TOPIC 2: The Changing Financial System and Role of Financial Institutions
outline and explain the main causes (drivers) of change in the financial system.Ã¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂÃ¢ÂÂ
From the early 1980's the financial system has been undergoing continuous and rapid change, that is primarily driven by the three interlinked forces of changing customer needs, new technologies and changes to regulation.
Changing cutomer needs.
Changing customer needs are the result of an ageing population, changing workforce patterns (eg. lower job security, early retirement), increasing accumulation of financial assets and liabilities by the household sector and increasing consciousness of value and willingness to adopt new technology. As a consequence of these changing needs:
Customers are increasingly moving towards electronic channels of delivery which offer lower cost and greater convenience.
Products which offer increased convenience and desired features such as the ability to smooth cash flows over the life cycle will increasingly be sought by customers.
Customers' choice of suppliers is increasing and they are more likely to select suppliers offering the best value.
2.1.2 Changes in technology
Technology is allowing innovation to occur in the financial services industry at an accelerating pace, leading to significant changes in financial relationships and market structures. In particular:
Improvements in communications infrastructure and technology are breaking down physical constraints and cost barriers to the transmission, storage and use of information.
Information networks are evolving in competition with proprietary systems.
Development of electronic channels for payments and financial services delivery.
Physical location of customers and suppliers is becoming less important.
Financial industry cost and pricing structures are under challenge.
Organised markets and exchanges increasingly using electronic trading and information gathering and reporting..
2.1.3 Changing government regulations
Along with changing customer behaviour and technology, changes to government regulation and government activities have influenced the financial system. Over...