consumer finance
TRANSCRIPT
1 Consumer Finance
2 Consumer Finance
SUBJECT-
Universal Banking
TOPIC-
Consumer finance
Group 6
SYBBI
SEMESTER IV
PROF. Patricia Lemos
3 Consumer Finance
Acknowledgement
We are very thankful to everyone who supported us, for we have completed our project successfully
and moreover on time. We thank the group members for their contribution towards this project. We
also thank our classmates and friends for all the help they have offered.
We are equally grateful to our teacher Prof. Patricia Lemos; she gave us moral support and guided us
in different matters regarding the topic. She had been very kind and patient while suggesting us the
outlines of this project and correcting our doubts’. We thank her for her overall support.
Last but not the least, we would like to thank our parents who helped us a lot in gathering different
information, collecting data and guiding us from time to time in making this project despite of their
busy schedules ,they gave us different ideas in making this project unique.
Thanking you.
Group 6 members
(8136-8144)
Class- SYBBI
4 Consumer Finance
Index
SR NO PARTICULARS PAGE
NO.
1. Introduction 6
2. SME Sector 8
3. Retail Lender 12
4. Micro Finance 16
5. Bancassurance 19
6. Retail Banking 21
7. Conclusion 28
9. References 30
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INTRODUCTION
Universal Banking
A banking system in which banks provide a wide variety of financial services, including both
commercial and investment services. Universal banking is common in some European
countries, including Switzerland. In the United States, however, banks are required to
separate their commercial and investment banking services. Proponents of universal banking
argue that it helps banks better diversify risk. Detractors think dividing up banks' operations
is a less risky strategy.
Universal banks may offer credit, loans, deposits, asset management, investment advisory,
payment processing, securities transactions, underwriting and financial analysis. While a
universal banking system allows banks to offer a multitude of services, it does not require
them to do so. Banks in a universal system may still choose to specialize in a subset of
banking services.
The concept is most relevant in the United Kingdom and the United States, where historically
there was a distinction drawn between pure investment banks and commercial banks. In the
US, this was a result of the Glass–Steagall Act of 1933. In both countries, however, the
regulatory barrier to the combination of investment banks and commercial banks has largely
been removed, and a number of universal banks have emerged in both jurisdictions.
However, at least until the global financial crisis of 2008, there remained a number of large,
pure investment banks.
In other countries, the concept is less relevant as there is not regulatory distinction between
investment banks and commercial banks. Thus, banks of a very large size tend to operate as
universal banks, while smaller firms specialised as commercial banks or as investment banks.
This is especially true of countries with a European Continental banking tradition. Notable
examples of such universal banks include BNP Paribas and Société Générale of France;
HSBC, Standard Chartered Bank and RBS of the United Kingdom; Deutsche Bank of
Germany; ING Bank of the Netherlands; Bank of America, Citigroup, JPMorgan Chase and
Wells Fargo of the United States; and UBS and Credit Suisse of Switzerland.
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Universal banking and private banking often co-exist, but can exist independently. The
provision of many services by universal banks can lead to long-term relationships between
universal banks and firms.
Consumer Finance
It is the division of retail banking that deals with lending money to consumers. This includes
a wide variety of loans, including credit cards, mortgage loans, and auto loans, and can also
be used to refer to loans taken out at either the prime rate or the subprime rate. Consumer
finance in the most basic sense of the word refers to any kind of lending to consumers. One
of the best ways to get the unsecured loans is through the consumer finance.
Durables which are financed are Television, Washing Machine, Air Conditioner, DVD/VCD
players, Refrigerator, Computers/laptops And other consumer durables
Consumer finance has largely returned to the marine industry; however, it is very different
than it was during its pre-recession prosperity.
There was a time when just about anyone could get financing for a new boat, and
consequently, models were flying off the showroom floor. It was a flawed system, however,
that led to the recession and recoil from previously generous lenders.
Today, financing has made a comeback, as availability is near pre-recession levels, but it is
being conducted in a manner that adheres more strictly to lending guidelines and newly
enacted regulations.
Although banks are nowhere near – and possible never will be – pre-recession volumes,
banks have re-entered or increased their aggressiveness in the issuing of boat loans.
During the downturn, banks exited recreational financing as loan defaults in all industries
increased exponentially. Today, many are coming back in as they are again in a positive
position and want to make money on lending.
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SME SECTOR
Small and medium enterprises (SMEs) or small and medium-sized businesses (SMBs) are
companies whose personnel numbers fall below certain limits. The abbreviation "SME" is
used in the European Union and by international organizations such as the World Bank, the
United Nations and the World Trade Organization (WTO). Small enterprises outnumber large
companies by a wide margin and also employ many more people. SMEs are also said to be
responsible for driving innovation and competition in many economic sectors. Small &
Medium Enterprise signifies: the owner of the enterprise works alongside his/her workers; the
enterprise is classified in the "formal" sector
SME sector of India is considered as the backbone of economy contributing to 45% of the
industrial output, 40% of India’s exports, employing 60 million people, create 1.3 million
jobs every year and produce more than 8000 quality products for the Indian and international
markets. With approximately 30 million SMEs in India, 12 million people expected to join
the workforce in next 3 years and the sector growing at a rate of 8% per year, Government of
India is taking different measures so as to increase their competitiveness in the international
market.
There are several factors that have contributed towards the growth of Indian SMEs. Few of
these include; funding of SMEs by local and foreign investors, the new technology that is
used in the market is assisting SMEs add considerable value to their business, various trade
directories and trade portals help facilitate trade between buyer and supplier and thus
reducing the barrier to trade
With this huge potential, backed up by strong government support; Indian SMEs continue to
post their growth stories. Despite of this strong growth, there is huge potential amongst
Indian SMEs that still remains untapped. Once this untapped potential becomes the source for
growth of these units, there would be no stopping to India posting a GDP higher than that of
US and China and becoming the world’s economic powerhouse.
Small and medium enterprises (SMEs) are critical for the economic and social development
of emerging markets.
They play a major role in creating jobs and generating income for low income people;
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They foster economic growth, social stability, and contribute to the development of a
dynamic private sector.
As such, access to financial services is vital in developing a vibrant SME sector in any
economy.
In many emerging markets, however, access to financial services for SMEs remains severely
constrained.
Over the past decade, IFC has played a critical role in helping small and medium enterprises
worldwide gain greater access to financing.
IFC works to increase access of SMEs to financial services in developing countries by
providing funding for equity, loans, and mezzanine finance to financial intermediaries
focusing on SME financing, and by building capacity of financial intermediaries and raising
awareness on best SME Banking practices.
IFC uses both investments and technical assistance to support financial intermedia ries
outreach to the SME sector more effectively and efficiently. Investments made by IFC in
financial intermediaries focusing on SME lending have included equity investments, loans,
revolving credit lines, and risk mitigation facilities.
On the advisory side, IFC supports enhance banks SME operations in areas such as strategy,
market segmentation, product development, risk management and IT/ MIS Facilities.
In 2011, IFC’s Global SME Banking Advisory Services Program comprised 59 projects
spanning 38 countries and totalling $41.5 million.
About 81 percent of these projects were in International Development Association (IDA)
countries, with 16 percent in conflict-affected or fragile states.
Sixteen percent of these projects included a component supporting targeted lending to
women-owned SMEs.
Activities undertaken by the program under the G-20 initiative helped cement IFC’s position
as a global thought leader in the SME finance area.
As the technical lead for the G-20 SME Finance Sub-Group under the Global Partnership for
Financial Inclusion (GPFI), IFC’s program led the production of a stocktaking report which
9 Consumer Finance
included a literature review on SME finance challenges, the collection of more than 160 SME
finance models, and policy recommendations to scale up SME access to finance.
IFC’s Access to Finance Advisory Services supported a series of initiatives aimed at helping
individuals and households access formal financial services, including the SME Finance
Challenge, a competition launched by the G-20 to identify models that enable access to
finance for SMEs.
IFC established a fund for winners of the challenge and has contributed to the fund.
At 2011 Cannes summit, the G-20 leadership lauded IFC’s role in setting up the fund, which
mobilizes grant and risk capital for winning proposals from the Challenge and for scaling up
successful SME financing models.
What is the SME?
From a quantitative perspective – Small & Medium Enterprise comprise of
• Less than 25 employees
• Less than 4000 sq. ft. of manufacturing area
• Less than US$50000 investment in equipment; (note: Investments exclude real estate)
• Less than US$125,000 annual sales
• The value of the machinery, equipment and working capital must not exceed $1.5M
Need for SME’s
• The market for international payments services is rapidly expanding as SME’s search
for a reliable platform that can serve their international payments needs. Yet, even the largest
global banks lack the local footprint to deliver truly global payment solutions.
• Many payment solutions, designed by the banking community, are aimed at the large,
multi-national companies but are not well suited for the SME market.
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• Bank model continues to push customer service through self-service channels despite
SME customer need for tailored, high touch service.
• Innovative payment solutions such as beneficiary management are not currently
supported by any global or regional banks
Scope of SME’s
• It aims at delivering quality, innovative and efficient products and services to the
SME customers through its professional teams.
• The bank develops flexible lending policies that meet the market needs. It also
continues to streamline the approval procedures to improve SME lending efficiency.
• It aims to become a first-class domestic bank with leading performance in retail
banking, credit card and SME, etc. as well as advanced international standard management\
• The Bank provides its SME customers with an extensive service platform in helping
them solving financial problems and improving efficiency of their capital utilization through
integration of service platforms of outlets, Internet banking and phone banking, etc.
Objectives
a) Primary objectives
• To Study on recent economic slowdown on small and medium enterprises customers
and measures taken by banks.
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b) Secondary Objectives-
• To identify the level of impact of global recession on economy.
• To identify the share of the organization and frame measures to overcome the
recession.
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RETAIL LENDER
He is a lender who lends money to individuals rather than institutions. Banks, credit unions, savings
and loans institutions, and mortgage bankers are all examples of retail lenders. Retail lenders are used
generally for lending money for mortgages, auto loans and consumer-finance loans
One of the most common examples of retail lending is the home mortgage. With this arrangement,
qualified individuals are able to obtain the financing necessary to purchase a residence. While
qualifications will vary from one lender to another, even in the same nation, most will require that the
loan applicant have a steady income of a minimum amount, have a reasonable debt to income ratio,
and possess a credit rating that is over a certain amount. Home mortgages are normally secured loans,
in that the home being purchased with the mortgage is held as collateral until the note is retired in full.
Other types of retail lending include the issuance of loans for a wide range of financial needs. Loans
for vehicle purchases are also very common, with the acquired vehicle serving as collateral for the
loan. Individual consumers may also obtain loans to aid with settling medical debts, making home
repairs, or even as the means to finance a vacation. Depending on the nature of the loan and the credit
rating of the individual, some of these loans may not require any collateral, and are granted as
unsecured loans.
In recent years, a newer form of retail lending has emerged. Known as a payday loan, this type of
unsecured loan helps to provide a quick influx of cash in the event of an emergency. Typically, the
loan is scheduled for repayment in full within a week or two, and carries a higher rate of interest than
some other types of laws. In some jurisdictions, lawmakers have enacted legislation that places a cap
on the amount of interest payday lenders can apply to the loans, although those interest rates are still
much higher than loans obtained from more traditional lenders. For the most part, retail lending of this
type should be viewed as for emergency purposes only, and when the funds needed to retire the debt
can reasonably be expected to be in hand before the loan is due.
Retail loans are those loans which are given by the banks to individuals so as to meet there personal
needs, retail loans are smaller in size as compared to corporate loans. Given below are various types
of retail loans which are given by the banks -
1. Housing Loans – Most individuals take housing loans and when it comes to retail loans,
housing loans is right there at the top. Banks give housing loans to individuals so that can buy
apartment or construct new house if they already have the land.
2. Educational Loans – This type of loans is given by the banks to students so that they can pay
for the tuition fees, hostel expenses, foreign education and other such expenses.
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3. Vehicle or Auto Loans – This type of loans are given to individuals who are looking for
buying cars whether new or second hand, auto loans are also given for two wheelers to individuals.
4. Personal Loans – Personal loan are the loans which are given to individuals for purposes such
as marriage, traveling to abroad, loans for covering hospital expenses and other such loans which
individual may need depending on his or her needs and situations.
5. Consumer lending
Consumer lending, also called retail lending, refers loans that allow consumers to purchase
consumables, thus negating business loans, commercial loans, and also mortgage loans.
Consumer lending is a service that is provided by banks and other financial institutions. The consumer
loans offered to consumers can come in the form of secured and unsecured loans, usually depending
on the amount to be borrowed and type of product to be bought.
For example, it is very common to get a secure loan for car loans. On the other hand, the use of credit
cards, which is one of the most common types of consumer loans nowadays, is an unsecured loan.
Consumer lending is a very competitive business, which can be a great advantage to a person with
good credit scores. People with good credit scores will have at their disposal a good array of loan
products; shopping around for the best interest rates and loan terms is possible. Note though that
people with low credit scores will definitely not enjoy the same number of choices. Furthermore, even
with a good credit score, any late payment or breach of loan agreements holds the threat of lowered
credit scores reduced access to consumer lending products.
As mentioned earlier, credit cards are one of the most accessible types of consumer lending products.
However, with this convenience comes the price of high interest rates and penalties, which often leads
to consumer debt.
Pattern of growth
Retail lending by banks in India gathered momentum following financial sector reforms in 1990s. Till
then, most of the banking credit was focused on agriculture, industry, and commerce. The major role
of bank lending till then was to support supply. To ensure that bank lending does not go to finance
consumption, the regulator had put various restrictions on retail credit such as limits on total amount
of housing loan and loans to individuals. Banks could lend only a specified small percentage of their
total lending to individuals for non-productive purposes. The regulator also imposed strict norms for
rate of interest, margin stipulation and maximum repayment period. These restrictions were gradually
relaxed during 1990s which paved the way for increased retail lending by Indian banks. During the
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period from 1992-93 to 2005-06, retail loans grew at an average annual growth rate of 28.4 percent
against 19.5 percent growth of overall bank credit during this period. The annual growth rate of retail
loans was greater than the overall credit growth throughout this period, except in FY 1998-99. It
would be recalled that the year 1997 witnessed the South East Asian Currency Crisis. However, the
annual growth rate of retail loans dipped below the overall credit growth in the last two financial
years, viz 2006-07 and 2007-08. Even in the current financial year retail loans growth rate is expected
to lag behind the overall credit growth rate. Consequently, the share of retail loans in total bank credit
increased from 8.3percent at end-March 1993 to 22.3 percent at end-March 2007. Chart 1 depicts the
annual growth rates of retail loans and total bank credit during this period on the left axis as line
graphs, and the percentage share of retail loans in the total bank
credit on the right axis as bar graphs. It is also interesting to look at the share of retail loans in total
bank credit in various bank groups-foreign, private, nationalised and State Bank of India (SBI) group.
Chart 2 presents the comparison at three points of time-1996, 2000, and 2007.
The share of housing loans in total bank credit was a dismal 3.2 percent in 1998-99. But in 2006-07
housing loans constituted 11.8 percent of total bank credit. The share of housing loans in retail credit
first declined from 37.3 percent at end-March 1993 to 27.7 percent by end-March 1998, and then rose
sharply to 52.8 percent at Retail Lending: Balancing Concerns in Difficult Times
Importance of retail lending
1 History of Banking in India External shocks have undermined undercapitalized Indian owned banks
Go. I direction imposed on banking Liberalization of the economy and the industry leads to the rapid
growth of banking, especially retail banking as we know it. Demise of the 4-6-4 method!
2. What is Retail Banking and what makes it different? In a world of parity products, how do you gain
leverage? Definition - Banking in which banking institutions execute transactions directly with
customers typical products: savings and transaction accounts; mortgages; personal loans; debit and
credit cards, etc. Working principle: Law of Large Numbers; probabilistic modelling Critical success
factors: Distribution – Branch, channels Branding Unit costs – cost per account, cost per transaction
Pricing Risk management
3. Retail Banking: What’s been good for Indian banks hasn’t been good enough for the country
scorching pace of growth since liberalization: CAGR of around 30% to touch a figure of INR 9700
Billion. Bankable households are growing at a CAGR of 28% (2007-11) What’s powering this
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growth? Economic prosperity and growth rate Young population (70%<35 years) Technology
channels: ATM, POS, Web, Mobile Retail loans constitute 7% of our economy versus 35% in other
Asian countries Retail assets are at only 25% of total banking assets 41% of India’s adult population
is un-banked Number of loan accounts: 14% of adult population 73% of farm households have no
access to institutional credit Share of money lenders in rural debt has moved from 17% in 1991 to
30% in 2002
4. This imbalance is caused by banks chasing the low hanging fruit that constitutes the urban savvy
consumer Purely from a profitability perspective, a large portion of the Indian population is perceived
to be “unbankable” The costs of servicing the remote rural sector using traditional business models
(KYC; branch centric model; incremental cost of infrastructure) makes profitable banking unviable
Therefore, all banks tend to target the upwardly mobile urban salaried class Banks are even creating
“financial exclusion” barriers by increasing minimum balance requirements and average deposit sizes
Technology has lowered the cost of servicing this target segment
5. Fortunately, the scenario is changing Financial Inclusion (FI) is an RBI mandate, government
mandate and a social mandate There IS a fortune at the base of the pyramid Social security payments
and NREGA payments are being routed through banks MFI’s have shown that it’s possible to run
extremely profitable businesses. Most major banks are working on a business-driven FI strategy
Simplified KYC norms and UID is expected to drive down the cost of customer acquisition
Innovation in mobile / hand held devices using an uniquely Indian model offers the best potential
breakout strategy
6. Source: Verizone the banks that will succeed will be those that can deploy business services
through the entire eco systems through seamless supply chains
7. “ Today, if you look at financial systems around the globe, more than half the population of the
world - out of six billion people, more than three billion - do not qualify to take out a loan from a
bank. This is a shame…. The poor themselves can create a poverty-free world. All we have to do is to
free them from the chains that we have put around them”
Opportunities and Challenges of Retail Banking in India
Retail banking has immense opportunities in a growing economy like India. As the growth story gets
unfolded in India, retail banking is going to emerge a major driver. How does the world view us? I
have already referred to the BRIC Report talking India as an economic superpower. A. T. Kearney, a
global management consulting firm, recently identified India as the "second most attractive retail
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destination" of 30 emergent markets. The rise of the Indian middle class is an important contributory
factor in this regard. The percentage of middle to high income Indian households is expected to
continue rising. The younger population not only wields increasing purchasing power, but as far as
acquiring personal debt is concerned, they are perhaps more comfortable than previous generations.
Improving consumer purchasing power, coupled with more liberal attitudes toward personal debt, is
contributing to India's retail banking segment.
The combination of the above factors promises substantial growth in the retail sector, which at present
is in the nascent stage. Due to bundling of services and delivery channels, the areas of potential
conflicts of interest tend to increase in universal banks and financial conglomerates. Some of the key
policy issues relevant to the retail banking sector are: financial inclusion, responsible lending, access
to finance, long-term savings, financial capability, consumer protection, regulation and financial
crime prevention. What are the challenges for the industry and its stakeholders? First, retention of
customers is going to be a major challenge. According to a research by Reich held and Sesser in the
Harvard Business Review, 5 per cent increase in customer retention can increase profitability by 35
per cent in banking business, 50 per cent in insurance and brokerage, and 125 per cent in the
consumer credit card market. Thus, banks need to emphasise retaining customers and increasing
market share. Second, rising indebtedness could turn out to be a cause for concern in the future.
India's position, of course, is not comparable to that of the developed world where household debt as a
proportion of disposable income is much higher. Such a scenario creates high uncertainty. Expressing
concerns about the high growth witnessed in the consumer credit segments the Reserve Bank has, as a
temporary measure, put in place risk containment measures and increased the risk weight from100 per
cent to 125 per cent in the case of consumer credit including personal loans and credit cards (Mid-
term Review of Annual Policy, 2004-05).Third, information technology poses both opportunities and
challenges. Even with ATM machines and Internet Banking, many consumers still prefer the personal
touch of their neighbourhood branch bank. Technology has made it possible to deliver services
throughout the branch bank network, providing instant updates to checking accounts and rapid
movement of money for stock transfers. However, this dependency on the network has brought IT
departments additional responsibilities and challenges in managing, maintaining and optimizing the
performance of retail banking networks. Illustratively, ensuring that all bank products and services are
available, at all times, and across the entire organization is essential for today’s retails banks to
generate revenues and remain competitive. Besides, there are network management challenges,
whereby keeping these complex, distributed networks and applications operating properly in support
of business objectives becomes essential. Specific challenges include ensuring that account
transaction applications run efficiently between the branch offices and data centres. Fourth, KYC
Issues and money laundering risks in retail banking is yet another important issue. Retail lending is
often regarded as a low risk area for money laundering because of the perception of the sums
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involved. However, competition for clients may also lead to KYC procedures being waived in the bid
for new business. Banks must also consider seriously the type of identification documents they will
accept and other processes to be completed. The Reserve Bank has issued details guidelines on
application of KYC norms in November 2004.
MICROFINANCE
It is a source of financial services for entrepreneurs and small businesses lacking access to banking
and related services. The two main mechanisms for the delivery of financial services to such clients
are: (1) relationship-based banking for individual entrepreneurs and small businesses; and (2) group-
based models, where several entrepreneurs come together to apply for loans and other services as a
group.
In some regions, for example Southern Africa, microfinance is used to describe the supply of financial
services to low-income employees, which is closer to the retail finance model prevalent in mainstream
banking.
For some, microfinance is a movement whose object is "a world in which as many poor and near-poor
households as possible have permanent access to an appropriate range of high quality financial
services, including not just credit but also savings, insurance, and fund transfers." Many of those who
promote microfinance generally believe that such access will help poor people out of poverty,
including participants in the Microcredit Summit Campaign. For others, microfinance is a way to
promote economic development, employment and growth through the support of micro-entrepreneurs
and small businesses.
Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of
credit services to poor clients. Microcredit is one of the aspects of microfinance and the two are often
confused. Critics may attack microcredit while referring to it indiscriminately as either 'microcredit' or
'microfinance'. Due to the broad range of microfinance services, it is difficult to assess impact, and
very few studies have tried to assess its full impact. Proponents often claim that microfinance lifts
people out of poverty, but the evidence is mixed. What it does do, however, is to enhance financial
inclusion.
Microfinance and poverty
In developing economies and particularly in rural areas, many activities that would be classified in the
developed world as financial are not monetized: that is, money is not used to carry them out. This is
often the case when people need the services money can provide but do not have dispensable funds
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required for those services, forcing them to revert to other means of acquiring them. In his recent book
The Poor and Their Money, Stuart Rutherford cites several types of needs:
Lifecycle Needs: such as weddings, funerals, childbirth, education, homebuilding,
widowhood and old age.
Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or death.
Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of
dwellings.
Investment Opportunities: expanding a business, buying land or equipment, improving
housing, securing a job (which often requires paying a large bribe), etc.
Poor people find creative and often collaborative ways to meet these needs, primarily through creating
and exchanging different forms of non-cash value. Common substitutes for cash vary from country to
country but typically include livestock, grains, jewellery and precious metals. As Marguerite
Robinson describes in The Microfinance Revolution, the 1980s demonstrated that "microfinance
could provide large-scale outreach profitably," and in the 1990s, "microfinance began to develop as an
industry" (2001, p. 54). In the 2000s, the microfinance industry's objective is to satisfy the unmet
demand on a much larger scale, and to play a role in reducing poverty. While much progress has been
made in developing a viable, commercial microfinance sector in the last few decades, several issues
remain that need to be addressed before the industry will be able to satisfy massive worldwide
demand. The obstacles or challenges to building a sound commercial microfinance industry include:
Inappropriate donor subsidies
Poor regulation and supervision of deposit-taking MFIs
Few MFIs that meet the needs for savings, remittances or insurance
Limited management capacity in MFIs
Institutional inefficiencies
Need for more dissemination and adoption of rural, agricultural microfinance
methodologies
Benefits and Limitations
The benefits of microfinance are that it helps to manage the assets of the poor and generates income.
Through microfinance institutions such as credit unions, financial non-governmental organizations
and even commercial banks poor people can obtain small loans and safeguard their savings. The
limitations of microfinance are that through this savings plan participants are losing money by having
to pay a fee. The user can also pay back their loans whenever they chose therefore encouraging a
borrower to have various outstanding loans. The lender is also vulnerable in that there is no guarantee
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of the loan being repaid in the given arranged timeframe, and the consequences to defaulting are not
defined.
When looking at a micro-finance initiative, there are three main benefits and limitations for the model.
These are based on a basic micro-finance initiative though they can be applied to many variations.
When looking at the three benefits and limitations, they revolve around three key ideas, poverty,
mistrust, and promoting change.
A micro-finance initiative wishes to address these issues in a positive way. For example, micro-
finance can be an alternative program to address poverty reduction where the tools needed to raise an
individual or a family out of poverty are given to them directly. In a micro-finance project these tools
include money primarily, and may also be accompanied with a savings program, and financial help.
Along with poverty reduction, a micro-finance initiative can aim to avoid a general sense of mistrust
between the citizens and their national banks. The money in this case, is not coming from a bank, but
rather within the community which allows those participating to foster social capital and community
cohesion. Lastly, a microfinance initiative can promote larger poverty reduction movements by
increasing the financial knowledge of the average citizen.
However, these initiatives are not without limitations. These limitations focus on the same issues as
stated before, but the negative consequences that may occur. For example, while there may be
mistrust in the national banking system, there can be microfinance initiatives where the outside
creator takes advantage of those participating. The money may not end up in the right places, resulting
in distrust to all who have interest in monetary programs, and could potentially ruin the chance of any
further microfinance projects becoming successful. Secondly, when creating a microfinance project,
time may be an issue. What happens when the program is finished and the people who were
participating are still in poverty? In this case, it may be more beneficial for there to be an on-going
program. To see what would be an appropriate choice in regards of time, the community must be
assessed before the project is put in place. Lastly, in regards to limitations, someone is always going
to be left out. Not everyone can be a part of the program, and therefore one must decide who is going
to participate. Often, for a community development project to be sustainable, all must be affected
positively.
There are two ways in which the needs of the poor are not being met by micro finance. Firstly, the
poor need to store savings for the long run; such as for their retirement, widowhood or their heirs but
the examples such as saving up, down and through do not directly meet these needs. Secondly, the
poor’s ability to save fluctuates with time and so they may not be able to save the fixed rate of saving.
These two shortcomings are difficult for the poor and they often get excluded or exclude themselves
(Rutherford, 2009). Poor people have to take a risk to turn their savings in to large lump sum of
money because there is no perfect system that would protect their deposits. For example, there is a
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lack of trust among the members and the organizer; most community micro finance projects only
include family and close friends and do not reach beyond that. Also, there is no or very little growth in
the amount of money that they save if saving up but if saving down, there is an interest rate that the
members have to pay.
Also, there are complications associated with implementing micro-finance projects in Canada. For an
example, inflation rates make it difficult to analyse interest rates across countries, so ASCA’s in high
inflation would have to charge more interest on their loans which may result in their funds to decline
in value themselves (Rutherford, 2009). In many countries, ASCA’s have become permanent
institutions referred to as Credit Unions, Savings and Credit Co-operatives. Rutherford argues that
credit unions are not owned by the poor because they require specialized skills and higher educated
personals to regulate the operation of these institutions themselves (Rutherford, 2009). Although these
institutions aim to benefit the poor, they are very different from neighbourhood ASCA’s and issues
arise when they purse collateral or securities for loans given. Similarly, there are language barriers
between formal federal banks and credit unions that causes complications (McMillian, 2010).
The major benefit of microfinance projects is that it allows low income families to save their money;
most of the poor live day to day with the little money that they earn and cannot afford to save. Poor
people need such alternatives in order to turn their savings in to large lump sums or receive large
sums and pay monthly with low interest rates. Banks and other money lending institutions have high
interest rates and simply won’t extend loans to poor people with little or no assets or employment.
Microfinance helps the poor people get access or save funds over a period of time with low interest
rates. Also, the poor could solve their own issues by working together as a community and this creates
trust and social capital in their communities. It also leads to stability and growth in their households,
as well as their communities.
21 Consumer Finance
BANCASSURANCE
As term itself tells us what does it means. It's a combination of the term 'Bank' and 'Insurance'. It
means that insurance have started selling their product through banks. It's a new concept to Indian
market but it is very widely used in western and developed countries. It is profitable both to Banks
and Insurance companies and has a very bright future to be the most develop and efficient means of
distribution of Insurance product in very near future. Insurance company can sell both life and non-
life policies through banks. The share of premium collected by banks is increasing in a decent manner
from the time it was introduce to the Indian market. In India Bancassurance in guide by Insurance
Regulatory and Development Authority Act (IRDA), 1999 and Reserve Bank of India. All banks and
insurance company have to meet particular requirement to get into Bancassurance business.
It is predicted by experts that in future 90% of share of premium will come from Bancassurance
business only. Currently there are more and more banking and Insurance Company and venturing into
Bancassurance business for better business prospect in future.
The banking business is also generating more profit by more premium collected by them and they also
receive commission like normal insurance agent which increase their profits and better reputation for
the banks as there service base also increase and are able to provide more service to customers and
even more customer are attracted toward bank.
It is even profitable for Insurance Company as they receive more and more sales and higher customer
base for the company. And they have to directly deal with an organization which reduce there
pressure to deal with each customer face to face. In all Bancassurance has proved to be boom in whole
Banking and Insurance arena
What is bank assurance?
Bancassurance is the distribution of insurance products through a bank's distribution channels. It is a
service that can fulfil both banking and insurance needs at the same time. Bancassurance as a concept
first began in India when the insurance industry opened up to private participation in December 1999.
There are basically four models of bancassurance:
• Distribution alliance between the insurance company and the bank.
• Joint venture between the two companies.
• Mergers between a bank and insurer.
• Bank builds or buys own insurance products.
22 Consumer Finance
Most of the bancassurance operations fall in the first model.
The concept of bancassurance was evolved in Europe. Europe leads the world in Bancassurance
market penetration of banks assurance in new life business in Europe which ranges between 30% in
United Kingdom to nearly 70% in France. However, hardly 20% of all United States banks were
selling insurance against 70% to 90% in many Western European countries. In Spain, Belgium,
Germany and France more than 50% of all new life premiums is generated by banks assurance. In
Asia, Singapore, Taiwan and Hong Kong have surged ahead in Bancassurance then that with India
and China taking tentative step forward towards it. In Middle East, only Saudi Arabia has made some
feeble attempts that even failed to really take off or make any change in the system.
Why should banks enter insurance?
There are several reasons why banks should seriously consider Bancassurance, the most important of
which is increased return on assets (ROA). One of the best ways to increase ROA, assuming a
constant asset base, is through fee income. Banks that build fee income can cover more of their
operating expenses, and one way to build fee income is through the sale of insurance products. Banks
that effectively cross-sell financial product can leverage their distribution and processing capabilities
for profitable operating expense ratios.
By leveraging their strengths and finding ways to overcome their weaknesses, banks could change the
face of insurance distribution. Sale of personal life insurance products through banks meets an
important set of consumer needs. Most large retail banks engender a great deal of trust in broad
segments of consumers, which they can leverage in selling them personal life insurance products. In
addition, a bank's branch network allows the face to face contact that is so important in the sale of
personal insurance.
Another advantage banks have over traditional insurance distributors is the lower cost per sales lead
made possible by their sizable, loyal customer base. Banks also enjoy significant brand awareness
within their geographic regions, again providing for a lower per-lead cost when advertising through
print, radio and/or television. Banks that make the most of these advantages are able to penetrate their
customer base and markets for above-average market share.
Other bank strengths are their marketing and processing capabilities. Banks have extensive experience
in marketing to both existing customers (for retention and cross selling) and non-customers (for
acquisition and awareness). They also have access to multiple communications channels, such as
statement inserts, direct mail, ATMs, telemarketing, etc. Banks' proficiency in using technology has
resulted in improvements in transaction processing and customer service.
23 Consumer Finance
By successfully mining their customer databases, leveraging their reputation and 'distribution systems'
(branch, phone, and mail) to make appointments, and utilizing 'sales techniques' and products tailored
to the middle market, European banks have more than doubled the conversion rates of insurance leads
into sales and have increased sales productivity to a ratio which is more than enough to make
Bancassurance a highly profitable proposition.
Bancassurance primarily banks on the relationship the customer has developed over a period of time
with the bank. And pushing risk products through banks is a cost-effective affair for an insurance
company compared to the agent route, while, for banks, considering the falling interest rates, fee
based income coming in at a minimum cost is more than welcome.
24 Consumer Finance
RETAIL BANKING
Retail banking is when a bank executes transactions directly with consumers, rather than corporations
or other banks. Services offered include savings and transactional accounts, mortgages, personal
loans, debit cards, and credit cards. The term is generally used to distinguish these banking services
from investment banking, commercial banking or wholesale banking. It may also be used to refer to a
division of a bank dealing with retail customers and can also be termed as Personal Banking services.
In the US the term Commercial bank is used for a normal bank to distinguish it from an investment
bank. After the great depression, through the Glass–Steagall Act, the U.S. Congress required that
banks only engage in banking activities, whereas investment banks were limited to capital markets
activities. This separation was repealed in the 1990s. Commercial bank can also refer to a bank or a
division of a bank that mostly deals with deposits and loans from corporations or large businesses, as
opposed to individual members of the public (retail banking).
Challenges and opportunities for retail and corporate banks in a fast changing and globalizing world
The deep crisis in the banking sector and the fast-changing environment are forcing retail and
corporate banks around the globe to change their business models, and to look for new profit
opportunities.
Banks in mature markets are focusing on deleveraging their balance sheets, complying with solvency
and liquidity requirements, and increasing their operational efficiency. Return on Equity expectations
have been gone back to pre-2002 levels. At the same time, there are plenty of growth opportunities in
the new economies.
Management Centre Europe sees a big opportunity for banks serving the growing middle class and the
still ‘un banked’ population in the new world. Small and Medium Enterprises (SME) are a major
driver of economic growth. Some of the emerging markets are leapfrogging ahead on infrastructure
and taking the lead in the convergences between banking, mobile communication and retailing.
A. Growth opportunities in emerging markets
1. Fast growth of the middle class
Strong growth in the young urban educated population results in an important increase of Consumer
Lending, both for housing and personal loans. We observe a fast-growing portfolio with relatively
high yields and good risk indicators in countries like India, Russia, Turkey and selective African
countries.
25 Consumer Finance
At the same time, the Wealth Management segment is booming in almost all emerging markets, and
especially in new oil- or natural resource-rich economies. The growing demand for Asset
Management products creates a strong need to improve the quality of service and to develop advisory
services for the wealthy and middle class population.
The major challenge for banks is to become customer-centric while increasing the bank’s profitability.
2. SME banking is the driver for economic growth
In emerging economies, Small and Medium Enterprises have even a higher impact on economic
growth compared to the Western world. Moreover, they develop faster than large corporations. Now
they are already responsible for up to 50% of GDP and over 70% of the workforce. SMEs are critical
for the economic and social development in creating jobs and generating income.
Offering services to SMEs is a key opportunity for economic growth. Often these companies are too
large for micro-financing and too small to obtain loans from international institutions (funding gap).
Creative solutions might include the development of innovative financial packages with smart
subsidies from local government to sustain SME financing, local-international partnerships to mitigate
currency and transactional cost risks (local banks with offshore partners), or the structure of lending to
SMEs with the option to convert credit in to equity at lower interest rates.
To increase customer loyalty, a customer-centric model and a relationship approach are needed. The
creation of a simple value proposition to cover customer needs (current account with overdraft, simple
cash management, user-friendly electronic banking system, payment cards, number of allowed
transactions within basic price) combined with risk-adjusted relationship pricing and dedicated
relationship management will make the difference. It is clear that the SME segment (different from
Corporate) requires a standardized and centralized process for up to 90% of its transactions and a
special track for long-term investment loans.
3. Access to financial services for the 'un banked'
In places like Africa and India, a high percentage of the population lives in rural areas not meeting the
qualifying criteria to open a bank account. In these countries, the government, together with central
banks, are setting up programmes for regulatory reform, liberalization, and modernization of the
banking industry. The focus is on payment systems, settlement and clearing to support economic
growth. A key success factor of the business model is to lower the cost of retail banking to service
low-income customers with high efficiency and profitability.
26 Consumer Finance
The combination of a high percentage of ‘un-banked ‘(over 70% of population), the boost in sales of
mobile phones (over 400 million), the partnerships between mobile operators and banks and the
governmental support (regularity reform) allows Africa to lead the way in mobile banking. Today
already 37% of cell phone owners in Africa use mobile banking services (compared to 8,5% in
leading European markets). By 2015, 238 million Africans (or 55% of cell phone owners) are
expected to be using mobile financial services. It is the opportunity to reach a new customer segment
and to boost fee revenues while limiting the costs.
One of the success stories is M-PESA in Kenya, in partnership with Safricom. M-PESA made the
mobile phone ‘the’ ATM, point of sale and internet banking in one, creating access to financial
services for the large un-banked (poor) population. It has a large network of 17.500 agents compared
to only 840 bank branches to reduce the costs, generating high volumes of daily transactions with
interesting margins at lower costs for the clients. The financial services include payments (mobile
wallet), account management and mobile micro finance.
India required a different solution to provide safe, fast and easy payments for the un-banked
population. Only 1% of the cell phone owners in India uses it for banking transactions. Branch
penetration is low, while cost of banking intermediation is high. The Federal Bank of India introduced
an innovative payment strategy to improve access to banking channels and to boost electronic
transactions. A unique 12- digit number linked to basic demographic and biometric information
(photograph and finger print scan) prevents fraud and makes it possible to offer personal payment
service from person to person, domestic and international, in a few seconds. The same number can be
used for payments with both cards and mobiles.
B. Challenges for banks
Given these trends, Management Centre Europe sees fives major challenges for retail and corporate
banks around the globe:
1. Setting up for increased competition and expansion
Prepare for new global players entering local markets. Expand in new geographies with relevant
customer value propositions.
2. Keeping customers loyal in a multi-banking environment
Become and remain the customer’s bank of choice in times of decreasing customer loyalty.
3. Investing in the right technology
Invest in technological innovation to achieve or maintain leadership in a fast changing market place.
27 Consumer Finance
4. Ensuring profitability
Adapt the operating model to ensure efficiency and profitability.
5. Managing risk through the economic cycle
Focus on sustainable growth while managing risk and complying with Basel III requirements and new
regulations.
2. SME banking is the driver for economic growth
In emerging economies, Small and Medium Enterprises have even a higher impact on economic
growth compared to the Western world. Moreover, they develop faster than large corporations. Now
they are already responsible for up to 50% of GDP and over 70% of the workforce. SMEs are critical
for the economic and social development in creating jobs and generating income.
Offering services to SMEs is a key opportunity for economic growth. Often these companies are too
large for micro-financing and too small to obtain loans from international institutions (funding gap).
Creative solutions might include the development of innovative financial packages with smart
subsidies from local government to sustain SME financing, local-international partnerships to mitigate
currency and transactional cost risks (local banks with offshore partners), or the structure of lending to
SMEs with the option to convert credit in to equity at lower interest rates.
To increase customer loyalty, a customer-centric model and a relationship approach are needed. The
creation of a simple value proposition to cover customer needs (current account with overdraft, simple
cash management, user-friendly electronic banking system, payment cards, number of allowed
transactions within basic price) combined with risk-adjusted relationship pricing and dedicated
relationship management will make the difference. It is clear that the SME segment (different from
Corporate) requires a standardized and centralized process for up to 90% of its transactions and a
special track for long-term investment loans.
3. Access to financial services for the 'un banked'
In places like Africa and India, a high percentage of the population lives in rural areas not meeting the
qualifying criteria to open a bank account. In these countries, the government, together with central
banks, are setting up programmes for regulatory reform, liberalization, and modernization of the
banking industry. The focus is on payment systems, settlement and clearing to support economic
growth. A key success factor of the business model is to lower the cost of retail banking to service
low-income customers with high efficiency and profitability.
28 Consumer Finance
The combination of a high percentage of ‘un-banked ‘(over 70% of population), the boost in sales of
mobile phones (over 400 million), the partnerships between mobile operators and banks and the
governmental support (regularity reform) allows Africa to lead the way in mobile banking. Today
already 37% of cell phone owners in Africa use mobile banking services (compared to 8,5% in
leading European markets). By 2015, 238 million Africans (or 55% of cell phone owners) are
expected to be using mobile financial services. It is the opportunity to reach a new customer segment
and to boost fee revenues while limiting the costs.
One of the success stories is M-PESA in Kenya, in partnership with Safricom. M-PESA made the
mobile phone ‘the’ ATM, point of sale and internet banking in one, creating access to financial
services for the large un-banked (poor) population. It has a large network of 17.500 agents compared
to only 840 bank branches to reduce the costs, generating high volumes of daily transactions with
interesting margins at lower costs for the clients. The financial services include payments (mobile
wallet), account management and mobile micro finance.
India required a different solution to provide safe, fast and easy payments for the un-banked
population. Only 1% of the cell phone owners in India uses it for banking transactions. Branch
penetration is low, while cost of banking intermediation is high. The Federal Bank of India introduced
an innovative payment strategy to improve access to banking channels and to boost electronic
transactions. A unique 12- digit number linked to basic demographic and biometric information
(photograph and finger print scan) prevents fraud and makes it possible to offer personal payment
service from person to person, domestic and international, in a few seconds. The same number can be
used for payments with both cards and mobiles.
B. Challenges for banks
Given these trends, Management Centre Europe sees fives major challenges for retail and corporate
banks around the globe:
1. Setting up for increased competition and expansion
Prepare for new global players entering local markets. Expand in new geographies with relevant
customer value propositions.
2. Keeping customers loyal in a multi-banking environment
Become and remain the customer’s bank of choice in times of decreasing customer loyalty.
3. Investing in the right technology
Invest in technological innovation to achieve or maintain leadership in a fast changing market place.
29 Consumer Finance
4. Ensuring profitability
Adapt the operating model to ensure efficiency and profitability.
5. Managing risk through the economic cycle
Focus on sustainable growth while managing risk and complying with Basel III requirements and new
regulations.www.mce-ama.com Page 3 September 2012
C. Strategic directions to future growth in emerging markets
1. Customer centricity to improve customer trust and loyalty
When competition increases in an industry, the best companies stand out from the rest. Typically they
do this by structuring a customer-needs-based approach (value proposition and segmentation)
combined with a proper right pricing strategy (relationship pricing and risk based pricing) for each
customer segment. The same principle applies to the banking industry. Because of the higher
customer profitability a strong focus on the Wealth Management segment (advisory, different product
mix, relationship banking) is needed.
Not too many banks give great customer service. Therefore, it is exactly in service excellence that a
competitive bank can differentiate itself from rivals. This is the key to retaining existing customers
and gaining new ones. Having the right profile of front end staff and giving them the necessary
training and coaching is critical for success.
There are clearly cross-selling opportunities between the corporate, SME and retail segments if the
‘one’ customer approach for both the private and company needs gets implemented. A full integration
of SME services in the Retail Branch network makes sense, as well as cross-selling to corporate
businesses (promoting salary domiciliation, unsecured overdraft and loans, debit and credit cards).
Russian mid-sized private banks, for example, have a tremendous opportunity to gain market share if
they develop a customer centric business model with focus on service excellence and innovation.
2. Technological enhancement to support Customer Centricity
To be customer-centric and to be able to do the right segmentation, it is important to invest in data
capture and analytic capabilities. A 360-degree customer view and CRM tool is needed to understand
and develop the needs of the different customer segments and to create sales and cross-sales
opportunities.
30 Consumer Finance
A high-performance core banking platform (automated, real time) is a competitive advantage.
Payments can be a money maker, but high-tech development is needed to make it safe, fast and easy.
Multi concepts, language, currency,... facilitate the transfer to global markets.
Plenty of examples in Africa (mobile banking), India (unique customer identification) and Brazil
(ATM) demonstrate the implementation of high tech solutions to capture new customer segments and
to limit the cost of the branch network. In Brazil the Central Bank of Brazil plays a leading role in
technological development creating efficiency and reliability for the whole Brazilian banking system
seen as one of the best in the world.
3. Efficient operating model to export to global markets
A centralized service with multi-product and multi-segment capabilities together with lean processes
(standardized, automatic, digitized, paperless and real time) ensure safe, fast and easy service. It’s
important to focus on the core activity and to consider outsourcing of non-core activities.
An industrialized approach for the mass market and SME segments offering standard packages and
relationship pricing ensure cost effective processes. And with the right pricing strategy, you can drive
the customers to the most efficient channel.
There are attractive opportunities for partnerships with mobile operators and retailers to capture the
high volume business amongst the low income population, through a low-cost distribution model.
There are plenty of examples in Africa with existing partnerships between banks, mobile operators
and retailers.
4. Smart branch network expansion or direct mobile banking?
With strong GDP growth in emerging markets, competitive focus is on expansion and not on cost
optimization. The question becomes how to expand in a profitable and cost-effective way while
adjusting to the local business environment.
The right multi-channel mix between branches, ATM, Mobile Banking, Internet and Call Centre
provides the customer a 24/7 accessibility, while directing him or her to the most efficient channel. In
this mix, we see a clear trend to move more towards mobile banking, complementing or even
replacing the branch network. For mass affluent and unbanked customers, it is the right time to
introduce Direct Mobile Banking 2.0 with the full range of Retail Banking services.
In particular markets, there are still opportunities to expand the branch network. This is thanks to the
high economic growth, fast-growing middle class and still relatively low branch penetration. The new
branch model will be advisory and service and sales oriented with a customer friendly pro-active
31 Consumer Finance
approach towards the most profitable segments (middle class, Wealth Management and SME) and this
way improve cross-sales and customer profitability.www.mce-ama.com Page 4 September 2012
Another possible solution to limit costs of distribution is the use of mobile branches as Equity Bank in
Kenya does. It has a good mix of prestige branches for affluent customers, regular branches servicing
all, with separate service for each segment, and mobile branches (vans) to serve rural communities up
to twice a week. In Brazil, ATMs are high-performing and enable the customer to execute all standard
retail banking transactions. Banks in Brazil favour expansion of the ATM network rather than
expanding their branch network.
5. Managing risk through the cycle
Western banks worry about the negative impact of the new Basel III requirements on their
profitability and economic growth (higher cost of capital passed to borrowers). Emerging market bank
can be more optimistic thanks to a higher investment appetite (historically good return of banking
stocks), growth potential of their economies, and having escaped much of the crisis faced by the West.
A major concern for banks is to maintain healthy credit portfolios and to grow in a controlled way,
monitoring all key credit ratios carefully to avoid too high write offs. In particular markets, fast
economic growth and a boost in consumer lending during the last decade led to huge losses for banks.
However in Brazil, the second private bank, Banco Bradesco, grew its market share to 15% and has
become one of the leaders in assets with a very healthy credit portfolio.
How can MCE help you to effectively address key challenges in the banking industry
MCE’s Senior Associates all have hands-on international senior management experience in the
banking industry. We help you to implement strategy and make change happen in an effective way.
How MCE adds value to your bank
• Helping to make the transformation happen through workshops and advisory services on strategy
execution.
• Building specific solutions for internal management and organizational development.
• Conducting workshops for individual managers to exchange ideas with international peers (open
enrolment workshops).
• Coaching and mentoring individuals and teams to make them gain competence in new roles or
environments.
32 Consumer Finance
CONCLUSION
Consumer finance is the segment of the financial services industry that lends money to individual
consumers. Although banks and credit unions are among the lenders in the consumer finance industry,
alternative lenders include finance companies, pay day loan services and establishments specializing
in lending to borrowers with poor credit. As a whole, the broad range of services in consumer finance
provides the financing to purchase vehicles, remodel a home or obtain secured and unsecured lines of
credit from banks.
Interest rates
Interest rates are an important aspect of consumer finance. Consumers may do themselves a great
service by understanding the effect of the interest rate charged on the amount of their loan. Generally,
the interest rate on any financing arrangement is the cost of borrowing by the consumer. Intuitively,
consumers may find that higher interest rates result in paying much more than the sale price of a
particular purchase. In contrast, lower interest rates means that financed purchases do not cost much
more than the selling price. With these two interest rate scenarios in mind, a consumer may gauge
whether a certain financing arrangement is actually worthwhile and in his best interest. After all,
entering a financial arrangement is a commitment to pay back the borrowed amount and additional
interest payments.
Being unaware of the effect of interest rates on borrowing or the inability to escape expensive
borrowing may be expensive. In some instances, some consumer finance products may not be in the
best interest of the consumer. Favourable interest rate terms may make repayment easy to manage
while higher rates make repayment a significant financial burden.
Credit Rating
Credit ratings impact a consumer's ability to obtain favorable consumer financing. Generally, a
consumer's individual credit rating may serve as a way to gauge the risk of a consumer defaulting on
the loan. Credit ratings are expressed as a numerical value of a borrower's credit worthiness.
According to Experian, a credit rating higher than 700 is generally accepted to be favorable by
creditors. As a result, lenders use credit ratings to approve or reject a consumer's request for a line of
credit. In addition, credit ratings may also determine whether the terms of the credit or loan are
favorable to the consumer. Although an unfavourable credit rating does not automatically disqualify a
consumer from financing, there are significant financial differences in financing terms between
consumers with poor credit ratings and those with strong ratings. For instance, poor credit scores may
often result in unfavorable financing terms such as paying higher interest rates. In contrast, consumers
with strong credit scores may be able to shop around for the best terms and lower interest rates.
33 Consumer Finance
Agencies
Three primary agencies--Experian, Equifax and TransUnion--provide lenders with credit information
about individual consumers. Generally, lenders will consult with more than one of these three
agencies to determine consumer history of credit management. To ensure that lenders get the most
accurate information about your credit management, check your credit report with all three agencies
for incorrect and outdated information.
Fraud
Consumer finance products may not all be in the best interest of the consumer. Consumers with poor
credit or limited financing options may be especially susceptible to potentially bad financing services.
The Federal Trade Commission reports that recent "law enforcement efforts demonstrate that fraud
promoters who promise financial services or assistance for a several-hundred-dollar fee generally do
not deliver. Instead, they take millions of dollars from consumers without providing any services at
all." The FTC warns that fraudulent activities include advance fee financing and credit repair services
that charge fees upfront to secure credit on behalf of the consumer or improve credit ratings or clear
34 Consumer Finance
REFERENCES
Wikipedia
http://en.wikipedia.org/wiki/Universal_bank
http://www.investopedia.com/terms/u/universalbanking.asp
http://www.investorwords.com/6767/consumer_finance.html
http://en.wikipedia.org/wiki/Bancassurance
http://en.wikipedia.org/wiki/Retail_banking
http://www.wisegeek.com/what-is-retail-lending.htm
THE END
Thank You
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