Corporate Finance Tutorials
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Banking is one of the most sought after sectors to have a career in. As given by Research and Markets, the global banking industry is expected to reach US$163,058 billion in 2017 with a CAGR of 8% over the next five years. Though the banking industry has slowed down a bit due to the debt crisis that challenged several major economies still it has a long way to go in terms of fetching ample profitability. The factor that majorly led to sustained profitability is the dichotomy in the growth of developed and emerging markets. The banking industry of the emerging markets showed promise even during the worst crisis that jolted the whole world taking the whole banking industry in its ambit. The banks in the developed markets however, were worst hit by the debt crisis and sustained huge losses.Even in the current scenario, it is expected that the driving force behind the global banking industry would be the emerging markets. The growth of assets of top 1000 banks has slowed down to 2.7% in the post crisis period of 2008-2010 whereas, during the pre-crisis period of 2006-2007 the banks clocked double digit growth.
Current Scenario in Banking Industry
The global banking industry is dominated by Europe which holds 43% of the total market share of the banking industry worldwide, but in terms of growth during 2006-2011, the Asia-Pacific banking industry outgrew both the European as well as the North American regions.
Primarily countries like India and China with massive population and rising per capita income offer immense opportunities for the banking industry to flourish in these regions. Rising household incomes and consumer savings with investment in the banking sector will pave the way for a higher growth trajectory in the times to come since they provide ample opportunities for global banks compared to the U.S and Europe which are anticipated to register sluggish growth.
Due to the debt crisis of 2008, the industry has been more careful with its regulations in particular pertaining to capital adequacy ratio and risk management. The laws are more stringent now to safeguard the interest of the customers as well as the banks so that such inconceivable catastrophe doesn’t hurt the growth prospects of the banking industry in future.
The debt crisis jolted the banking industry to its core with shaken customer confidence, hence improving the operational efficiency has become the need of the hour. Banks globally are investing huge sums in upgrading their technological platforms so as to provide seamless banking experience to their clients along with stricter norms to regain and retain customer loyalty.
Worldwide banks are focussing on the following aspects of banking which can be clearly seen as the upcoming trends in the global banking scenario.
Emerging Markets Focus
Emerging markets of Asia-Pacific namely India and China have enormous middle class base that has the disposable income to be invested. Banks globally are making their presence felt in the emerging markets which serve as growth hubs for the global banks.
A study estimates that by 2030 many emerging markets which are on the growth trajectory would have reached their full potential and would turn into mature markets. The current mature markets would be replaced by these burgeoning hubs of banking industry progression.
In Asia, Africa and Latin America, the global banks will have to carefully tweak their services as well as regulations depending upon the local needs and requirements. The developed markets are technically advanced whereas in these emerging markets the banking penetration is still low and with the introduction of smart phones banks have a lot of opportunities in terms of higher level of penetration through mobile banking platform.
Many Asian banks are investing huge sums of money to take advantage of the growing smart phone user in these countries. In fact, in South Asia alone the mobile banking transactions have already crossed a billion in a year, in fact in the year 2013, emerging markets contributed 60% in the mobile payment transactions.
Customer Relationship the key to good banking
Customer relationship took the maximum hit in the global debt crisis, hence it is imperative that banks have become extra cautious and vigilant when it comes to retaining their customers. With stricter norms and monitoring banks globally are aiming at more personal and fulfilling customer relationships with greater trust and loyalty.
Customers now want more transparency in their banking relationships with a lot more control on their financial information, it is estimated that to keep up to the current trend in the future as well the banks will have to deepen their customer relationships not only via having a deeper share in their wallet but also by strengthening personal connections through information derived from data analysis techniques.
Moreover, it is also estimated that by 2030, the demographics of banking population would have completely changed. Banks will have to innovate newer business models to encompass the needs and requirements of the more urbane and elderly demographics.
Next Generation Banking Solutions
Over the decade there has been a rapid increase rise in the young consumers that are comfortable with using internet services and mobile applications which makes it essential for banks to invest in remote banking solutions. Switching over to technology platforms reduces the operational, infrastructural, maintenance and energy costs for the banks hence increasing their profitability along with providing enhanced customer experience and personalized services which promise of greater reliability, enhanced security, improved flexibility and functionality. In the times to come such remote banking solutions will be a must have function provided by each and every bank rather than being a good to have feature.
Business intelligence in transaction monitoring
Increase in the role of Business Intelligence (BI) and analytics in transaction monitoring is the need of the hour. With shrinking profit margins and infinite competition, banks have realized, that to gain a competitive edge amongst its contemporaries, they have to analyse the already available consumer data which is at their disposal. Every customer when makes a transaction, whether it is purchase or investment related, is recorded in the banks’ systems. Such data can be appropriately analysed to derive useful information about customer preferences, thus providing need based and apt solutions to the customers be it investment product or mortgage related. It is also the key component of consumerization by helping in development of products and solutions pertaining to specific consumer needs.
Not only does BI provide real time analysis which can be used immediately, but also unifies the information spread across various IT systems. BI is also useful in prevention of fraud by establishing a pattern of activity for a customer, any deviation from which can be easily traced.
Establishment of payment hubs
Technological advancement has been responsible for the birth of non-bank Payment Service Providers (PSPs) mushrooming at an alarming rate, offering mobile banking services. Hence it becomes imperative for banks to establish their own payment hubs which not help them in generating revenues and reducing costs but also streamline their payment systems spread across multiple channels.
Customers now-a-days demand anytime anywhere payments which are cheaper as well as quicker without compromising on their financial security which has been a major concern post the crisis. Payments form a major percentage of a bank’s revenue hence even banks find it easier to manage payments through an enterprise level rather than managing through multiple payment engines. It results in being more manageable and efficient for the banks, alongside providing them with better business opportunities and enhancing the customer experience accompanied by risk reduction for the end consumer.
The banking industry is segmented into retail, corporate and investment banking along with asset and wealth management. In all these the retail banking is expected to outshine owing, to the most essential and basic set of banking services it provides to the clients. Let’s understand the career prospects available in the retail banking space.
Job Profiles in Retail Banking
Tellers are generally the entry-level positions in a bank. They are the ones in direct contact with the customers tending to their requirements be it cash deposit, cashing checks or handling customer queries and service related issues. Teller jobs offer career progression in the form of head teller which is a supervisory role and requires training of the team and coaching them for operational transactions. You can also be promoted as the Branch Manager of the branch if you show promise. Tellers also play a major role in risk management by controlling any likely frauds. An average annual pay check of a teller amounts to $26,410.
Loan Officers play a key role in the banks’ growth since loans generate revenue for the banks. Junior loan officers can originate automobile loans and unsecured products like credit cards. For originating home loans as well as business loans, the loan officer has to get himself registered with the National Mortgage Licensing System and pass a background check. Loan officers are salaried and are responsible for opening transactional accounts as well like checking and savings account. Most banks also employ mortgage lenders who are commission based. According to Bureau of Labor Statistics, an average loan officer earns an annual pay of $56,490.
Investment officers are not directly employed by the banks. They are the representatives or licensed brokers in the banks who sell mutual funds, stocks and other securities and are generally employed by a division of the holding corporation that owns the bank. They are paid remuneration in the form of commissions whereas the bank employees receive pay for customer referrals. Most banks also want their employees to pass a series of federal licensing exams and become a licensed employee, thus earning salary as well as commissions for securities sales. Most banks prefer business or finance majors for such roles who earn an average annual salary of $70,190 according to BLS.
Insurance representatives like their investment counterparts are not directly employed by the banks but by the holding corporation owned by the bank. They make commissions on the life insurance, annuities and health insurance policies whereas the bank officer earns pay through customer referrals. Oft times to attain the branch goals for selling annuities the banks want their staff to obtain the license, by passing a state licensing exam and contribute towards annuities sales. Commissions for insurance representatives are not capped which translates into unlimited earning potential but the BLS reports that an average annual of $46,770 is earned by the insurance representatives.
Auditors are responsible for reducing operational losses faced by a bank hence in-house auditors are hired by the banks to keep a check on clerical errors and frauds. These auditors are generally experienced tellers who know the operational nitty gritty of the bank and can detect a fraudulent activity by monitoring bank operations. High-level auditors are Certified Public Accountant(CPAs) who have a college degree in accounting and finance and audit whole banking divisions. CPAs are also appointed by state and federal agencies to work as bank inspectors and keep a check on a bank’s activities and also have the power to declare banks insolvent. According to BLS, average annual salary of in-house auditor is $70,130.
So if you are a graduate in accounting, mathematics or even PR, a career in banking can be your ultimate choice for a lot of reasons which include job security and flexibility, to having a global career or even for the volume of money you can earn with a career in banking.
A bank will always be in business because it serves the basic financial and economic requirement of any country, moreover, like any other organization it has a lot of departments from law, taxation, audit, retail et al, hence it is believed that a switch within the same organization which has a vast array of professionals is comparatively easier.
Another pertinent motivation to opt for a career in banking is the money it offers to its employees along with financial security. With an experience of a couple of years a hardworking employee can not only rake the moolah but can also have international opportunities considering how globally international the industry is.