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Responding to Changing Customer Demand

CHAPTER EIGHTEEN Creating And Managing Service Outlets: New Charters, Branches, And Electronic Facilities.

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Responding to Changing Customer Demand

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  1. CHAPTER EIGHTEENCreating And Managing Service Outlets: New Charters, Branches, And Electronic Facilities The purpose of this chapter is to learn how new banks are chartered by state and federal authorities in the United States, to determine what makes a good site for a new branch office, to recognize how the role of branch offices is changing, and to explore the advantages and disadvantages of automated banking facilities.

  2. Responding to Changing Customer Demand • Chartering Completely New Banks • Establishing New Full-Service Branches • Setting Up Limited Service Facilities

  3. Charters for New Banks • Office of the Comptroller of the Currency for National Banks • State Banking Commissions in the 50 States for State Banks

  4. Benefits of a National Charter • Brings Added Prestige Due to Stricter Standards • In Times of Trouble, Technical Assistance May Be Better

  5. Benefits of a State Charter • May Be Easier and Less Costly to Secure a State Charter • Bank Does Not Need to Join the Federal Reserve System • State May Allow Bank to Lend More of its Capital to a Single Borrower • May Be Able to Offer Wider Range of Loans and Other Services

  6. Questions for Organizers of New Banks • Population and Geographic Boundaries of Primary Service Area (PSA) • Competing Financial Institutions in PSA • Number and Types of Businesses in PSA • Traffic Patterns in PSA • Population Growth in PSA • Banking History in PSA • Amount and Holders of Stock in New Bank • Business and Banking Experience of Organizers • Projections for New Bank in First 3 to 5 Years

  7. Public Need Organizers of New Banks Demonstrate Public Need for the New Bank By Showing That Local Banks Are Not Conveniently Located or That Existing Banks Fail to Offer Some Key Services

  8. External Factors that Affect Decision for New Charter • Level of Economic Activity • Growth of Local Economic Activity • The Need for a New Bank • The Strength and Character of Local Competition in Supplying Financial Services

  9. Internal Factors that Affect Decision for New Bank • Qualifications and Contacts of Organizers • Management Quality • Capital Pledged

  10. Desirable Sites for New Branches • Heavy Traffic Count • Large Number of Retail Shops and Stores • Above Average Age of Local Populations • Area Contains Substantial Number of Managers, Business Owners and Professionals • Other Financial Institutions Not Increasing Rapidly • Above Average Population Growth • Above Average Population Density • Sufficiently Large Number of People in Service Area • Above Average Levels of Household Income

  11. Expected Rate of Return The Decision of Whether to Establish a Branch Office is a Capital Budgeting Decision. The Present Value of the Net Future Cash Flows Should Be Larger Than the Initial Outlay

  12. Geographic Diversification Reducing a Bank’s Overall Risk Exposure to its Total Return By Establishing Service Facilities in Different Market Areas Whose Individual Returns are Not Highly Correlated with the Returns from a Bank’s Existing Market Locations

  13. In-Store Branching Banking Offices Set Up Inside Retail Stores in Malls in Order to Reduce Construction Costs

  14. Limited-Service Facilities • Point of Sale (POS)Terminals • Automated Teller Machines (ATMs) • Automated Loan Machines (ALMs) • Self-Service Terminals • Home and Office Online Banking

  15. Decision to Add ATMs The Bank Examines the Present Value of the Stream of Cash Savings from the New ATM Machine

  16. Advantages of Using the Internet to Deliver Services • Low Cost Source of Information and Service Delivery • Customer Use is Measurable • Easier to Get Customer Feedback on Service Quality, Pricing and Problems

  17. Disadvantages of Using the Internet to Deliver Services • Customer Privacy • Existence of Crime Problems • Bank May Not Get to Know Customers • Customers May Not Have Compatible Electronic Systems • Cost May Be Prohibitive for Some Customers

  18. Ways to Promote Bank Customer Internet Use • Emphasize Safety • Promote Web Services Whenever Possible • Revise the Site Often to Retain Customer Interest • Should Survey Customers Often About Quality, Satisfaction and Availability of Services • Can Be Used to Promote Customer Dialogue with the Bank

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