Cashless society, international expansion of commercial banking and financial innovation
Possible gains and potential detriments of a “cashless society” for the banking industry
A cashless society refers to a society in which transactions are carried out without the use of cash. In this type of society purchases of products and services are done through the methods of payment apart from cash. The methods of payment in cashless society include credit cards or electronic means among others.
A cashless society comes with certain gains as well as detriments.
Gains of a cashless society
In a cashless society, instances of mugging and other theft cases are reduced. Money is known to attract muggers and thieves, especially on its way to the bank. Therefore, since everyone knows that people do not walk around with money, the motivation to way lay people reduces (Emerson 2007). This ensures that the level of security is increased. This will lead to the banks receiving more deposits since no money is lost on the way. The banks will also enjoy from the fact that cases of robbery are reduced. This is because bank robbers will have no point of storming banks for cash.
Secondly, a cashless society helps the government in tracing crime cases. This is because the use of other means of payment in a cashless society such as electronic transfers can be easily followed. This will make the police catch up with criminals easily through the use of the banking systems to do it. This will absolve banks from allegations of facilitating financial crimes.
Additionally, a cashless society helps in increasing the efficiency of certain institutions like banks. This is because the use of cash is usually tedious and complex. With the elimination of cash in transactions, the process of service delivery becomes efficient for the banks as well as clients.
Another gain from a cashless society is the fact that it helps in reducing cost associated with cash. Costs related to insurance of cash and making of cash safes are done away with (Drogendijk & Hadjikhani 2008). Additionally, costs associated with guarding and transportation of cash from one place to another is done away with in the banking industry.
Disadvantages of a cashless society
This type of society makes the illiterate people face challenges when transacting. This is because some of the means used for payment are not easy to understand. This will reduce trade activity between the banks and this group of people in the society thus reducing revenue and profitability.
Secondly, a cashless society reduces transactions in the geographical areas where the means of payment in cashless societies are not applicable. There are remote areas where electronic funds cannot be used since the resources are not available. This will exclude such places from vibrant business transactions. This means that the banks will lose on the transactions which would have come from such areas.
The advantages and disadvantages of “international expansion of commercial banking”
Advantages of international expansion of commercial banking
Expansion of commercial banking to the international arena comes with certain advantages as well as disadvantages. One of the benefits of international expansion of commercial banking is the acquisition of a larger market share. Banks are able to acquire new clients from all over across the globe. This is a good way of ensuring that the revenue of the banks goes high.
The other advantage of international expansion of commercial banking is the creation of larger capital base for the commercial traders. This is because financiers from across the world converge in one platform to offer the services. This creates a large pool of capital for those willing to benefit from it.
Disadvantages of international expansion of commercial banking
It becomes very difficult to carry out comparisons in the international arena. This is because the factors surrounding commercial activities and banking in different parts of the world vary widely.
The other disadvantage of international expansion of commercial banking is the facing of stiff competition from other non-bank financial institutions. The banks going international are usually under strict banking rules which are not the same as those of non-bank financial institutions. This means that the banks will be required to employ more resources than these other institutions. This means that the capital of the banks is affected in a big way.
International expansion of commercial banking leads to the loss of benefit from the home country to countries where rates are higher for the bank (Cameron 1995). The commercial traders in the home country of the banks are ignored to the benefit of those in countries where the banks are able to enjoy handsome returns in terms of interest rates. This is a negative aspect which is likely to cause a slump in the countries commercial trade sector.
The merits and drawbacks of “financial innovation”
Merits of financial innovation
Financial innovation has been part of the things that make the world’s economy tick. The merits and demerits of financial innovation have been measured with consideration of whether it is good or bad.
One of the merits of financial innovation is moderating business cycles. Some financial innovations such as credit cards are known to make the spending trends of people remain under control. This is because they allow people to spend within their levels even if they do not have enough income at a given time.
Financial innovations are known to reduce the costs associated with carrying out transactions. With innovations such as mobile banking, the cost of handling transactions has been able to reduce tremendously. With mobile banking journeys to places of trade are reduced since an individual can transact from wherever he or she is. This means that flights and fuel costs are done away with. This helps in empowering the society economically.
Financial innovations have also been able to create efficiency in places of trade such as shopping places and banks. In the case of banks, the emergence of the Automated Teller Machines has been the best innovation ever. This has helped in reducing handling of customers in the banking halls physically.
Financial innovations have also been able to reduce cases of fraud in the society (Arteaga, Arbelaez & Jeffus 2007). This is because most financial means of payment created through innovation are able to keep proper records. Incase of any claims, it is possible to generate the necessary reports for response. This makes fraudsters wary of pulling certain moves since they know they would be caught up with.
Drawbacks of Financial innovation
Financial innovations are also known to bring about certain disadvantages. One of the disadvantages of financial innovations is the crumbling of the intended purpose. For example, in the 2008 banking crisis, the innovation of the subprime mortgage instrument led to people losing their homes acquired through it. This makes people weak economically.
Secondly, financial innovations may lead to systematic risks (Krumm 1998). This occurs where a financial innovation grows rapidly and people trust it. This makes them forget about the risks that occur only during financial difficulties.
References
Arteaga, J, Arbelaez, H, & Jeffus, W 2007, Cross-Border Investment in the Latin American Banking Sector, Value Creation in Multinational Enterprise International Finance Review, 7.
Cameron, C 1995, Universal banking and US banking in the 1990s, International Journal of Social Economics, Verlag.
Drogendijk, R, & Hadjikhani, A 2008, “Internationalization of bank enterprises in new emerging markets: the case of penetration and expansion into Eastern European countries”, International Journal Business and Emerging Markets, John Wiley & Sons.
Emerson, R 2007, Banking Strategies in the UK: A US Perspective, International Journal of Bank Marketing, Cengage Learning.
Krumm, P 1998, Consequences of modern banking on facilities and corporate real estate management, Facilities, John Wiley & Sons.
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