differences in the way that banks from the developed and developing worlds innovate, arising from other fundamental differences in their respective markets. The nature of these factors and their causative impact on innovation differentiation is discussed below:

Market Maturity

A research report presented by The Asian Banker and Finacle from Infosys on the innovation trends and practices in Asia made an interesting observation about how banks go through successive stages of innovation – from Product to Sales to Market Share to Customer Service Innovation – depending on market maturity. Therefore, while banks in Bangladesh, Sri Lanka, Vietnam, and rural China and India, which have large unbanked segments focus on introducing basic products, their counterparts in the competitive Australian, Singapore and Hong Kong Markets are more intent on defending their market share by providing accessibility, convenience and cheaper distribution.

Customer Universe

Given the high penetration of banking services amongst developed nations, a bank operating in those markets can only grow its market share at the cost of another. On the other hand, developing countries house the majority of the 2 billion-strong global unbanked population and hence have more room for growth and relatively less aggressive competition. Here, banks can grow along with the market by bringing those without financial access into the net of basic banking services.

Although financial inclusion is a much larger priority – and opportunity for innovation – in emerging economies, it does not mean that it has no place in mature markets. In fact, the U.S. alone was estimated to have over 70 million unbanked/underbanked people in 2009. However, the nature of the problem is quite different there. Financial exclusion in the developing world is essentially on account of poor branch penetration in rural or remote areas, whereas in developed countries it is quite often, a voluntary decision or the result of inability to meet KYC norms – the Hispanic immigrants living in the United States are a classic example of this phenomenon, choosing to rely on informal networks or carriers rather than on a bank to send money home.

High Net Worth Segment

In every banking market around the world, High Net Worth Individuals (HNWI) are top-drawer. Because the financial elite come in small stable numbers, (even in 2020, the U.S., which has the most HNWI, will have less than 21 million millionaire households) acquiring such customers in both developing and developed markets is usually a matter of poaching them from rival banks. Also, since the ultra-rich are the same everywhere, having similar needs, wealth managers and private bankers in both the developed and developing world follow a largely similar approach while serving these customers. A key difference however, is that the HNWI segment is growing faster in emerging markets thanks to their rising prosperity as a result of which their mass affluent are turning rich and the already rich are turning richer quicker than their mature market counterparts. This is creating more opportunities for innovation in emerging nations.

Telecom and Payments Infrastructure

The well-established telecommunications and payments infrastructure of the developed world facilitates banking transactions over multiple channels, such as the phone, ATM, POS terminal, Internet and mobile, and payments through several additional modes including cards, giros and third party payment gateways like PayPal. Unfortunately, such facilities are either missing or very poorly developed in developing countries – infrastructure for financial transactions is still in its infancy and only a limited number of payment options exist.

However, with mobile networks penetrating remote corners of the developing world that still lack basic channels of banking and communication, the mobile phone is emerging as a viable mode of payment and financial transaction. Banking innovation in many emerging economies is focusing on mobile phone-based services, albeit of a basic variety. On the other hand, in the sophisticated mobile markets of the developed world, it’s the Smartphones and tablets that are taking banking innovation towards augmented reality, location-based services, contactless payments etc.

The most interesting contrast though, is that while the infrastructure of developed countries has enabled high-end innovation, it has mostly brought incremental change, whereas in the developing world, the absence of infrastructure has forced industry players to look for breakthrough, at times disruptive, solutions. The development and success of M-PESA, a mobile phone-based money transfer service in Kenya is a perfect example of the latter.

Customer Need

In many emerging economies, a sizeable majority of people are first or second generation banking customers and therefore, relatively new to such services. Therefore, the product and service expectations of these customers are quite different – and dare we say, less evolved – than those of mature market customers, which has a strong bearing on innovation.

Branch banking is a classic example of this difference. Bank branches located in emerging markets are mainly concerned with processing a large number of small-ticket transactions as efficiently as possible. They are interested in innovations that cut cost, improve productivity or ramp up scale at the branch. In contrast, branch banking is on the decline in mature markets, where customers use electronic channels to conduct routine transactions. In these markets, branches are focused on delivering financial advice and high-end services; therefore, their innovation priorities revolve around improving customer experience within the branch.

Legacy Burden

In a 2010 survey of banks in Europe, Middle East and Africa presented jointly by the European Financial Marketing Association and Finacle from Infosys, nearly two out of three respondents from the mature markets of West Europe said that inflexible legacy systems posed a barrier to innovation. Indeed, this is symptomatic of the banking industries of most developed nations, which are struggling to implement new ideas, hindered by their burden of legacy. For instance, in the U.S., the legacy infrastructure supporting card transactions is so widespread that replacing it in order to switch to new robust EMV card technology is both prohibitively expensive and extremely difficult to implement. On the other hand, adopting new technology is much simpler in the developing world, which is unhindered by legacy issues. Not only that, freedom from legacy has also allowed banks in developing countries to come up with unique products that were unheard of in the rest of the world.

Cost of Innovation

It is found that the cost of implementing a completely new system in the developing world is lower than that in the developed one. Often, the developed world has heavy investments in an existing technology and an inventory of infrastructure on which the return is yet to be fully realised. The developing world has no such legacy investment in infrastructure to worry about, and hence innovations are comparatively cost effective.

The tables are turned in the case of incremental innovation, which typically works around existing infrastructure or investments – available in the developed world, but not in the developing. Therefore, in order to adopt or innovate upon something that isn’t totally new, the developing world may first need to make sizeable investment in basic infrastructure.

Legal and Compliance Issues

Compared to emerging economies, mature markets face tougher legal and compliance requirements that could be a constraint while innovating. The former not only have a more permissive regulatory environment, but also less harsh liability norms, making it easier for banks to experiment, and if unsuccessful, withdraw quickly without suffering too much damage. This would not be possible in a country like the U.S., for instance, where there is a high likelihood of severe public backlash should an innovation fail. It is therefore no surprise that many multinational banks including HSBC, Citibank, and Standard Chartered pilot innovations in the developing world before taking them elsewhere.

What is common?

Differences apart, the two worlds do have some things in common. Both encounter similar challenges while trying to establish a culture of innovation, namely resistance to change, misalignment between business and technology teams, and lack of unanimity of purpose. Similarly, all banks in all markets face budgetary constraints, made worse by the financial crisis.

There’s another ‘peculiar’ commonality between developed and developing world banking innovation, which is that some ideas, particularly in the realm of payments, which are well suited to one world are quite irrelevant in the other. For instance, NFC technology, which has made a big impact in Japan – by enabling tap and go mobile payments – and is gathering momentum in many developed countries, is likely to be a slow-starter in emerging economies on account of the infrastructure that it calls for. Likewise, mobile money transfer, a super hit amongst the unbanked classes of Africa and South Asia, may gain marginal acceptance at best in say, Western Europe or Australia. Ironically, in their respective worlds, these mobile payment innovations are happening at break-neck pace!

Conclusion

While local and cultural variations will continue to create some differences between banking innovation in different countries (even McDonalds has a separate menu for certain countries!) for at least a while, connectivity and globalization will pull in the opposite direction to spread many other innovations from one part of the world to another, sometimes in real time. Therefore, in future it is more likely that an innovation will get picked up, replicated, adapted, improved and transported much faster than before. The consolidation and standardization of systems, processes and products by global banks will further this trend of global relevance. Also, much of the developing world will evolve into a developed state, erasing many of the differences that exist today. That being said, institutions that are rooted locally will continue to practice localized innovation as a way of differentiation.

TACT Program – Solving the Real Estate and Banking Crises is Simple

There have been numerous articles and books written on the theories or reasons behind the residential real estate bubble and its bursting in 2006, which led to what will likely be remembered as the Great Recession. I can add that I am not one of the parties that share the blame. I was living in Europe from 1994 – 2007 and did not even own real estate in the US during most of that time period! Chalk that up to luck, not prescience.

I would like to focus on what can be done to get out of this mess. The answer is surprisingly simple, although as so many things in life that are simple, it will not be so easy to implement due to the number of banks and organizations involved. They need to change or eliminate the policies, guidelines, and artificial barriers these organizations created to stop the free market from correcting the situation.

The easiest way to understand the solution, is to realize that a bank’s balance sheet is far stronger when it has a performing mortgage loan, rather than a bank owned (REO) property on its books. A REO property is in reality a liability to the bank, inhibiting its ability to borrow and lend. A performing mortgage loan is an asset that can be sold in the secondary market, or used to borrow against to make more loans. The situation is similar when a bank has a performing mortgage loan (even at a lower face value), rather than having a non-performing loan that exceeds the value of the real estate backing it.

In the simplest terms, the solution is for the banking industry to use some of the same strategies as real estate investors currently use since bank loans are not available. Investors whose livelihood depends on the returns they earn on their invested capital, do not wait until a buyer comes along with the ability to get financing. With few mortgage loans being made, there are very few such buyers. The investors package financing in with the property sale to have a competitive advantage. The only step the banking industry took in this direction over the last year was their proposal to allow former owners to stay in their homes as renters. The banking industry lacks property management skills, so they picked the worst strategy to try. The banking industry needs to focus on providing financing to sell the homes, not to get into the rental business.

I have been working on this solution for 18 months and so many naysayers told me it could not be done, that I initially believed them. Fortunately I heard about a gentleman across the country that had been working on the same concept. He had sufficient success acquiring bank owned properties from small local banks, that he started holding seminars on the topic. He coined the phrase “Bank Seller Financing” and pitches it as a great way to acquire properties. He appropriately cautioned that this was not a phrase that would get a positive reception within the banking industry, since “seller financing” was viewed as competition by mortgage lenders. I am indebted to Michael P. Watson and his seminar for rebuilding my determination to expand this simple solution to resolve a massive problem – the US housing market crisis.

Let me summarize the US residential real estate market issues, as if there was a US real estate market. In reality there are many sub-markets with varying degrees of these problems and opportunities. Detroit, Cleveland and Buffalo (where I was born & raised) are very different real estate markets than Las Vegas, Los Angeles, Phoenix (where now I live and invest), or most metro areas in Florida. The key issues are:

– property values have declined, in some markets precipitously,
– many homes are now below their mortgaged value, and far below their “market value” during the bubble,
– banks have too many properties they own due to foreclosure,
– banks are faced with many non-performing loans and the prospect of even more foreclosures,
– some counties (like Maricopa County where I invest) are sending out ridiculously low assessments for 2011 and scaring more homeowners into turning their keys over to their lenders, and
– with the current high unemployment rate the majority of people believe that real estate prices will continue to decline, despite evidence to the contrary.

As a case in point, I was shocked when investors at a recent meeting of the Arizona Real Estate Investors Association (AZREIA) were polled about whether they believed housing prices would fall further, are near bottom, or are rising. Approximately 75% felt they would decline, 14% said it was at or near bottom, and 1% (including me) felt they were rising. All of those investors have access to the same very detailed market data, so I was shocked how differently we each filter that data based on what the media and the gurus are saying.

Back to the issues, there is one key issue which is both the crux of the problem, and the crux of the solution. There is not enough money available to make mortgage loans to meet demand. Ask your friendly bank executive if money is available for mortgages and they will give you the party line – “yes, we are lending every day and have plenty of funds available”. Publicly available data on lending, current underwriting requirements, and government issued guidelines give a totally different answer. The truth is banks do not have sufficient reserves to make enough loans.

Since banks are not lending, hard money lenders and private mortgage lenders (like my company) cannot even meet 20% of the investor demand for loans, despite charging annual rates of 12-18%. If plenty of mortgage money is available, why do I get daily requests, far exceeding our capacity, for Private Mortgage Loans, Transactional Funding, Seller Financing, Contracts for Deed, and our Lease-to-Own program? Trust me, it is neither because of my good looks, nor because I offer rates below government subsidized bank loans.

Many people believe that demand for real estate is low, and that is depressing the market. The opposite is true in many markets. In the Phoenix market, sales in 2009 and so far in 2010 were on par with the peak years of 2004-2006. Pending sales are now at levels that make those earlier years look like slow periods. Incidentally, during the peak years the Town of Buckeye, where I live, was the fastest growing housing market in the US. By 2008 the bubble burst and about 90% of the properties for sale were distressed sales. Like the rest of the Phoenix market, sales now exceed the peak years, and I have prospective buyers asking for our financing help daily since they can’t get bank financing.

The solution to the real estate and mortgage crises is simple, and it is not new and stronger regulation. To the contrary, the more the government meddles the worse things will likely get. The banking industry, and I include the mother hens in FHA, Fannie Mae, and Freddie Mac along with the banks, need to eliminate the self inflicted policies they imposed and barriers they constructed after the real estate market collapsed. These policies are analogous to locking the doors once all the horses escaped.

I recently submitted a number of purchase contracts on bank owned (REO) and short sale properties (with non-performing loans). So to those that say there is no demand – I am ready and willing to buy hundreds of properties that meet my cash flow requirements, if the financing is available. There are another 100 investors like me in the Phoenix area flocking to the auctions, bidding on REO listings and on short sales. If financing were available, prices would be rising even faster than the 13% year-over-year increase we saw in April. That was not a misprint; Phoenix area prices rose 13% since April 2009!

Here are a few of the barriers to mortgage financing:

– REO properties require high reserves, inhibiting lending,
– non-performing loans require accruals and reserves, further inhibiting lending,
– bank REO, short sale and mortgage modification departments are understaffed,
– lending departments have policies to inhibit financing the sale of their own bank’s REO’s and short sales (notice the Catch-22),
– most mortgage loans help the bank selling the REO more than the one issuing the new loan (not a great incentive for issuing new loans),
– few investors and homeowners have FICO credit scores exceeding 720 (the new underwriting norm),
– individual investors, even those at the top of the Forbes 400 list are restricted to 10 mortgage loans in their name, regardless of assets, net worth and income,
– entities whether corporations or LLCs, as most investment funds are structured, cannot get mortgage loans regardless of their assets, profitability or book value, since those loans cannot be sold on the secondary market,
– bank executives are not aware of the conflicting policies they have put in place,
– too many separate governmental organizations regulate and “try to fix” the mortgage and banking industries, and
– there is intense pressure from the US Treasury for banks to buy T-Bills to finance the deficit.

To me it is very obvious from this list – banks do not have the money to lend due to their weakened balance sheets and reserve requirements. When distressed homeowners face this same dilemma, they reach into the bag of tricks investors use, selling their homes with seller financing, on a lease-to-own contract, contract for deed, or even turning over the deed “subject to” the investor taking over the payments.

Banking industry, meet the enemy – look in the mirror. It is time to heal thyself by implementing the TACT (Toxic Asset Conversion and Transfer) Program. Learn from and work with real estate investors and buyers to sell off your REO and short sale properties. You will strengthen your balance sheets and income statements, property values will continue to rise, fewer people will hand over their keys, and the real estate market will return to normal. This can be done in months, not in decades. For more detailed description of the TACT Program review other articles in this series.

Banking Industry: We have met the enemy, The enemy is us.

Bank Marketing: The Answer to Your Sales and Customer Relations Needs

Are you having trouble looking for the best marketing tools for your bank? Are you having difficulties establishing a niche and compete with rival banks? If yes, you are not alone because other banks out there experienced the same problem like you do.

What is bank marketing?

Bank marketing is the scheme used by banks to establish a niche, to increase customer base, to promote customer loyalty, to increase sales and to win over rival banks. Each company uses different sets of marketing tactics for maintaining existing customers, attracting new customer base and enhancing their reputation.

When designing a marketing strategy, companies should plan carefully and study their target market to know what tactics suit them best.

With the stiff competition nowadays, banks are looking for unique tools to get ahead and to attract new customers. Just like any type of business around, they must come up with an effective and unique marketing schemes to market and to promote their products and services. Majority of them offer the same products and services such as savings accounts, checking accounts, loans and certificate of deposits, thus, they find it difficult to convince customers and to differentiate their products from other banks. They have to come up with strategies on how to attract customers to bank with them.

Providing the same products and services are some of the challenges they have to endure and need to address. It is very challenging for them to find an effective marketing tool and to convince probable customers on the uniqueness of their products and services and to take a lead ahead of other banks.

All of them want to attract new and additional clients to avail of the products and services they offer. They have to decide which marketing strategy suits them best.

Below are different marketing tools suitable for banks:

  • Advertising – Banks used advertisements in radios, televisions, newspapers, magazines, yellow pages and journals in promoting their products and services.
  • Brochures/flyers – Some financial institutions used flyers and brochures to advertise their products. Most of these promotional files are placed near the deposit and withdrawal slips while some are given by marketing associates during product promotions. In some banks, flyers and brochures are placed in one corner and only interested customers pick and read them.
  • Billboards and banners – Some banks posted their unique services on banners and billboards.
  • Online marketing – Some banks promoted their products and services online.
  • Incentives – Some companies offer promotional products and incentives to new customers like discount cards in stores, giveaways and other items.
  • Public relations – It is the most effective means of promoting the banks services and products to new customers. Once clients are satisfied with the products and services that banks offer, they promote them to their friends, colleagues and relatives. Always remember that good public relations, quality customer service and praise worthy reputation are the primary reasons why customers stay in a particular bank.
  • Online banking – With the busy and hectic schedules and majority of us have, we prefer to bank with financial institutions which offer online banking services.

Aside from following the marketing strategies mentioned beforehand, banks need to be sensitive to the needs of their existing customers and probable clients.

Article Writing and Marketing- Bank Cash by Writing Articles For Others

In the field of article marketing research, or being a Internet marketing consultant you will likely deal with many different companies or individuals with articles for sale. It could really be worth your while to become the go to guy/gal with articles. These articles are used to generate web traffic to sites with affiliate internet marketing. Which in turn make a profit for the people who have products or services offered.

How do people get information on the internet? What methods are the most popular? Knowing this data is the basis of this type of consulting business and the base for an ad driven internet economy. I will outline the basics of article marketing research here for you.

Say your company sells water skis and you would like to have some internet advertisement done. It would be of little effect for your ads to go on to websites with litter box cleaning information. If you do not have an extensive budget for the online advertisements; then it is smart to be more particular about where your money is going.

How is this achieved? Most people use search engines to locate the information they need quickly and reliably. So if a consumer enters a search in for slalom water skis they can easily sort and find exactly what they are looking for. However it can cost money to be listed as a sponsor site with the top search engines. Other companies offer ghost written articles on different subjects for varying amounts of money. With these cheap articles written specifically to appeal to the search engine specifications, you can drive the traffic to your site.

Webmasters who specialize in article marketing research are paid by several different vendors to have advertisements on their pages. The traffic is driven to their sites and to their advertisements by the search engine results tailor made by the ghostwritten articles. Ghostwriters can offer their services on sites like Elance.com or Rent-A-Coder.com

How does this benefit the consumer? This process puts relevant information at their fingertips, while also putting the advertisements on their screens as well. This leads to a higher percentage of people who visit your site actually spending their money there.

This opens up the opportunity to be the go to guy/gal for articles. You can either write them yourself or pay an outside consultant a set fee for writing these articles. By using another person to write the articles it can  free you up with more time to market the articles you have bought. It also allows you to build up contacts with reliable writers who have a wide array of special interests.

With this combination you can be the go to guy/gal for articles and help drive profits up for you, the vendors, and the web masters. This also greatly benefits the consumers by saving them time. It is a win win situation for all involved.

How To Crack The Internet Marketing Bank (Driving Traffic)

Article #1 of 25

The internet has a wealth of information to all kinds of people. You can find things and research the internet to see was new and what’s going on in the world. For a marketer this is like gold because you can reach more people now than you could 20 years ago. Life it self is not changing it is the speed that is changing in our lives. We get thing so much faster that we forget to slow down and smell the roses. So we know that people surf the web everyday for one thing or another. As marketers we have to find out what they are surfing for and get them to buy from us. This is a game that is played on the internet everyday. So to get to my point you need to find away to drive traffic to your website. This causes several question to you, how do I do this, what am I going to sale, and who am I going to sell it too. OK lets get into it traffic is what you need for your website. Traffic is how many people are going to your website everyday.

Traffic is not that hard to do if you know how but as I researched on my own I have found out that it is hard to get started in this type of business you need help to do this. So you need to find someone to help you and I have found that e-zines are great for information they have people who do that very thing. So read those articles from experts that know how to do marketing. OK on traffic there is some free traffic sites that can help you get started if you go to Google search and type in free traffic it will pull up all kinds of traffic sites you can look at and register with.

But before you do this let me tell you a story about doing this and the mistakes I have made in doing so. When I went to these traffic sites I started registering in all kinds of traffic but I did not check my URL to make sure it is the right one. So all those sites I registered with were not working for me and I did not find this out until 2 weeks have gone bye. So I had to go back and fix each one but I could not remember all the ones I have gone to. So I when to my email to find the email they have sent me and I forgot that I did not set my email to save my email when I log out that was my second mistake. But it gets better when I went to the sites that I remember that I register to. I had to redo my URL and my traffic credits started over so to make a long story short 2 weeks down the drain. So make sure that the URL that you register is the right one and that your email is saved on each one you register. Don’t be like me and blow your time and get no where. I have learned from that mistake and gone on so when you make a mistake and think that you can’t do this.

Just remember that even we experts make mistakes too. I also got register with a traffic site that has a automatic refresh on it what that means is that it will refresh ever 18 to 25 seconds on your browser But you have to keep your browser open to do so. What I have learned to do is I will open my browser and start the traffic counter and then mimes it to my task bar. Task bar is the bar that is on the bottom of your screen in blue most of the time. But be careful some traffic sites have you click each time it refreshes. That’s why I like the automatic ones you can drop them down and work on other thing as well and still make credits for ads for yourself. This is a slow way of doing it. But if you don’t have the money for traffic this is away to get started and make some traffic for yourself. Then when you start making money then you can register to the paid traffic sites and drive more traffic to your site. But don’t just do this alone.

I will be doing 25 articles that will help the average person to understand marketing and how to get started with little or no money. Just remember with out money in your budget for advertising you will go very slow at first. So start hitting those traffic sites and start driving traffic to yours. I hope this helps you get started and keep looking for how to crack the internet marketing bank in the future for more help and tips.

Universal Banking – Answer For The Best Banking Design?

1.1 INTRODUCTION

In recent years, universal banking has been growing its popularity in Indonesia. Mandiri Bank, for example, has taken strategy to become Indonesia’s universal bank; this bank has also initiated to develop an integrated financial risk system in terms of sounding financial performance and increasing shareholder value. In Germany, and most developed countries in Europe, universal banks have initiated its operations since nineteen century. There is mounting evidence that in those countries, universal banks have taken an important part in the development of real sectors and the financial system. In those countries, the growing numbers of universal banking practices are really supported by the regulation of central of bank.

Despite, in The United States, they are strict to regulate universal banks by blocking commercial banks from engaging in securities and stock markets practices. They argued that the practice of universal banking might be harmful for the financial system. ((Boyd et.al, 1998) cited in Cheang, 2004) The “risk” might be the key reason why the central bank of The U.S is worried about the universal banking system. Since, if the central of bank allowed banks to adjust their operation to be universal banks, the relationship among, banks, financial and stock markets would be closer. Consequently, this would give an uncertainty to the banks condition and performance. For example, if there were a disaster in stock market, banks would get problems in their financial positions. Thus, they would tend to be insolvent.

In addition universal banks would also threaten the market share of other specialized institutions, because more customers would choose universal banks that offer more option to their investment. Hence, more specialized institutions are likely to be ruined in the U.S financial industry.

One majoring factor, which is triggering a bank to be universal bank, is to increase the profit by enlarging their market share. According to João A. C. Santos (1998) universal bank itself can be defined as the financial institution, which enlarges its service range in terms of offering a variety of financial products and services in one site. Thus, by operating universal banking, banks could get a greater opportunity to expand to another financial area, such as : financial securities, insurance, hedge funds and etc.

Although the trend of banks has recently tended to universal banks, it is undoubtedly true that universal banks would also face further risks because a wide range of financial services is strongly associated with increasing risks and escalating monitoring costs. These are the major concerns why banks have to implement more advance technology in terms of financial risk management. Moreover, the practices of universal banks would cause significant risks to economy’s payment system. Since, the operation of universal banks connects closely to the financial and stock markets that are very fluctuate in a short term.

To win in the tight competition among financial institutions, banks have to alter their maneuver to lead in the market. Universal bank could be the wise choice for the bank manager, because they can attract more customers with a wide range of services. Furthermore, by altering their operation to the universal banking system, banks would get benefits from the efficiency and economies of scale.

In order to understand about the universal banking practices, this paper would examine the exclusive matters, which related to the risks and benefits in a universal bank. Moreover, this paper would also focus the whole impact of this institution to the financial system and the economy as a whole.

1.2 PROFITS AND COSTS IN UNIVERSAL BANKING: IMPLICATIONS FOR INDIVIDUAL BANKS

General problem related to financial intermediation, include universal banks and another type of banks, is about asymmetric information . It is the main problem that causes costs to increase and influence the performance of financial institutions. In Universal banks, the problems that would increase are slightly different with specialized banks; they are similar in that they should cope the risks problem associated with their financial position. Although, in universal banks, the risks are more bigger due to the wide range of financial instruments that they organized. Therefore, banks have to increase their spending on monitoring costs that are more complicated than specialized institutions or conventional banks.

Possible answer why more banks sacrifice to the escalating risks and transform it operation into the universal banking is that they want to compete and expand their market share, in order to seek a greater opportunity profits by serving more choices to their customers. Many banks has experienced a great performance after they alter their operation, the main concerns are that they could reach better economies of scale which can reduce the amount of spending in operational costs and also a greater opportunity to get more profits. The research finding which was conducted by Vender, R. (2002, cited in Cheang, 2004) about the efficiency of revenue in financial conglomerates and the level of both profit and cost in universal banking, has proved that both financial conglomerates and universal banking contain good performance in several indicators of bank profitability. His finding also suggests that the sustained expansion of financial conglomerates and universal banking practices may increase efficiency in the financial system.

This opinion is strengthen by another experts, like : George Rich and Christian Walter (1993). They state that universal banks which posse benefits over specialized institutions, are able to take advantage of reduction in the average cost of production and scope in banking. It is essential for banks that operate on a international level and in order to fulfill customer needs with a variety of financial services. They also mention a classic example how universal banks in some countries, such as : Switzerland, Germany and more European countries has experienced benefits by operating universal banking. In addition, they also state that the fear if universal bank would threaten specialized institutions has not proven. In Switzerland and Germany, for example, specialized institutions could achieve a better improvement in terms of cooperating with big banks. Universal banks are one of potential market channel which can sell their products directly to the customers, so specialized institutions also get additional return due to the increases in the number of universal banks. Therefore, this proves that universal banks do not threat other institutions; in fact, they support specialized institutions to market their products.

According to Fohlin, universal banking would lead to a bank’s concentration due to the increases the number of branch. Based on Germany’s experience, such branching-based expansion has led to the efficiency in banking because it could increase economies of scale in advertising and marketing, and open an enormous opportunity to enhance diversification and steadiness for banks.

A universal bank has unique position to tackle asymmetric information. As stated by Joao A. C. Santos (1998), that a universal bank has potential benefits on the reduction of agency cost and acquires profits due to information advantages. Although in other sides, universal banking also face problems related to the cost, conflict of interest and safety and soundness. But the default risk, which is generally happened in financial intermediation, would decrease substantially because universal banks are easier to control over their customers. Most of lenders in universal banks are their customers, so they can understand about the capacity of the customers from the information that they gather.

Nicholas Cheang (2004) also points out how universal banks could reduce a crucial problem in financial institution, asymmetric information. He argued that they could preserve a close relationship with their borrowers, by gathering more relevant information to make an important decision for investment. Their advantageous positions also vital to optimize the distribution of fund allocation, because banks have already known which investment that would give more margins to them. So, they don’t need to worry too much about the risk.

1.3 UNIVERSAL BANKS AND THE STABILITY IN THE FINANCIAL SYSTEM

Financial institution plays a vital role in terms of mobilizing funds in the economy. Consequently, stability in financial system is really important to manage by government in order to prevent wider implications to the real sectors. Financial disasters which happened in most countries in Asia in 1997 are the classic examples how importance to save banks to recover the economy.

As the financial supermarkets, which are handling a variety of financial instruments, they must face a greater risk than specialized institutions. As a consequence, this institution needs to be monitored closely in order to prevent more implications to the economy. According to Benston (1994), the escalating risks in universal banking would lead to a great problem because it can cause generous distress in the financial system. Hence, it will greatly increase the risk to the economy’s payment system. In another term, Rime and Strioh (2001) who examine the financial system in Switzerland in which universal banking are becoming more important in this country, state that difficulty in monitoring large universal banks is a major concern. This is the reason why universal bank has to spend more money in monitoring cost and develop an advanced system in information technology. In other words, it could say that the consequence of inefficient monitoring could lead to financial instability. (Cheang, 2004)

A wider range of universal banks in financial system makes the fund channels of banks to the customer are larger than specialized institutions. So, the economy will improve because universal banks will support more funding. This can be seen by the fact that a universal bank practice in Germany has triggered the progress of some enterprises performance in this country. (Stiglitz, 1985). It is understandable that when the allocation of fund can distribute widely and effectively to the potential enterprises, the economy will improve. In this context, universal banks have played as the key institution which mobilize fund to the potential lender.

Edwards (1996), has also proved that a universal bank is not just significantly contributed to economy from the external funds that they provide, but also from the improvement of the information flows. (cited in Cheang, 2004) Therefore, this proves that universal banks have played a significant role in terms of reducing the default risk by providing important information about the lender or customers. Furthermore, the safety of the financial system would be improved by the existence of universal banks.

1.4 CONCLUSION

The development of universal banks has to in line with the policy direction of central bank, because it is important to keep the stability of financial system and the economy as whole. There are three important areas that must be concerned related to universal bank operations, such as : the strengthened of capital and advanced risk management system. Consequently, in order to manage universal bank, people need to be aware about the unique of the risk type in universal banking. Furthermore, policy maker must also consider about the implication of universal banks in financial system.