Commercial Banking in the US

Executive Summary 

The commercial banking sector in the United States of America dates back to the 1790's in line with the founding of the country, a few years after the United States of America gained independence from the United Kingdom. Over the years, the commercial banking industry in the USA has become more extensive and complex. The American citizens have embraced the idea of banking largely. With the increase in technological innovations in the USA, the country has had an increase in the financial technology institutions. Such institutions are non-banking institutions with an extensive technological integration that gives the customers the freedom and convenience in their banking services. The customers in the country have been mainly attracted to the current banking, which involves technology to the point of migrating from the traditional banks in which they have had accounts. 

The traditional banks in the United States of America have been concerned with the digital banking migration that has resulted in the closure of many accounts and the reduction in the customers to the banks. The decline in the customers in the traditional banks in the United States of America has been exacerbated by the regulations that have been put in place by the federal government. The rules have by for favored the fintech organizations at the expense of the traditional banks. The federal government might have targeted to motivate the conventional banks to integrate more advanced technology in their operations. On the other hand, the federal government may have decided to get rid of the traditional banks. The introduction and the growth of the fintech organizations in the country is one sure way to subject the conventional banks to a slow but sure financial death. 

Problem Statement 

The commercial banking sector in the United States of America is one of the subsectors of the financial services industry that have attracted the masses. The country has invested in elaborate banking which has drawn the attention of the residents in the various parts of the USA (The Economist, 2015). The increase in the business activities has made more people willing to bank in the country and especially in the twenty-first century. The banking industry in the country has also increasingly been impacted by the rise in the levels of technology in the country. Various banks have integrated technology in different levels in the country to serve their customers better (The Economist, 2015). However, the integration of the level of technology has not always been the same in the different commercial banks in the United States of America. That has created a competition between the traditional banks and the upcoming financial technology institutions, also known as fintech companies (The Economist, 2015). 

The traditional banks have been losing customers to the fintech companies, which are sprouting in the different areas of the country. As financial operations become more digitized in the USA, the traditional banks have had more to lose to the financial technology institutions since the latter have assured the customers of financial security more than the former (Townsend, 2018). The fintech organizations in the USA have also guaranteed their customers that they have financial freedom. The financial freedom has been brought about by the simplification of the banking services by ensuring that the customers can transact at their comfort wherever they are (Townsend, 2018). That has also been a significant blow to the traditional banks, which have picked up a little pace in technological advancement while the other has been adamant about letting technology affect them for the better. Therefore, the competition between the traditional banks and the financial technology institutions in the USA has brought about multifaceted effects on the former leading them into a financial crisis (Townsend, 2018). 

Literature Review 

Banking in the United States, according to Gordon (2008), has been faced with a financial crisis at least once every two decades. Gordon (2018) observes that in 2008, there was expected to be a financial crisis in the United States of America. There before, banking in the country would begin to have crises when there was an impending economic depression. Nonetheless, in the current financial world, the recession in the financial performance of the commercial banking industry in the United States has technology involved. Technology has divided the financial institutions into the traditional and the modern banking institutions. With technology at the base, the two classes of organizations have been involved in an unending tussle (Gordon, 2018). Unlike the other financial crises in the past, the current one involving technology may last longer and have more lasting effects on the players involved. That will turn the tables in the banking industry in the United States of America for good (Gordon, 2018). 

Mills & McCarthy (2017) agrees with Gordon (2018) that the level of technology has created a tussle between the traditional and the modern commercial banking institutions in the United States of America. However, Mills & McCarthy (2017) offers a more recent approach to the field of banking where they state that the state of commercial banking in the United States of America has improved over the years. Notwithstanding, the authors observe that the small and medium-sized enterprises in the USA have significantly been unaffected by the rise in technology. That has contradicted the recent banking milestones, as Mills & McCarthy (2017) narrates. The small and medium-sized enterprises have not familiarized with the rise in the level of technology even as the banks have taken positive steps towards it. The banks in 2018 have been offering their customers, including such enterprises, the ability to digitize their financial transactions. The SMEs have thus been left out in a great deal. 

Mills & McCarthy (2017) also observe that retail lending has taken a basket in the commercial banks in the USA. Therefore, that means that the SMEs have not been getting a lot of financial help in the banks as they used to, in the form of loans. That could be attributed to their adamant reception of the increasing technological advancements in the country, with a good number of them affecting the commercial banks in multiple ways. Mills & McCarthy (2017) suggest that there is also a tussle between the SMEs and the banks in the United States. With more and more banks digitizing their services including online lending, the small and medium enterprises have failed to keep up with their service providers, as described by Mills & McCarthy (2017). Hence, the modernized banks have not been able to reach out to the small and medium enterprises, which traditional banks have. That has disadvantaged the banking institutions in the USA, which are increasingly being modernized. 

Dunkley (2016) elaborates more on the discussions of Gordon (2008) and Mills & McCarthy (2017) regarding the change in the banking sector of the United States of America. However, Dunkley (2016) provides a slightly different approach to what technology is doing to the commercial banking sector in the country. The rise of the fintech organizations has not been a welcome idea to the existing banks in the USA. The latter have been faced with a lot of pressure as far as the introduction of the fintech institutions is concerned. The customers in the country have been reported to favor the fintech organizations, and a majority of the customers is either holding two accounts with the traditional and the modern banks while the rest have closed their accounts to join the technological, financial institutions. That has brought a financial crisis to the commercial banks in the United States of America, only that this time it has affected only one class of the banks (Dunkley, 2016). 

With the increase in the business activities in the United States of America, consumers have not had much time to go by the bank to conduct their transactions. The mobile phones, laptops and the other devices have therefore been instrumental to their transaction services, which have been introduced to them by the fintech organizations. In a period when the banking industry players in the USA have been struggling to maintain their brands and hoped that they increase the brands' awareness, many have had to turn into technology, which has proven to be their only way of survival (Dunkley, 2016). According to Dunkley (2016), the fintech organizations in the United States of America have also attracted economic investors from within and without the country who have invested billions of dollars to support the institutions. That has further supported their operations in the country. The traditional banks in the country have therefore had a threat, which may eliminate them if they do not follow the technological means of serving their customers (Dunkley, 2016). 

Cowley (2018), reports that the federal government in the United States of America has begun clearing the path for the online lenders in the country. That is meant to be a blow to the traditional banking system in the United States of America, which has primarily been underperforming in the recent past. The move by the federal government, according to Cowley (2018) is meant to ensure that the business activities of the fintech institutions in the USA are easy and are in an excellent position to compete with the traditional banks in the country. The move could have both advantages and disadvantages to the commercial banks in the USA. An advantage to the conventional banks is that it will create motivation for them to join the technological race in the banking sector. Nonetheless, the prioritization of the fintech institutions is set to discontinue the operations of the traditional banks, which have not incorporated technology in the service provision (Cowley, 2018). 

According to Cowley (2018), the fintech organizations in the USA have gone an extra mile. The organizations have pressed the federal government to have the regulations changed regarding their business operations to favor them more and more. With the fintech institutions integrating the use of cryptocurrencies in additional to the conventional currency, they have appealed to the customers and particularly those who are keen on the latest developments in the banking industry in the United States of America. The treasury department in the country has heeded their plans by releasing a report that has explained how the present president of the united states of America, Donald Trump, and his administration have viewed the regulation of the non-bank institutions in the united states of America. The charter released a short time later has explained that the fintech organizations do not require having the state approvals in the granting of the loans to the American consumers. That has helped them against the traditional banks (Cowley, 2018). 

Cowley (2018) therefore agrees with Dunkley (2016) that the fintech organizations will soon change the financial approach of the American citizens drawing them towards the organizations with a high level of technology and further away from the traditional banks. Additionally, the traditional banks have had various changes in the regulations in the country by requiring them to pass through both the federal and the state governments to be allowed to release funds to the customers as loans. That has made the banks lose more money in the clearance costs. Such has been the moves of the federal government in compelling the conventional banking systems to adapt to the fast-paced technological change in the financial institutions across the vast country. 

Summary and Conclusion 

The current move by the federal government in the United States to change the banking industry by empowering the fintech organizations is disadvantaging the traditional banks in the country (Cowley, 2018). One of the ways that the government is disadvantaging the conventional banks is by increasing the pressure on the traditional banks to adopt the technology to serve their customers better. Nevertheless, the traditional banks have been adamant to embrace the growing technology in the industry. That has only served to be more disadvantageous to them (Gordon, 2018). The government has also sparked a new wave of competition between the traditional banks and the fintech institutions. The rise in the level of competing may be disadvantageous to the financial institutions, which have not embraced the current level of banking technology given the increase in the number of customers who are migrating to digital banking. The institutions, therefore, have to keep up with the latest technological trends, or else they might be choked by the increase in the level of technology, which is taking place day and night. 

The loss of customers has indeed been observed in the traditional banks as the governments' collaboration with the Intech organizations has attracted more people in the recent past and the present. The conventional banks have therefore reported a significant loss in the number of customers they have been serving in the provision of the financial services. The migration of the consumers has forced some of the banks to lose due to going bankrupt. That has significantly affected the banking industry in the United States of America. The traditional banks have recorded a substantial reduction in their returns on investments made, owing to the increase in the number of financial technology organizations in the United States of America. That has caused concern on the traditional banks as the condition seems to worsen in the near future, and more and more technological advancements keep coming up in the commercial banking industry in the United States of America. 

References 

Cowley, S. (2018, July 31). Online Lenders and Payment Companies Get a Way to Act More Like Banks. The New York Times . Retrieved from https://www.nytimes.com/2018/07/31/business/dealbook/fintech-bank-charter.html 

Dunkley, E. (2016, September 12). Fintech start-ups put banks under pressure. Financial Times . Retrieved from https://www.ft.com/content/ce8fa350-737f-11e6-bf48-b372cdb1043a 

Gordon, J. S. (2008, October 10). A Short Banking History of the United States. The Wall Street Journal . Retrieved from https://www.wsj.com/articles/SB122360636585322023 

Mills, K., & McCarthy, B. (2017, April 26). How Banks Can Compete Against an Army of Fintech Startups. Harvard Business Review . Retrieved from https://hbr.org/2017/04/how-banks-can-compete-against-an-army-of-fintech-startups 

The Economist. (2015, May 9). The fintech revolution. The Economist . Retrieved from https://www.economist.com/leaders/2015/05/09/the-fintech-revolution 

Townsend, Z. (2018, April 15). Fintech in the US is stymied by old-fashioned regulators. Financial Times . Retrieved from https://www.ft.com/content/64e22402-3e38-11e8-bcc8-cebcb81f1f90