The financial sector worldwide is taking the sub-prime crisis as an opportunity to become more efficient, having already invested heavily in technology and communication systems, strengthened their security systems online and trained staff to monitor their online transactions, they are now closing branches and directing their customers online.Banks, insurance companies and other financial institutions have for a very long time had plans to use the internet to reduce costs, knowing that the majority of their present and future customer-base are and will be technology savvy. Many customers avoid lining up in front of a teller opting for the automatic machines instead and would prefer to bank using their phones. The caution has been for the heads of this very conservative sector to understand the risk to reward.
One must firstly understand how financial services are designed, noting that all services are most likely to be offered under the same company name to take full advantage of economies of scale and brand recognition. Banks are basically auditors verifying each transaction between two parties for a fee. Insurance companies and re-insurers measure and spread the risk, investing premiums collected (mostly into long-term real estate projects) to generate more returns than it pays out as benefits. Other financial institutions either use investors’ or depositors’ funds to buy financial instruments (a mix of stocks and bonds) or lend to borrowers, always for a fee. Secondly, the financial sector prioritizes its customers by the least cost for the most fees; governments and quasi-government agencies, large business, high net-worth individuals, medium business, small business and finally the working class (whose pay goes in to and comes out of the bank on the same day).
The roll-out of online financial services started as much as ten years ago, firstly to governments and large business customers, who were then only able to view their statements online and use the telephone to transact business. Since then many customers can open business and personal online accounts, transfer between accounts, pay utilities bills, manage standing orders and even get debit or apply for credit cards to be used at automatic machines to get cash and for purchases at retail stores worldwide. Now there are full banking, insurance and other financial services online available to any business or individual who can meet the criteria to operate a traditional account. This soft roll-out was to test the system and limit any negative news and possible legal implications.
Now, with many cell phones and small portable devices able to access the internet from anywhere and therefore access online financial services, many banks are choosing to promote their online services under a different name to protect their existing brand. This is because these small portable devices can be much less secure, both physically as well as its software and passwords, so the risk is higher and the cost has not gone down. To reduce the cost many financial institutions have been closing branches starting in developed cities and making staff positions redundant. Presently, with the negative clouds that started with “sub-prime” over the entire global sector, they are speeding up the process with massive job cuts, in a bid to improve efficiency in the face of falling revenues and massive asset write-downs.
As usual the Regulators are being left behind as many transactions such as, international trade in bonds, can take place unchecked across numerous legal jurisdictions.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
