Banking Industry in UK - Coursework Example

Introduction Banking industry in UK is going through high cut throat competitions. Day by day numbers of retail bankers are increasing in UK industry. It is very important for any retail banker to understand future dynamics of the retail banking industry to gain sustainable competitive advantages. That is why this area has been chosen for the discussion. It is being observed that banking distribution channel in UK has undergone several reforms and in upcoming years also this area will undergo several changes and new ideas. All those new ideas and changes will change the banking horizon in the country. That is why this area has been chosen for the purpose of analysis or discussion. Apart from the banks there are lots of other financing sources are present in the market. Those alternative sources are gaining popularity in a high speed. All these other sources of funding have given significant challenges to the retail banking sector and the trend will continue in future also. Analysis Impact of increased competition UK retail banking industry is no longer monopolised by the only four or five banks. The scenario has been changed quite a lot. It has serious future impacts on the industry (Claessens, 2009). As the competitions will rise retail bankers will battle hard for increasing their market shares. In the course of that various players in the industry will come up with more and more innovative ideas (National Audit Office, 2010). They will incorporate more technological advancements into their business operations to serve the customers in unique ways. UK Government has initially pushed for more competitions in the banking sector for pumping more credit into the country’s economy (Claessens, 2009). Emerging banks will grab these opportunities with both hands and they will make existing banks run for their money. New banks are emerging in the markets with new ideas, making the situation more competitive in nature. On the other hand it will provide great financial efficiency in the market (Harrison, 2014). The overall scenario will no longer be confined with some particular recognised banks in the country. According to the perfect competition model of banking industry, bank is a price taker and always equalises the margin of intermediation to the marginal management costs. Consequences Consequences will be simple banks will provide more easy loans to the customers and always will encourage the customers for taking loans. Increasing competitions will have significant direct consequences on the both loan and deposit rates. With the increasing competitions banking services will evolved a lot. All the new emerging banks will go for more and more customize services for the customers. It will create significant challenges to the traditional banks and all those traditional banks will have to adjust their business operations to stay competitive. According to various reports one thing is significantly clear that there is positive relationship between economic growth and competitions in the banking industry. It is often being noticed that in the cases of monopoly banking industry, bankers always try to store high credit and always charge lower deposits rate and higher loan rate which is not at all good for the overall economic situation. Increasing competition will change this situation in the UK retail banking industry. New emerging banks will give significant focuses towards the relationship banking. In future, to share emotional relationships, banks will invest more in the relationship management. According to the statement of the RBI Governor, newly emerging banks will have far more easy accesses to the low costs finances. Highly competitive business environment will certainly reduce the profit margins for the existing as well as the new banks. It will make big banks more conservative in their business operations. On the other hand new banks will come up with desperate attempts to make their marks in the market. Due to cut throat competitions retail bankers will invest into the far more risky projects to gain more profit which can be counterproductive for them as the risk of getting defaulted will be high. Challenges faced from alternative sources Currently retail banking sectors in UK are facing significant challenges from the alternative sources of financing (Buckle, Buckle and Thompson, 2004). If everything remains same the current trend will carry on into the future also. In UK there is a common perception that commercial banks do not want to lend money. This perception will create lots of challenges for the retail bankers in UK market. After the collapse of Lehman Brothers, commercial banks of UK have become stricter in terms sanctioning loans for financing businesses. On the other hands alternative sources are quite liberal in case of sanctioning loans (Choudhry, 2012). It will highly encourage British people to go for the alternative sources of financing. This will creates lots of problems for the commercial banks in UK. Loans are the main sources for the banks to earn high profitability. With the increasing encroachment of alternative sources profitability of banks will come under serious threats. Common people will prefer crowed funding instead of banking finance because they are very hard to access. Entrepreneurs in UK will use their savings, mortgagee their houses and will take help from the relatives for setting up their new business. They will not be able to fulfil all the requirements, for getting loans from the commercial banks. It will be an opportunity miss for the UK banking sectors (Singh, 2012). They will not be able to supply the required loans to the customers. The trend The trend of these kinds of financing will increase in future. Currently SMEs in UK face significant challenges to get funds from the commercial banks. To avoid all these challenges people of UK will give significant importance to the other investor funding. In the last few years various other sources of funding like crowd funding, micro lending, peer-to-peer lending and further options have gained significant popularity among the British people (Adams, 2013). All these new trends will provide significant challenges for retail banking industry in UK. Among them crowed funding has gained comprehensive popularity and it will be a tough competition for the retail banking industry in UK (McDonald and Keasey, 2003). Due to the commercial banking loopholes lots of peer to peer financing platforms has come up. All these alternative sources of business financing will take the opportunities of banking retrenchments. In 2012 December, UK Treasury gave official recognitions for these alternative sources of business finances. It had increased the trustworthiness about the alternative financing sources. Common people now trust all these sources and in future also this trend will remain same. It will help other financing sources to grow in a fast pace (Jeucken, 2010). With the nature of fast growth alternative financing sources will try to eat into the market share of the commercial banks. All the above discussions and arguments are clearly indicating that alternative sources of financing will continue to carry good performances in the near future also and automatically will create tough challenges for the existing retail banks in UK. Likely outlook for distribution channels Distribution channels are the medium through which retail banks in UK provide all the banking services to their customers. Day by day lives schedule of the British people are getting busy. This busy life schedule will going to change outlooks of the banking distribution channels. To satisfy the generation Y customers of UK, banking sector will bring lots of transformations in their branches (Wadsworth, 2005). With the changing customer’s expectations distribution channels will be redesigned. Distribution channel will be seamless and will depend upon multi channel sales. The concept of online is currently present in the retail banking sector of UK. This concept will be used more extensively in future. Branches are going to be equipped with further more digitalization. In upcoming five years all the banks will try to reduce their paperwork as much as possible. The industry will give significant importance to the digital banking systems. According to current tradition, customers have to go to the branches (Parliament, House of Commons. Treasury Committee, 2009). But in near future customer will get all the facilities of branch with the help of virtual branching systems in their computers, laptops and in their smart phones. It will be significantly suitable for the customers and banks will be able to reduce their operational time period (Roberts, 2008). Retail bankers of UK will try to reduce physical branches as much as possible it will help them to control operating expenses. State of the art services and technologies will change the whole distribution outlooks of UK banking. Banks in UK will focus upon optimization in their distribution patterns. Retail banks will use their distribution resources in more precise and calculative way which will help them to earn maximum profitability out of minimum possible investments. Operating models of the banks will be simplified and it will have definite impacts on the distribution outlook (Gup, 2003). Due to online nature banking distributions will be far more effective and less time consuming. Branches will provide lots of other facilities to the customers apart from the basic and fundamental services. Internet banking will be the difference makers for the retail bankers (Deloitte, 2008). This distribution technique will provide seamless and smooth banking experiences to the customers. Payment disruption is a significant challenge for the customers (Apte and Karmarkar, 2007). With the help of technological innovations in the branches, the challenge of payment disruption will be mitigated. Conclusion The above report has been able to analyze the future of retail banking in UK in a comprehensive way. The study has significantly identified possible impacts of the increasing competitions in UK retail banking sector. During the course of this report one thing is clear that increasing competitions in UK banking sector has brought lots of changes in the industry. The study has categorically stated that lots of new banks are coming up into the industry. The industry is no longer is ruled by some particular banks and day by day the competitions are getting tougher. The study also has showcased that, with the emergence of various alternative financial sources commercial banks of UK are facing significant challenges. Businessmen and entrepreneurs are finding it easy to get their required finances from the alternative sources. This trend is growing in a fast pace and it will continue for upcoming years also. The study has comprehensively discussed likely outlooks of the distribution channel for future banking in UK. The study has indicated that future distributional outlook will be much more technology and innovation oriented. References Adams, P. R. 2013. Crowd Funding Made Simple: Plan, Publicize, Get Crowd Funding!. New York: Prince R. Adams. Apte, U. and Karmarkar, U. 2007. Managing in the Information Economy: Current Research Issues. New York: Springer Science & Business Media. Buckle, M. J., Buckle, M. and Thompson, J. 2004. The UK Financial System: Fourth Edition. Machester: Manchester University Press. Choudhry, M. 2012. The Principles of Banking. New Jersey: John Wiley & Sons. Claessens, S. 2009. Competition in the Financial Sector: Overview of Competition Policies. New York: International Monetary Fund. Deloitte. 2008. Evolving Models of Retail Banking Distribution. Available at: http://www.deloitte.com/assets/dcom-unitedstates/local%20assets/documents/us_fsi_cbs_evolving_models_may08.pdf. [Accessed on 4th November 2014]. Great Britain. Parliament. House of Commons. Treasury Committee. 2009. Banking Crisis: Dealing with the Failure of the UK Banks : Report, Together with Formal Minutes. London: The Stationery Office. Great Britain: National Audit Office. 2010. Maintaining the financial stability of UK banks: update on the support schemes, HM Treasury. London: The Stationery Office. Gup, B. E. 2003. The Future of Banking. New York: Greenwood Publishing Group. Harrison, D. 2014. Competition Law and Financial Services. Berlin: Routledge. Jeucken, M. 2010. Sustainable Finance and Banking: The Financial Sector and the Future of the Planet. London: Routledge. McDonald, O. and Keasey, K. 2003. The Future of Retail Banking in Europe: A View from the Top. New Jersey: John Wiley & Sons. Roberts, R. 2008. The City: A Guide to London's Global Financial Centre. New Jersey: John Wiley & Sons. Singh, D. 2012. Banking Regulation of UK and US Financial Markets. London: Ashgate Publishing, Ltd. Wadsworth, J. E. 2005. The Banks and the Monetary System in the UK, 1959-1971. London: Taylor & Francis. Read More