In addition to lending and deposit products, banks also provide a range of other general and specialist services which are usually fee-generating or provided free or highly subsidized to customers making use of other revenue-producing services. These services would include:
1. General banking services
— Domestic transfers
• Cheques
• Credit transfers
• Standing orders
• Bank-to-bank transfers
• Direct debits
• Banker payments
• EFT transfers
• Lock boxes
— International transfers
• Mail transfers
• EFT transfers
• Bank draft
• Customers’ cheques
— Commercial credits
• Clean credits
• Documentary credits
• Import and export credits
— Foreign exchange services
2. Specialist services
— Consultancy services
• Money management
• Invoicing centers
• Treasury management services
• Pension fund management advice
• Insurance management advice
• Foreign exchange rate forecasting
• Banking and financial education
— Trust services
• Stock and bond purchases
• Executorships
• Trusteeships
• Pension fund management
• Life insurance
• Corporate trustee services
• Stock registrars
• Dividend payments
• Investment portfolio advice and management
• Safety deposit services
• Estate planning
• Tax planning
— Other services
• Payroll management and acountinb
• Data processing services
• Factoring
• Travel arrangements
• Correspondent banking services
• Non-life insurance
• Life insurance
• Economic study services
• Consumer banking services
7.4.1 The Growing Importance of Fee-Based Services
The range of non-lending and credit services offered by banks is becoming increasingly large as the organizations become more diversified. Banks are also now placing greater emphasis on the provision of specialist services, especially for the corporate market, as a means of generating fee income (such services, unlike loans, do not require counterbalanced deposits, and thus supporting additional equity finance), to establish credibility as a bank with specialist skills, to gain an initial entry to corporate accounts (payroll and foreign exchange are two well-used services for this purpose) and to achieve a distinctive competence. In particular, a wide variety of electronic banking services including information processing are becoming of great significance.
One particular problem which must be understood is the use of cross-subsidi¬
zation. Many bank services are offered free as a courtesy, the cost being borne by income-generating activities. There will be increasing pressure to unbundle these courtesy services and to let them reflect their true economic cost. Many corporate treasurers are also keen to unbundle bank services so that customers only pay for services used, rather than being charged for those which are really unnecessary.
Nevertheless, non-credit services play an important role in establishing corporate banking relationships, which in turn normally lead to the develop¬
ment of future lending business. Amongst multinationals the most widely used non-credit services are:
Most companies make use of foreign exchange services and international money transfers, and amongst US MNCs, for the nearly one-third of companies which had added a bank during the past year foreign exchange advice had been the most common single reason. The most rapidly growing international service for US MNCs, however, in both absolute and relative terms was international cash management services. Amongst European MNCs there was a slightly lower tendency for companies to add banks for internation-
Use of International Non-Credit Services Amongst MNCs (%)
Non-credit services US MNCs European MNCs
Forex trading and advisory services 78 N/A
International money transfers 78 81
Foreign economic advice 58 44
Documentary collections 56 76
Foreign credit investigations 45 N/A
International cash management services 43 N/A
Time deposit accounts overseas N/A 48
Merger and acquisition advice overseas N/A 37
al non-credit services. However, of the 19 per cent of companies which intended to add a bank, nearly a third were doing this because of a rapid increase in the demand for overseas merger and acquisition advice.
Product life cycles in international banking non-credit services tend to be relatively short unless electronically based, and it is important for banks to stay up with the level of service offerings if they intend to compete fully in this sector. In particular the growth of systems based services is seen as a major area for development over the next decade, especially by those large commercial banks seeking to continue to differentiate themselves. Some banks see this area of activity opening up a range of data processing, information management and communication services which provide an opportunity to enter areas of high growth substantially outside the existing bounds of conventional banking.
Electronic banking services will be of great importance in both corporate and retail banking. Once established via intelligent terminals, plastic cards or home banking terminals, electronic banking provides a new delivery system which allows the bank to offer an ever-increasing array of services via this conduit. In the corporate market therefore cash management products are becoming a necessity for corporate treasurers, offering the opportunity to centralize corporate funds and improve the efficient use of liquid funds, net foreign exchange exposures and the like. New products coming on stream will permit global account interrogation, multicurrency transactions, forward funds forecasting and similar services. In the future, such intelligent terminals can be expected to link to a wide variety of economic and credit data bases and securities data and to permit off-site securities trading. Similarly in retail banking, apart from the widespread use of automated teller machines increasingly in off-bank site locations, electronic systems will be used for direct debit at point of sale, automated bill payments, brokerage dealing, electronic shopping, automatic credit lines and the like. By the mid-1990s electronic banking, both corporate and retail, will become a major delivery system posing a severe threat to conventional branch banking. Further, the strategy for successful electronic banking will open up the financial service market to new competitors from outside the industry and potentially change the entire balance of competitive advantage.