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Trends in Banking

New Developments in Lending

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As with the rest of the financial services industry, a variety of new trends and innovations have emerged in banking. As with many innovations, some are positive, some have a lot of negatives, and some present a mixed bag of pluses and minuses. Regulators have been keeping an increasingly diligent eye on many of these developments, especially since the financial crisis of 2008.

As someone interested in building a career in financial services, whether or not it is specifically in the banking sector, familiarity with this set of financial jargon will be a small, but worthwhile, exercise in career development.

Amend and Pretend Loans

In the current political and business climate, both loan officers and the banks that employ them face a quandary when confronted with a nonperforming loan. When a borrower gets seriously into arrears, what should they do? Should they quickly foreclose? Should they move swiftly to write off the loan? Or, instead, should they attempt to strike a deal with the debtor that adjusts the terms of the loan and thus seeks to mitigate the expected financial loss? Not surprisingly, both elected officials and regulators are of two minds on this issue, sending out conflicting signals, often simultaneously, and inconsistently from one moment to the next.

The Digital Wallet

The digital wallet is an information technology initiative designed to make smart phones a safe, secure and efficient way to move funds and make payments, reducing or eliminating the need to carry cash. Both major banks and third party providers are in on the developing action.

Leveraged Loans

Leveraged loans have a lot of commonalities with the so-called subprime loans that have been blamed by many political figures, regulators and market commentators as a key element in sparking the financial crisis of 2008. Learn the subtle differences in terminology, and add to your knowledge of financial jargon.

Living Wills

We are not talking about advance medical directives here. Rather, the term "living will" has worked its way into everyday financial jargon as shorthand for the contingency plans that regulators are forcing banks to create. These living wills are supposed to speed up the process of dealing with troubled banks, mitigating effects on the financial system and the general economy. Will they succeed at this purpose? Read on for more details.

Microfinance

Microfinance goes where the traditional bank fears to tread. Very small loans to very small businesses, usually (but not exclusively) in the developing world. The concept earned a Nobel Peace Prize. Expansion of the idea in the developed world is beginning.

Mobile Banking

Mobile banking is an earlier iteration of the technically more advanced digital wallet (see above), another innovation in the developing world designed to work around limitations of the local banking, transportation and communications systems. Nonetheless, there are applications in more developed economies.

Peer to Peer Lending

Peer to peer, or P2P, lending is a new twist on an old concept: cut out the middleman, in this case the banks. Levering off the Internet, P2P lending promises better deals for saver and borrower alike, by removing the bank's cut of the action. But, there are risks.

Royalty Financing

Under a royalty financing scheme, loans are structured under what is, essentially, a pay as you go scheme. Since the concept lies far outside the comfort zone of most traditional banks, innovative new firms are the primary source of this variety of lending.

Specialty Lenders

As the term implies, specialty lenders focus on relatively narrow niches within the credit markets. As a result of their concentrated expertise, specialty lenders have key advantages over traditional banks in serving these market niches.

Trends in Branch Banking

The banking industry is highly cyclical, and sometimes unpredictable, in its attitudes toward the size and location of branch networks. Get the full picture here.
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