Commercial banks, thrift institutions, and credit unions offer a wide range of financial services for businesses and consumers. Typical services offered by depository financial institutions are listed in (Figure). Some financial institutions specialize in providing financial services to a particular type of customer, such as consumer banking services or business banking services.
managing change
Banks Take on P2P Payments
Person-to-person (P2P) payment systems are big business, and U.S. banks are now working together to compete in this billion-dollar industry. P2P transfers made through mobile apps such as Venmo, PayPal, Square Cash, and others accounted for more than $147 billion in digital payments in 2016, according to recent research by the Aite Group.
The simplicity of P2P apps has made them a part of everyday life for millions, especially millennials and young adults who use their smartphones for many daily activities. Venmo, for example, requires merely a phone number and email in order for someone to transfer money to a friend (and the friend creates a Venmo account to receive payment). Social media sites also encourage their members to transfer money via mobile apps, such as Google Wallet and Facebook Messenger.
Banks have been successful allowing their own customers to transfer money via apps; however, P2P transfers have been limited to other customers of the same bank—until now. A consortium of more than 30 banks recently introduced a mobile app called Zelle, which can be used by anyone to transfer funds to customers across these banking institutions.
A downside of using Venmo is that it may take a day or two for money to arrive in a recipient’s account because the money flows through an intermediary. With Zelle, the transfer of money between two accounts will occur instantaneously, making payments happen quickly. For now, most banks using Zelle are making the service free of charge—knowing that it is in their best interest to migrate people to a cashless and checkless environment, which will eventually lower their costs in terms of services, labor, overhead, etc.
Is a cashless society imminent now that major banks have gotten on board with P2P payments? Probably not, but the banking industry’s commitment to challenging Venmo and other digital payment systems eventually may result in a stronger revenue stream and underscores their business strategy of staying connected to customers of all ages.
Critical Thinking Questions
- Does working together on a P2P system help banks stay competitive? Explain your reasoning.
- Do you think P2P payment systems will eventually eliminate the use of cash in our society? Why or why not?
Sources: “Use Venmo with Anyone,” https://venmo.co, accessed September 12, 2017; Sarah Perez, “Zelle, the U.S. Banks’ Venmo Rival, Will Launch Its Mobile App Next Week,” Tech Crunch, https://techcrunch.com, September 8, 2017; Kevin Wack, “Zelle Says 4M Users Have Enrolled Since June Launch,” American Banker, https://www.americanbanker.com, September 8, 2017; Jennifer Surane, “Venmo Killer? Banks Roll Out Faster P2P Payments with Zelle,” Bloomberg Technology, https://www.bloomberg.com, June 12, 2017; James Rufus Koren, “As Millennials ‘Venmo’ Each Other Money, Banks Fight Back with Their Own Mobile Apps,” Los Angeles Times, http://www.latimes.com, March 27, 2017.
FAQs
There are three major types of depository institutions in the United States. They are commercial banks, thrifts (which include savings and loan associations and savings banks) and credit unions.
What is a US financial institution? ›
The term U.S. financialinstitution means any U.S. entity that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, commodity futures or options, or procuring purchasers and sellers thereof, as ...
What is introduction to financial institutions? ›
Financial institutions act as intermediaries between savers and borrowers. They collect funds from individuals and businesses as deposits and then lend them to borrowers who need capital for various purposes, such as starting a business or purchasing a home.
What is a financial institution in business? ›
A financial Institution is defined in 18 U.S. Code § 20 as an entity, national or international, that deals primarily in business related to financial or/and monetary transactions, namely loans, deposits, investments, currency exchange, or any other transaction of similar nature.
What are the top 10 financial institutions? ›
The 10 largest banks in the U.S. are Chase, Bank of America, Wells Fargo, Citibank, U.S. Bank, PNC Bank, Goldman Sachs Bank, Truist Bank, Capital One and TD Bank.
What is the role of financial institutions in the US? ›
Financial institutions help keep capitalist economies running by matching people who need funds with those who can lend or invest it. They offer a wide range of business operations within the financial services sector including banks, credit unions, insurance companies, and brokerage firms.
How many US financial institutions are there? ›
According to the most recent data from the FDIC and NCUA, though—which we think is the most reliable information—there were 5,801 FDIC-insured institutions and another 5,733 NCUA-insured credit unions nationwide. That's 11,652 total.
Who regulates US financial institutions? ›
There are numerous agencies assigned to regulate and oversee financial institutions and financial markets in the United States, including the Federal Reserve Board (FRB), the Federal Deposit Insurance Corp. (FDIC), and the Securities and Exchange Commission (SEC).
What is the primary purpose of financial institutions? ›
The definition of a financial institution typically describes an establishment that completes and facilitates monetary transactions, such as loans, mortgages, and deposits. Financial institutions are a place where consumers can effectively manage earnings and develop financial footing.
What is the difference between banks and financial institutions? ›
Banks are financial institutions that are licensed to provide loan products and receive deposits; non-banking institutions cannot do this. Financial services include insurance, the facilitation of payments, wealth management, and retirement planning.
They make money from what they call the spread, or the difference between the interest rate they pay for deposits and the interest rate they receive on the loans they make. They earn interest on the securities they hold.
What is an example of a financial institution? ›
Types of financial institutions include: Banks. Credit unions.
Can an LLC be a financial institution? ›
Actually, no — banks and insurance companies cannot form LLCs.
What are financial institutions also known as? ›
A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions.
What are the 3 major types of financial? ›
The finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance.
What are the top 3 banks in America? ›
Summary of the Largest Banks in the U.S.
| Ranking | Bank | Headquarters |
|---|
| 1 | JPMorgan Chase | New York, NY |
| 2 | Bank of America | Charlotte, North Carolina |
| 3 | Wells Fargo | San Francisco, California |
| 4 | Citibank | New York, New York |
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The most common types of financial institutions include banks, credit unions, insurance companies, and investment companies. These entities offer various products and services for individual and commercial clients, such as deposits, loans, investments, and currency exchange.
What 3 institutions make up the banking system? ›
The institutions that make up the banking system are the Fed, commercial banks, thrift institutions, and money market funds. What is a bank's balancing act? A bank makes a profit by borrowing from depositors at a low interest rate and lending at a higher interest rate.
