Types of banking system and fundamental functions

The term “banking system” refers to any situation in which several companies or businesses come together to form a system. They carry out their specialized tasks, which include fund-raising and resource lending in the financial and economic markets.

The necessity for certain entities to be in charge of carrying out financial intermediation operations serves as the primary motivation for and justification for the establishment of this sector. In this way, it’s feasible for money to go from one area to another while taking into account specific dangers and deadlines that characterize the world of finance.

What is banking system?

The bank is in charge of its own business and has a tendency to acquire economic and financial resources using a variety of tools designed specifically for that goal, including bonds, deposits, or obligations.

Alternately, this system of companies is in charge of making it possible for its clients to access these resources through banking services like loans and mortgages in return for the interest or fees that were previously negotiated in each transaction.

At a fundamental level of study, it may be said that the bank makes money when interest is collected, but the bank also incurs costs related to the interest it must pay to its own debtors.

Fundamental functions of types of banking system

Private Banking

Asset management by private banks is highly specialized and international. It aims to satisfy the wealth, financial, tax, and investment demands of high-equity individuals or family groupings. As a result, asset management and financial advising are the focus of private banking.

Numerous factors are considered for this, making it crucial to create a strong client profile:

• Risk assessment.
• Goals for profitability.
• Needs for liquidity
• The horizon of time.
• Monetary situation

Private banking services require a client-bank connection that stands out for providing individualized service in order to qualify as such. Between banking system and product banking must be distinguished:

• Customer banking focuses on making the customer relationship profitable, treating it as a whole rather than as a collection of goods and services.
• Product Banking: Instead of basing product placement on the customer, advertising campaigns are used, with no consideration for individualized service.

Home Banking System

All the resources, instruments, and features designed to bring financial services as near to the consumer as feasible are collectively referred to as “home banking” Depending on the method of communication, we may discover several sorts of banking systems.

Therefore, there are three types of banking: internet banking, telephone banking, and digital banking, which is a more general phrase that encompasses all of the aforementioned methods.

In summary, home banking is a broad notion that entails spreading the ability to conduct transactions—transactions of any sort in terms of the banking system—to all conceivable locations.

Mixed Banking System

The practice of operating in consumer or commercial banking, wholesale or industrial banking, as well as the use of both public and private capital, is referred to as mixed banking.

Initially, the banking system was split into commercial and retail banking, corporate or industrial banking, and notably investment or corporate banking, which was geared toward big businesses and activities.

Prior to recently, banking was clearly defined and devoted to a specific industry. However, as banks expanded and gained more power, traditional retail banking started to operate with products geared toward small and medium-sized businesses as well as the financing of the operations of large corporations.

Conclusion

All sectors are being impacted by the technology revolution, which has changed several businesses. Because of this, a growing number of individuals in this digital age are discussing the future of banking and how it will change to become electronic banking, a field that has highly rich raw materials in the form of client data.

Customers require such trust to deposit their funds, make investment plans, or even just to domicile their paychecks or pensions. Banking is typically safeguarded by consumer trust. If you have any questions about  banking system, do not hesitate to contact SmartOSC Fintech.