Internet can provide customers a seamless route to access retail financial services with low transaction cost. But still it is popular only in a few parts of the world. With the growing use of Internet and other electronic channels in India, scope for retailing through these channels is increasing.
Banking remains an essential input of a modern economy. The three traditional banking functions of purveying liquidity, facilitating payments and maturity transformation (inter-generational risk distribution) will be needed in future too. However, the crucial difference would be, banks would not be essential for doing these.
The (commercial) bank is a product of an inefficient market, a second-best institutional solution to an `incomplete-contracts environment'. The 20th century has witnessed the lowest entropy of change in the spheres' of technology, information availability and the property rights environment. As a result, the banking functions have become separable from their institutional appellation (the commercial bank). So that the institutional form is fast becoming immaterial it tallies with the declining share of traditional banking functions in banks. The banks' share of intermediated assets between today and half-a-century back remains stable on average only when the non-interest income is capitalized and added to the bank assets. Banks continue to be safe delivery systems for financial services due to institutional appellation. However, today the banking functions are fast becoming separable from banks. Non-banks like financial companies, insurance companies, specialist firms etc., offer almost all banking products. Thus, banks' survival is threatened by the rise ofnon-banks. |
