Money is closely linked to our lives, so the financial institutions become an inevitable and important part of our lives and people are always focusing on the situation of financial institutions. So the banking industry is the most suitable topic to study. Then, we decided to use scenario model to analyze the industry (Showed by diagrams 1).
After analyzing the situation of the industry, we choose ten years because it is the most proper time for our scenarios. The environment can not reach the enough degree to support these scenarios if the time is too short. On the other hand, long period of time is hardly to forecast the future careers.
In the process of searching materials about banking industry, we found the major Stakeholders influencing the industry. They are government, consumers, and competitors in term of development of banking industry.
The banking industry in Malaysia started from the early 1900s , in 1913 Malaysia’s first domestic bank – Kwong Yik (Selangor) Banking Corporation (now Malayan Banking Berhad) was set up, as thriving profits from rubber plantations and the tin industry. Besides, a statutory body, Bank Negara Malaysia (Central Bank), which is wholly-owned by the Federal Government, was established to the need for a governing body to oversee the activities and operations of the numerous banks in the country. Now, In Malaysia banks mainly consist of commercial banks, Islamic banks, and merchant banks. In addition, Malaysia has become an international Islamic Financial centre (Edge, 2006).
As far, the banking industry in Malaysia has made conventional banking products and services, such as deposits and loans or hire purchase, taking on more advanced features, which are facilitated by advanced technological developments and make bank customers easier and simpler methods and processes of going about their daily banking. Furthermore, it also has introduced new products and services like credit and debit cards, investment products, financing products and services, and so on.
RHB bank, which stands for Rashid Hussain Berhad, from throngs of banks for some reasons. Firstly, we are more familiar with it for it is a bank surroundings our. Secondly, we think it has a great potential RHB Bank is one of Malaysia’s leading financial service providers, offering commercial banking, corporate and international banking services. RHB Bank has built an impressive 200 branch network across Malaysia and also has a number of overseas branches, the majority in neighboring Singapore what’s more, after being acquiring by government in March, 2007, it becomes more competitive compared with other banks (Edge, 2006).
Identify and discuss on the main driving forces shaping and affecting the industry.
Business organizations exist to turn inputs from their environment into goods and services which customer in the environment want to purchase. This transformation process within the organization cannot be seen as a steady state, because external environment influences have a tendency to be continually shifting, having the effect of undermining the current balance within the system. The environment influencing business organization mainly involves the macro-environment, the micro-environment and internal environment. In our essay, we will use macro-environment, which comprise political, environment, socio-cultural, technology, legal and ecological factors, to analyze Malaysian banking industry environment.
The political environment is one of the less predictable elements among them. In Malaysia, the Government has proposed that Malaysian-owned banks be given five-year tax exemption on income received from their new branches or remittances from subsidiaries overseas, operating within the three-year period, from the year of assessment 2007 to encourage banks to expand overseas and establish a regional presence. Furthermore, the Government will establish an Overseas Investment Fund (OIF), with an allocation of RM100 million to provide soft loans to domestic companies to finance start-up costs of doing business overseas (Amparo and Sickles, 1994). Furthermore, to attract more foreign funds and streamline tax treatment on profits or interest income received from all financial institutions, the government proposed that profits or interest income received by non-residents from financial institutions should be exempt from tax.
Malaysia has been experiencing a promising economic since 2005 under the marked growth of global economic, real economic growths in Malaysia has been strengthened and real gross domestic product of Malaysia has been expanded from 2005, with growth gaining momentum since then. This growth was driven mainly by private sector activities. Real private consumption expenditure is keeping sustained at high rate, driven by continuing income growth, stable labor market conditions and strong consumer confidence. When the business activity become flourishing, people are reluctant to keeping savings, however they have strong willing to invest to increase their money value (Aziz, 2005).
Monetary transactions are conducted in Ringgit Malaysia (RM) and sen, which is the Malaysian paper and coin currency respectively (Kadir, 2007). Credit cards are also accepted widely in commercial businesses, while travelers’ cheques may also be changed at any commercial banks, hotels and authorized money changers. This will bring banks desirable opportunities along with the increase in the number of traveler to Malaysia.
Government influences on macroeconomic activity through such means as fiscal policy, monetary policy. As for fiscal policy, the Government introduced a stimulus package, which focuses on selected projects with strong linkages to ensure maximum stimulus to economic growth and short gestation periods while meeting socio-economic objectives, worth RM7 billion to boost economy recovery. Since early August 1998, monetary policy has become accommodative by reducing interest rates to reinforce expansionary fiscal policy and revive the economy (Aziz, 2006). The intermediation role of the banking institutions came to the forefront during the crisis period.
Banking institutions were excessively cautious in their lending decisions, causing a sharp slowdown in credit under an environment of uncertainty, to avoid a credit crunch situation. Banking institutions with sufficient capacity were encouraged to achieve a minimum loan growth rate of 8% for 1998. The motivation for the 8% credit floor was to free the banking institutions from the self-imposed credit freeze (Kadir, 2007).
The Government is also playing a vital role in technological development of banking industry in Malaysia by promoting E-payments nationwide. As most of the individuals and business have payment transactions with the Government. This practice will help to store and collect bank account numbers, E-payments and receipt notices and instructions for how to do these electronic payments. According to the BNM, 2005 all corporations and institutions at this forum the course of action result of reengineering in organization to fully use of E-payments that provided by financial institutions and outworkers (Appelbaum, 1991).
E-channel, online banking systems are using computers, telephones and the internet. ATM is the most commonly used electronic channel through out the country facilitate bank customers to conduct transactions 24 hours in a day. Phone banking is also another e-banking option can be use 24 hours a day and can made all type of transactions. RHB is using Tele-banking known as remote banking. PC banking is the 3rd form of e-banking that could be done by downloading application software in house or office.
Technology varies as the time passed like the ATM & Telephones was the first Multimedia wave invented 30 years ago after that it includes some more features of PCs & Online services. Along with them E-cash stored are smart cards and Interactive videos no need to go to ATMs to withdraw money because technology hooked to any multimedia devices such as PC, Interactive TV and also Cell phones.
Onyx Software Corporation has been appointed by RHB Bank to develop its customer relationship management (CRM) initiative and build an enterprise-wide platform designed to enhance its ability to meet customer needs and improve integration between the sales force and customer call center in an increasingly competitive marketplace (Appelbaum, 1991).
Threats were disintegration, the cannibalization of existing delivery channels, risk of standardizing on the wrong technology platform and the inability to keep pace with changing technology. The obstacles included security risks, network and system instability and the difficulty of integrating different systems.
This consumerism society was only created dues to the banking system encourage ‘buy today, pay tomorrow’, which makes a maintained push to drive up retail customer numbers.
At present, the number of Malaysian aged 60 years and above is estimated to be 1.4 million and is projected to increase to 3.3 million in the year 2020. It also increased over the years. So number of people aged 60 can do work more number in future years. As Malaysia is the Muslim country so Islamic banking is very important factor in banking industry. Malaysia life style people love to do shopping and visitors comes from all over the world banks can extend their existing Privileges and Benefits programmes in Malaysia. Banks are targeting a new generation of life style driven people who celebrate in freedom, traveling and giving their lives new perspectives (Alexandrov, 2000).
The banking system with all its complexities, challenges and opportunities touches virtually all aspects of customer’s daily lives. Using a credit card to make a purchase, writing a personal or business check, paying bills and moving funds online or accessing your funds through an automatic teller machine daily used in the banking system.
There is certainly significant data to suggest that profitability, business growth and increased market penetration could be the outcome for the banks that aggressively pursue the minority community as a business objective. Fortunately many banks across the country are recognizing the business value of minority communities as emerging markets. It is because 40% of the Malaysian population consists of minorities (Alexandrov, 2000).
Business does not operate in a vacuum. Activities inevitably lead to a series of ecological and social impacts (Anonymous, 2002). At the bank, through the provision of finance and banking services to a wide variety of business customers, can be more far-reaching and profound than the direct impact of our actual operations, so they have put measures in place to ensure that this impact is managed.
1) Social Responsibility
• Anti-money Laundering
It is the disguising of funds derived from criminal activity to give them legal respectability. It has been estimated by the International Monetary Fund that such financial flows are equivalent to between 2% and 5% of global Gross Domestic Product (Clavin, 2001).
With effect from December 2001, the Financial Services Authority (FSA) has assumed greater formal powers to supervise and enforce corporate and individual compliance with laws and regulations relating to money laundering (Clavin, 2001). For instance, all bank staff are obliged to report any transaction which they suspect might be related to drugs, terrorism or other serious crimes. Equally importantly, they are instructed not to reveal to a customer that they are being investigated. Besides, the Co-operative Bank is in the process of implementing additional awareness and training measures to underpin its full compliance with FSA requirements. Additionally, a money laundering helpdesk has been launched to help staff with any queries.
2) Health and Safety
The Co-operative Bank’s Health and Safety Officer has provided one to one training with managers and team leaders. The bank took part in the “European Week for Safety and Health” and was recognized by the Health and Safety Commission for its efforts towards raising Health and Safety awareness. Formal accredited training has been delivered to facilities staff to improve awareness and assist with their Health and Safety inspection responsibilities.
A staff handbook has been produced and distributed to raise staff awareness of the Co-operative Bank’s absence policy. During 2002, the bank made further investment in occupational health services with the expansion of the medical services unit.
3) Protection of Natural Environment
• Ecologically-sound Paper
Global paper demand is the single largest use of wood fibre. In order to relieve pressure on the environment and reduce the amount of paper waste going to landfill, banking industry should aim to use increasing amounts of ecologically-sound paper which is considered an efficient use of resources and protects old growth forests from logging. When compared with virgin paper, the use of recycled paper substantially reduces water consumption, energy use, air pollution, and water pollution. Furthermore, the Co-operative Bank has been seeking to use the most ecologically-sound paper available for the majority of their activities for the past five years. Likewise, the disposal of paper waste also has significant ecological impacts. During 2002, the bank recycled 657 tonnes of paper (Allsop, 2001).
Analysis on models.
1) Sky Land
There is no need to establish too many banks anymore! In addition, banks need not fiercely compete with each other for choosing the working places. The banks can retract the working places in order to save costs for hiring employees, paying electricity fee, and rental fee. Likewise, from the perspective of ecological environment, it can save lots of resources, such as electricity and papers. Although there is only several banks do the operation for the numerous numbers of customers, “Sky Land” makes banking industry to be more available, efficient and convenience.
If the banks retract some places of their business network, they can save cost, such as kinds of resources, the rent of the place, electricity, labors and the like. Therefore, the banks can save the money.
In regard to the pace of developing technology and attitude to the new high-tech, the technology will not develop the level to support the plan to be applied in 10 years. Hence, banks can not implement this scenario. In addition, some people may not have their own computer or even telephone or phone. Therefore, they can not get in touch with banks.
This project cannot be successful, because not sure for the technology either can achieve the enough level to support this project.
Nowadays, hackers keep increasing in technology manner. Banking industry has to summon the way to solve the problem. FRV is a system includes fingerprint, retina and even voice identification functions, the highest technology system. Every people have different voice, retina, and fingerprint, efficiently make use of them are benefit to banking industry. For instance, customers have to put their fingers on the fingerprint machine that verifies their personal identities, includes get to know the amount of money.
Likewise, voice can differentiate each people and it can be used in saving and drawing. In addition, their retina has to be checked for transferring. Moreover, banking industry invents “FRV” which includes fingerprint, retina and voice and customers have to do them in the meantime for recognizing their identities. Furthermore, it puts aside the troubles of bank book, bank card, and even credit card. For instance, fingerprint, retina, and even voice system combine together and install into the ATMs, people use their fingers or eyes to save or draw money, instead of their bank cards.
It is safety for customers to make transaction with banks. Besides, it brings a lot of convenience to customers who can go to bank directly without carrying anything. For banks, they can save some overheads and make more profits, for they can lay off some employees.
It will take rather a lot of money to introduce the fingerprint and retina system in the banking industry. The system is only a tool, it is very instable. For instance, if there is a bug we do not know, it may destroy the database and loss the information of customers, and make lots of loss.
This planning can be success, because the fingerprint and retina system is already mature. This system has been applied in detecting criminal case by policeman; example is “Henry system”, which classifies each fingerprint in terms of its arches, loops, whorls, composite style prints, and the location of certain fixed points and ridges. It is easy for banking industry to put it into practice. In addition, this project will improve the safety of customers a lot. Therefore, this system will be popular in the banking industry in the next ten years.
The banks who want to introduce the FRV have many barriers, such as costly and instable. Despite of these which are also can be solved easily. They can ask the suppliers who are familiar as they can give more discounts for them. Furthermore, government is a good supplier as they can support the banks for introducing the system. Yet, employ engineers for repairing the systems when they are spoiled. Using “Backup” and “Defragmenter” are also the ways to reduce barriers. In addition, they also can establish a department for checking the system daily or monthly.
3) Automatic Bank Operator
Along with the society development keep advancing, banking industry is able to introduce much more high-tech equipments. Firstly, the banks just only have to possess computers and phones with high technology “Automatic System” which includes automatic responding and do transaction for customers. Besides, they only have to hire a few employees to operate the computers. Secondly, customers can contact with “Robot Operator” to save, withdraw, and others banking functions. Be more bravely, it is better to invent “Robot Operator” which does transaction for customers.
Thirdly, customers use the computers through the Internet to have a connection with the banks which includes “Automatic System”, giving responses to the customers via “BCR” (Banking Chat Room) that chat online which can contact with lots of customers in the meantime. Moreover, banking industry merge the three functions which is called “ABO” (Automatic Bank Operator), can save much money and earn a tremendous of money in the future. Eventually, in the next ten years, banks do not need employees to transact the business.
The “Automatic System”, “Robot Operator”, and “BCR” can do work instead of human, and banks incline to lay-off employees. The banks directly save much money in overheads.
It costs much money for the banks as they have to invest a tremendous of money into this high technology equipment. Furthermore, it also needs longer time to get back the costs of investment and even much more long time to get profit. When the technology system goes wrong and cannot be operated, which cause the transaction be more trouble and the banks have to pay for their mistakes. Moreover, they also have to employ engineers repair the system.
The banks can ask government to support their “ABO” in investment as these investments have to put much capital into it which is very costly and risky. Besides, they can search the suppliers who sell the raw materials and equipments to be cheaper or given discount.
4) Loving Needy
In the next ten years, there are many countries will become ageing population society, the tremendous of old folks are retire or disabilities who do not have enough money to sustain their lives. Therefore, they need money to make their lives become better or even just only need to survive. In turn, the government needs more money to the welfare work for the needy. For instance, the government does a policy that is named “Loving Needy” to require the entire banking industry reel off 10 percent to 50 percent interests of the customers’ deposits. It is available and efficient to the whole society.
The needy can get the money via “Loving Needy” to have better live. Besides, the banks can reduce the welfare costs in other ways.
It seems like the banks oblige customers to real off their portion of deposits. They cannot do anything to reject the government, else they just only can do strike on the government daily for rejecting them to do it.
All the banking industry does to the needy are correct and available. They ought to do this welfare work more often and even throughout the world.