Introduction
Bank typology has grown more complex as more formerly niche banking services gain greater customer bases, encouraging different banks to shift focus from the traditional retail banking format to a more complex and specialized arrays of banking services. Moreover, large banks, particularly multinational companies, maintain their retail operations while serving non-retail accounts, such as businesses, investors, and purely online customers (Pritchard, 2016). Further, certain organizations offer banking-like services to its members, such as credit unions and savings and loans associations (S&Ls). Thus, to manage this typological complexity, this explorative paper covers only primary forms described in its most typical characteristics, excluding essentially membership-based organizations, such as the credit unions and the S&Ls.
Banks and Banking
Retail banks: As earlier indicated, retail banks perhaps are historically the oldest bank type apart from central banks. They focus in individual customers, or consumers, offering them non-group demand accounts, such as personal savings and checking accounts and certificates of deposits (Pritchard, 2016). Today, however, some retail banks are allowed to establish money market accounts (e.g. invested in government and commercial papers) for their customers.
Commercial banks: The priority market of commercial banks are business customers, offering organizations corporate savings and checking accounts (Pritchard, 2016). However, it is a rare commercial bank today that does not offer personal banking services to individuals. Moreover, these banks also offer additional value-added services, e.g. lines of credit (to help businesses manage their cash flow), letters of credit (to help businesses to close international transactions) (Pritchard, 2016), and other creative agreements that can serve their mutual business interests of generating revenues at the lowest cost possible.
Investment banks: Investment banking is essentially a business banking service; although, large individual investors can also avail these services. The primary investment banking services focus on helping corporations transact with financial markets (Pritchard, 2016).
Central banks: Central banking is as early as retail banking, or even earlier in certain countries. Central banks manage the national monetary system, essentially managing economic activity and overseeing banks (Pritchard, 2016). The U.S. Federal Reserve Bank is a complex form of a central bank due to the federalist American government structure.
Online banks: The pure form of online banks operate entirely online and in the absence of any physical location where OTC transactions with a bank teller can take place. They offer competitive rates on savings accounts and, at times, free checking accounts (Pritchard, 2016). Large banks offer “online banking” services as an attached service to physical accounts.
Traditional Banking Services
Deposit operations: These banking operations involve carefully documented cash transactions from consumers, including cash deposition in demand deposit accounts. In effect, deposit operations essentially involve personal (i.e. individual) transactions in savings accounts, checking accounts, retirement accounts, money market accounts, certificates of deposits (e.g. time deposits), as well as allied deposit services (e.g. safe deposit box rental) (Pritchard, 2016).
Credit operations: These banking operations involve facilities that provide customers with something of value (i.e. a ‘credit’), under contractual agreement, for repayment at some future date with interest. This credit can be in different forms, namely: car loans, mortgages, lines of credit, signature loans, overdraft loans, and all other forms of monetary credit. They require an insurance through pledged assets, often either on a short, medium, or long term. In the current banking technology, credit transactions can be conducted remotely (VTB, 2017).
Payment operations: Banks with mainly payment operations are called ‘payment banks’, which essentially offer payment services (in addition to receiving deposits) (Saha, 2014). In larger banks, these services include retail payments, remittance services, and bills payments.
Cash operations: These banking operations constitute an important banking function. These are essentially settlement operations, which are comprised of many cash management processes, such as opening and maintaining currency denominated accounts for local and international transactions; conducting cashless transactions in various currencies; providing cash management consulting assistance; cash (or non-cash) transaction documentation processing; making payments in behalf of clients; and related settlement processes (IS Bank, 2017). In the advent of online technology, these operations expanded the teller services into automated teller machines (ATM), a cash dispensing machine called in other countries as Cash Point (Great Britain), Ban Comet (Europe and Russia), and Any Time Money (India) (Hooda, 2016).
Additional operations: Operations with metals are historically a central banking investment operation, such as leasing gold and silver (Seagreaves, 2017). However, full service banks, such as the OTP Bank, are licensed to offer bank metal (e.g. gold) operations, such as transacting for clients cash or non-cash bank metals sales and purchases (OTP Bank, 2017).
Non-traditional Banking Services
Guarantee and collateral services: A bank guarantee service essentially offers creditors an assurance, in behalf of bank clients, the payment of credit owed by the bank clients in case the bank clients fail to fulfill their contractual obligations with the creditors (ICICI Bank, 2017). Once the creditors sent the claim, the bank fulfill the payment owed in behalf of the client. This service often cover various currencies as specified in the guarantee contract with the clients. These guarantees can be in different forms, such as performance guarantee, bid bond guarantee, financial guarantee, advance payment guarantee, foreign bank guarantee, deferred payment guarantee, and other specially designed guarantee arrangements (ICICI Bank, 2017). While bank guarantee is undertaken based on the client’s personal guarantee, collateral services require that the client attach a physical guarantee (‘collateral’), which creditors can forfeit in case the clients fail to fulfill their contractual obligations with the creditor.
Trust operations: These banking operations consist of several different services, which include trust assets administration, business escrow services, custody services, and similar asset administration services (First Republic, 2017). Banks conduct trust asset administration based on the clients’ (grantors’) instructions. Businesses can also leave certain financial assets with the bank in escrow at a specific interest rate or share of investment income to gain revenues from managed investments. Meanwhile, custody services are essentially fund management services.
Accounting support: Banks can also provide efficient accounting support to personal or business customers (e.g. payroll support). These services include bookkeeping and financial statements (e.g. income statements, balance sheets, and cash flow statements) generation (First Rand Bank, 2017). Traditionally, these services were performed manually by bank personnel. Today, accounting software are capable of handling the task with minimal staff intervention.
Conclusion
Digital and electronic technology has brought banking services in its most efficient stage historically, leaving bank staff focusing their time in handling irreplaceable human functions, such as teller services and consultations. Consequently, students in accounting are imperatively challenged to be updated in their knowledge of developments in banking services to better understand the complexity of the banking system today and to better understand their roles as accounting professionals in the banking industry.
References
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Hooda, K. (2016, April). ATM security. International Journal of Scientific and Research Publications, 6(4), 159-166.
ICICI Bank. (2017). Bank guarantee. ICICI Bank.com. Retrieved from: https://www.icicibank.com/business-banking/tradeservice/bank-guarantee.page <January 23, 2017>.
IS Bank. (2017). Cash operations. IS Bank.com.ru. Retrieved from: http://www.business-standard.com/article/finance/payment-banks-cannot-launch-other-financial-operations-114061600907_1.html. <January 23, 2017>.
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Saha, M. (2014, June 17). Payment banks cannot launch other financial operations. Business Standard.com. Retrieved from: http://www.business-standard.com/article/finance/payment-banks-cannot-launch-other-financial-operations-114061600907_1.html.
Seagreaves, J.D. (2017, January 23). Central banks lease gold and silver; Distorting markets and balance sheets. Silver Monthly.com. Retrieved from: http://www.silvermonthly.com/central-banks-lease-gold-silver-distorting-markets-balance-sheets/.
VTB. (2017). Credit operations through remote banking systems. Vtb.com. Retrieved from: http://www.vtb.com/business/lending/sdbo/. <January 23, 2017>.
