Sample Essay on Money and Banking

Money and Banking

Significance

The significance of virtual banks is that if offers a direct banking platform mainly through the internet such that the traditional client services such as depositing, withdrawing and financial transfers are conducted through a network of complementary technologies that include mobile phones, computers, and automated teller machines (ATMs).

Competition

There competition that they provide to brick and mortar banking institutions include. Firstly, the high interest rates on customer deposits and low rates on loans entice customers to channel their deposits away from brick and mortar banks to virtual banks and to borrow from these banks. Secondly, with the increased penetration of smartphones and consumers becoming more web-savvy, customers are finding it more convenient to bypass the traditional banks completely and use their smartphones in making and accepting payments, and managing their finances.

The Costs and Benefits

The first benefit that these banks offer is convenience. Customers can use them wherever and at any time. Customers are able to check their bank balances in real-time. As a result, virtual banking is much easier, efficient, faster, and more effective through the use of modern banking delivery channels like ATMs, telephone banking, and cross border funds transfers. Secondly, these banks provide better rates. Virtual banks do not have substantial infrastructure and payroll costs, which allow them to charge low rates on loans and mortgages and pay better interest rates on savings. They also offer other value added services on their websites such as tools for analyzing investment, tax forms and tax preparation and free online bill payments. Similarly, the development of new Smartphone applications has brought mobility virtual banking. Finally, setting up a virtual banking account is much easier and requires less information compared to the traditional brick and mortar account.

Despite the significant advantages, virtual banking equally presents significant challenges. Firstly, there are significant security challenges, particularly with online banking. These include attacks by hackers, malware and phishing. Secondly, this type of banking denies customers and the bank the opportunity to develop personal relationships. These relationships are important particularly for customers when they require a loan or special services. Similarly, banks also lose the opportunity to cross-sell because there is no face-to-face interaction in virtual banking. Thirdly, virtual banking is predominantly conducted online; therefore, it can only work for those customers that are technically competent. In addition, some virtual banks do not provide all-inclusive banking services, like brokerage accounts, which brick and mortar banks offer. Furthermore, regular services such as bank signature guarantee are not offered online, yet they are necessary for various legal and financial dealings.

The Future of Virtual Banks

Virtual banks will continue to gain more popularity in the future. However, they cannot substitute the traditional brick and mortar banks, rather, they will co-exist. As a matter of fact, the future success of traditional banks will be determined by the ability of brick and mortar banks to adopt and implement technologies that are presently used only by virtual banks. They will achieve this either by developing their own technologies internally or acquiring virtual banks.

The Virtual Bank Quiz

From the virtual bank quiz, it is evident that the virtual bank is not good for me. It is recommended that I stick with a traditional brick-and-mortar bank, particularly if the bank has a useful website. Like many other bank customers, I find comfort in the fact that I can readily walk in to a bank branch and have face-to-face interaction with the bank staff. Therefore, personal banking relationship is very important to me, and I cannot get this from virtual banks.