Question

What do you think the Financial-Services industry will look like 20 years from now? What are the implications of your projections for its management today?

Answer 1

A financial system is defined as a system composed of net lenders, net borrowers, and financial intermediaries. The financial intermediaries are the entities that provide help to facilitate transactions between the net lenders and net lenders. The financial intermediaries are composed of banks and financial institutions, insurance companies, and asset management companies.

Commercial banks as of today offer a wide variety of services. The banks now provide consumer loans, thrift deposit services. They have ventured into financial advisory services and cash management services, leasing on the equipment, startup, venture capital funding, retirement plans, and selling insurance policies. They also offer brokerage services, merchant banking as well as services on risk management.

The banks and the financial intermediaries exist in the current society to facilitate transactions between the net lenders and the net borrowers by raising monetary claims on themselves. They ensure that people who need financing receive the money from the savers of the funds who save the money and are looking to earn some interest. They provide that the transaction costs happening between the two parties are reduced substantially.

The banking industry has transformed into a riskier and more volatile type of industry as there is bending of rules and deregulation. It has resulted in the creation of departmental financial stores and financial marketplace. Due to intensified competition from non-bank financial companies and pressures, there have been increasing and enhancements in banking services.

Additionally, there has been a rise in customer expectations and their demands which has made banks provide additional and secure services. With the enhanced competition, foreign banks can establish their base, entering overseas markets and attracting foreign business and household accounts.

Due to the pressures on the banking industry and intensified competition, it has reduced and thinned the bottom lines of the financial institution as there is pressure on the earnings and its stability. There has been increasing in the failure of the banks, and stockholders are earning volatile returns from the financial institutions. There has been shrinkage in the banks' market share. Banks' role has seen diminishing effects due to the intensified competition and restrictions in the regulations incorporated by congress.

Therefore, the banks have resorted to an innovative approach in terms of service offerings and establishing new ways of funding that require comparisons of the transactions in the balance sheets. Due to enhanced risks in the banking industry, the managers have adopted aggressive tools and techniques to stabilize and strengthen earnings with efficient and sophisticated designs on risk management.

As described above and citing the time frame of 20 years, the banking industry is moving towards convergence and consolidation, resulting in the availability of a lesser number of financial service providers. These financial service providers would be accountable for providing a broad range of financial services.

With the global expansion being the key for financial service institutions' survival, there would be a rise in diversity of the talent, and the management would make more technological advancements and make strategical decisions facilitating mergers, acquisitions, and expansions at the global levels.