Globalization of financial services

In this era of globalization, the key to the survival and success of many financial institutions is to establish strategic partnerships to make them competitive and provide consumers with diversified services. When studying the barriers and impacts of mergers, acquisitions, and diversification in the financial services industry, it is important to consider the key to survival in this industry:

  1. Understand the needs and expectations of individual customers
  2. Provide tailor-made customer service to meet customer needs and expectations

In 2008, the rate of mergers and acquisitions in the financial services industry was very high. Let’s take a look at some of the regulatory history that contributed to changes in the financial services landscape, and what this means for the new landscape that investors now need to traverse.

Deregulation encourages diversification. Because large-scale international mergers often affect the structure of the entire domestic industry, governments often formulate and implement preventive policies aimed at reducing competition among domestic companies. Beginning in the early 1980s, the Depository Deregulation and Currency Control Act of 1980 and the Garn-St. Germaine Depository Act passed in 1982.

By giving the Federal Reserve greater control over non-member banks, the two bills allow bank mergers and savings institutions (credit unions, savings and loan banks, and mutual savings banks) to provide checkable deposits. These changes have also become a catalyst for the dramatic changes in the US financial services market in 2008, the reorganization of participants, new participants and the emergence of service channels.

Nearly ten years later, the implementation of the Second Bank Directive in 1993 deregulated the markets of EU countries. In 1994, due to the promulgation of the third-generation insurance directive in 1994, similar changes occurred in the European insurance market. These two directives brought the financial services industry of the United States and Europe into a fiercely competitive alliance and triggered a fierce global competition to ensure the safety of customers who have already obtained insurance. Unreachable or unreachable before.

The ability of commercial entities to use the Internet to provide financial services to their customers also affects the product orientation and geographic diversification of the financial services sector.

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Go global
Asian markets joined the expansion movement in 1996, when the “big bang” financial reforms led to deregulation in Japan. The country’s relatively far-reaching financial system has become competitive in a rapidly expanding and changing global environment. By 1999, almost all remaining restrictions on foreign exchange transactions between Japan and other countries had been lifted. (For Japanese background, please refer to The Lost Decade: Lessons from Japan’s Real Estate Crisis and Collapse: Asian crisis.)

With the changes in Asian financial markets, the United States continued to implement several additional deregulation stages, and finally the Gram-Rich-Blyley Act of 1999. The bill allows major financial players to integrate, thereby promoting the development of the domestic financial industry in the United States. The total number of service companies participating in M&A transactions in 2000 reached 221 billion U.S. dollars.According to a 2001 study by Joseph Teplitz, Gary Apanaschik and Elizabeth Harper Briglia Bank Accounting and Finance, Scale expansion involving trade liberalization, privatization of banks in many emerging countries, and technological advancement has become a fairly common trend. (For more insights, see State-owned economy: from public to private.)

The direct impact of deregulation is increased competition, increased market efficiency, and increased consumer choice. Deregulation has triggered unprecedented changes, transforming customers from passive consumers to powerful and mature participants. Research shows that additional and diversified supervision work further complicates the operation and management of financial institutions by increasing the level of bureaucracy and the number of supervisions. (For more information on this topic, see Free market: what is the cost?)

At the same time, the technological revolution of the Internet has changed the nature, scope and competitive landscape of the financial service industry. After deregulation, the new reality makes each financial institution basically operate in its own market and target its audience with narrower services to meet the needs of a unique combination of customer groups. This deregulation has forced financial institutions to shift their focus from interest rate setting and transaction processing to more customer-centric, thereby prioritizing their goals.

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Challenges and disadvantages of financial partnerships Since 1998, the financial services industry in wealthy countries and the United States has experienced rapid geographic expansion; customers previously served by local financial institutions are now facing the world. In addition, according to Alen Berger and Robert DeYoung in their article “Technological Progress and the Geographical Expansion of the Banking Industry” (Money, Credit and Banking Magazine, September 2006), between 1985 and 1998, the average distance between major banks and their affiliated banks within a multi-bank holding company in the United States increased by more than 50%, from 123.4 miles to 188.9 miles. This shows that banks’ increased ability to provide loans to small businesses over longer distances enables them to reduce diseconomies of scale and increase productivity. (For more information, please view Competitive advantage is important.)

Deregulation is also the main factor behind this geographical diversification. Since the early 1980s, a series of policy changes have gradually reduced the restrictions on intrastate and interstate banks.

In the European Union, similar policy changes have enabled banking organizations and certain other financial institutions to expand their operations to member states. Transition economies in Latin America, Eastern Europe, and other parts of the world have also begun to reduce or eliminate restrictions on foreign entry, allowing multinational financial institutions headquartered in other countries to gain considerable market shares.

Transaction without borders, without borders. Recent innovations in communications and information technology have reduced the diseconomies of scale associated with the business costs faced by financial institutions considering geographic expansion. ATM networks and banking websites enable efficient remote interactions between institutions and their customers. Consumers have become very dependent on their newly discovered ability to continue borderless financial transactions. Without technical connections, companies will lose all competitiveness .

Another driving force for the geographic diversification of financial services companies is the proliferation of corporate merger strategies, such as mergers, acquisitions, strategic alliances, and outsourcing. This integration strategy may increase efficiency in the industry, leading to mergers, voluntary exits, or poor performance companies forced to exit.

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The integration strategy further enables the company to take advantage of economies of scale and focus on reducing unit production costs. Companies often publicly announce that their mergers are motivated by the desire for revenue growth, increased product base, and increased shareholder value through employee integration, reduced management costs, and a wider range of products. However, the main reason and value of this strategy combination are often related to the reduction of internal costs and the increase of productivity. (For further reading, please check What are economies of scale?)

In 2008, the very high M&A rate obscured the unfavorable facts of the pros and cons of the main strategy used as a tool for the geographic expansion of the financial services industry, such as the M&A rate between National Bank and Bank of America (NYSE: BAC), Travelers Group And Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM) and Bank One. Their dilemma is to create a balance that maximizes overall profits.

Conclusion The conclusion regarding the impact, advantages and disadvantages of domestic and international geographic diversification and expansion on the financial services industry is that with globalization, the survival and success of many financial services companies lies in understanding and satisfying their needs, desires and expectations. Their customers.

The most important and emerging factor for financial companies to successfully operate in an expanded global market is that they can effectively serve the discerning, highly mature, better-educated, and more powerful consumers who are addicted to the convenience and speed of technology. . Financial companies that do not realize the importance of customer orientation are wasting resources and will eventually perish. Companies that fail to recognize the impact of these consumer-driven transformations will find it difficult to survive or cease to exist in the newly established global financial services community, which has been changed forever due to deregulation. (To learn more about the industry, please check The evolution of the banking industry.)

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