The NAICS code 522110 is for the banking and credit union industry. The current trends of banks and credit unions are renewed focus on risk management, electronic fraud and identity theft, and branches get makeovers. Financial institutions around the globe have renewed focus on risk management after the global financial crisis. Nowadays there are new principles and regulations put in place to mitigate risk of future failure of mortgages and mortgage-backed securities. The banking industry is no stranger to electronic fraud and identity theft. Hackers and scam artist steal personal information from social media websites to gain access to commons accounts, thus stealing money. Banks now are increasing security to prevent fraud and gain relationships with consumers. In the trend of branches get makeovers, banks and credit unions are closing branches at numerous locations and leaving an automated presence to continue financial transactions. In this transition, nearly two million jobs will be lost between now through 2025 and replaced by smart phone applications, personal computers, and smart automated teller machines with video capabilities.
THE TRANSITION
The evolution of smart banking has arrived. Ever since the internet was commercialized in the early 1990’s, banks were strategizing how to provide online services in order to reduce operating cost. Fast forward to today, financial institutions are transitioning toward reaping the rewards of the latest innovation and technology. The trend of banks moving forward with technological change downsizing physical locations in order to save on operational cost is the survival of countless financial institutions. This in turn offers up-to-date customer service as well as better distribution of wealth to customers and businesses. Many simple transactions are completed online with smart phone applications, personal computers, and smart automated teller machines. Looking forward to the future, banks and credit unions are also developing industrywide standards for blockchain technology that will revolutionize the global financial industry as we know it. Blockchain technology will have the capability to move mass amounts of money from one global economy to the next quickly and at the fraction of the cost of today. Even though online banking provides many incentives, there are vulnerabilities that must be considered.
OPERATIONAL COST
DOWNSIZING LABOR
To no surprise labor is mostly always the first fixed cost to be downsized. Financial institutions are lightening the load of paying employee salaries, health benefits, sick leave, paid vacations, and pensions. According to new Citi Global Perspectives & Solutions report, “personnel in the banking industry will be reduced 30% from 2015 through 2025” (Crowe, 2016). Citi also states that over the next decade the banking sector in the United States and Europe will lose 1.8 million jobs (Crowe, 2016). This is due to smart banking technology that is currently shifting the focal point of interaction between consumers and financial institutions to modern methods of automation.
CLOSING BRANCHES
Many top-rated banks and credit unions are closing several smaller branches in local communities and reconsolidating to prime locations in order to save on fixed and variable costs. This ultimately comes down to meeting profit margins expectations and bottom lines set by CEO’s as well as staying competitive economically in the financial industry while pleasing shareholders. This is because 25 to 30 percent of branches are unprofitable, which estimates to more than 10,000 branches nationwide (Marous, 2014). This is especially prevalent in the poor and middle-class areas across the nation, which justifies modern methods of smart banking to areas of unprofitability due to economic troubles. The opportunity to reduce cost of renting building space, employee salaries, utilities, and additional security is vital for long term success and rationalizes the cost of closing smaller branches ranging around $500,000 each (Marous, 2014). This entices larger financial institutions to reconsolidate in areas of wealth to maintain a presence and profitability.
BENEFITS OF SMART BANKING
FINANCIAL INSTITUTIONS
Banks and credit union are taking full advantage of technological advancement and moving forward with modern banking, which benefits all economic classes of poor, middle, as well as the wealthy. Online banking and credit unions are able to attract more of the market by being more competitive than traditional financial institutions by providing better incentives due to the lack of infrastructure and operational cost (Beers, 2018). These incentives include higher interest rates on certificate of deposit (CD’s), lower mortgage rates, as well as lower interest rates on several types of loans: most online banks offer interest rates six times higher than traditional financial institutions. Online banks and credit unions require less money to open accounts as well as little to no fees maintaining accounts (Durisin, 2013). Additionally, today’s younger generation is relying more on online banking because of how quickly transactions are completed as compared to traditional walk-in financial institutions (Durisin, 2013).
BUSINESSES
Businesses are going fully automated due to the convenience of depositing money anytime throughout the day digitally from the work place. This enables companies to be ran more efficiently due to elimination of time consuming task such as traveling to banks and waiting in line. Companies also have the convenience to monitor account activity more closely anytime from anywhere there is internet access. Businesses are able to link accounting software such as QuickBooks to online bank accounts (McGrath, 2018). This accounting software makes operations of cash flows easier allowing multiple accounts to pay bills, account receivables, and transfer funds between multiple accounts with fewer errors.
CONSUMERS
Every year it seems consumers have more automated features and services offered free of charge by banks and credit unions. These transactions are able to be completed over the internet by smart phone applications, personal computers, and smart automated teller machines. This leaves open access to checking, savings, and other accounts around the clock to include weekends and holidays, which gives more autonomy to consumers over the handling of their money. Consumers no longer need to spend the time traveling to banks for every financial transaction as consumers are now able to conduct several transactions anywhere a Wi-Fi connection is available. For example, checks are now able to be deposited by way of eDeposit, simply take a picture of the front and back of the check with a smart phone and upload it to the checking or savings account by using smart phone applications or by using personal computer (Durisin, 2013). This same simple transaction can also be done at automated teller machines by signing the back of the check, choosing the deposit option, and insert the check into the machine. Most top-rated banks and credit unions have automated teller machine network agreements with local financial institutions that have a physical presence for consumers as an option to conduct financial transactions with little to no surcharge. Sending checks by mail is a thing of the past as most banks and credit unions offer automatic payment services. This is also economically and ecofriendly. This service is able to release funds in order to pay for bills such as mortgage, utilities, car payment, trash pickup, etc. at the exact price on time until manually stopped.
REVOLUTIONIZE THE FINANCIAL INDUSTRY
The world’s largest financial institutions are searching for answers on how to send large amounts of money and information faster, cheaper, and more secure than how it is done now. Many experts in the financial field believe blockchain to be the answer they have been looking for. Blockchain technology will revolutionize the financial industry in these sectors: clearing and settlement, syndicate loans, payments, trade finance, and identity. Investment banks realize blockchain technology is able to save an estimated ten billion dollars annually in operation fees from recorded loans and securities in the clearing and settlement sector of world market exchanges (Arnold, 2017). Central banks around the globe are experimenting with blockchain technology to revolutionize current payment system and create digital currencies for financial markets. Even though several central banks from around the globe are involved, there is a lot of hesitation to move forward due to lack of understanding and potential security issues of blockchain technology. Even though there is a lot of risk, Switzerland’s UBS has created a digital currency “utility settlement coin” indented to be used in financial markets that is backed by funds at central banks (Arnold, 2017). Syndicate loan, trade and finance sectors in the financial industry that sends and receives trillions of dollars on a daily basis. These sectors are in need of modernization to replace the current system of paper base processing of documentations, stamps, fax’s and post mail into digital utility. Blockchain technology is also being used in the identity sector because of the ability to easily identify customers as well as protect and maintain biometric identification information with cryptographic protection (Arnold, 2017).
WEAKNESSES OF ONLINE BANKING
Even though online banking is very convenient, there are still several weaknesses that discourage its use. For some, a discouraging effect of online banking is not having the opportunity to develop personal relationship with the local financial institution (Beers, 2018). This is due to online banking not allowing any flexibility for anyone under any circumstance, and lacking a personal touch of sympathy. Complex transactions need personal interaction with bank personnel, but due to lack of physical locations this can be costly by traveling further or dealing with associate banks with network alliances that will charge additional fees. The most prevalent threat of online banking from hackers phishing, sending malware, and other unauthorized activity to steal personal information to gain access to online checking and savings accounts (Beers, 2018).
Conclusion
In conclusion, today’s modern banking benefits not only financial institutions economically, but consumers and businesses as well. It makes economic sense to close banks in areas that are not profitable and leave a digital presence that is more ideal. Consumers and businesses must embrace the transition from personal interaction to automation. The opportunities of online banking are beneficial economically in the since of saving time, money, and in some cases earning money at a higher rate. Central banks will use blockchain technology in the near future to not only save time, money, and resources but to modernize operations of global markets. Technology allows us to operate our lives more efficiently.