The Changing Character Of The Financial Service Industry

The Changing Character of the Financial Service Industry
A fundamental force of change is the change of behavior that affects the banks character. According to Jenica (2009), there are five fundamental forces that have transformed the structure of financial markets and institutions and reflect the intense competition financial firms faced today. There are deregulation or reregulation, financial innovation, securitization, globalization and advances in technology.

From the theory of Koch and Donald (2003), deregulation is process of eliminating the existing regulation. Banks may limit its regulation that is not necessary or that will affect the safety of banking system. For example, Stiroh and Strahan (2002) found that deregulation have strengthens bank's performance and also market share growth. Thus, deregulation as a competitive reallocation may leads to better performances.
While reregulation in the theory of Koch and Donald (2003) is the process that banks create new regulation or modifying the existing regulation on the banking activities. Product innovations and technology advances may allow investment banking firm to implement new restriction on their banking activities. For example, Borenstein and Bushnell (2000) explain that reregulation may improve in increase efficiency and also benefits in long-term investment.
Financial Innovation
Koch and Donald (2003) state that Innovation is implemented when a bank wants to enter into a new geographic market, enter into a new product market and also to deliver services in less expensive way. These innovations enables them to circumvent restriction and also to continue expand and achieve growth in their financial service industry.
Securitization is the process of converting assets into marketable securities stated by Koch and Donald (2003). For example, mortgages and credit card receivables. It eventually lowers the prices paid by consumers by increasing the supply and liquidity of these products.

According to Koch and Donald (2003), Globalization is the evolution of markets and institutions where geographic boundaries do not restrict financial transaction or competition so that it can be increasingly global in scope. When a firm is globalized, firm must recognize business in other countries and also their competitors. For example, according to Goldberg (2008), globalization in banking sector may help bank in moving to a more internationally diversified ownership of banks which is more globalized.
Technology Advance
From the study of Koch and Donald (2003), advancement in technology may increase the scope of the global market place and competition. Technological advances can be the payment services where customers conduct banking business through debit and smartcards, telephone banking and the internet. With the internet banking, distance is no longer a limiting factor. These advancements in technology reduce the need for an intermediary by providing easy access to information.

Role of consolidation
While competition has increased the number of firms offering many different financial products and services, consolidation can be carry in order to increase the proportion of banking assets controlled by a large bank.
Most Financial Service Industry chooses to go with consolidations because there are some motivation that motivates them. First is cut costs as consolidation of two banking industry could help in lowing the cost. However, cutting of cost may leads to an improvement in profitability of bank. Other than cutting costs and improving in profits, consolidation helps increase in competitive position that brings competitive advantages to its financial service industry. Lastly, consolidation enables a cross-sell financial products and services that sell related or complimentary products to a prospective customer which is an most effective way of doing marketing.

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