Banking Features To Look For When Opening A Business Bank Account

[Judith]

A bank is one of the most reliable partners any business can have. Regardless of its size, any organization will benefit greatly from many of the services and solutions provided by banks such as loans, letters of credits, guarantee letters, etc.

The advantages you can experience from a bank though will depend greatly on the financial institution you will choose. This is because aside from the benefits they offer, some banks will have features that will also help businesses in various ways.

Below are some of the important banking features you should look for when opening a business bank account:

Online banking. Online banking is a key feature that all business owners should look for. Busy small business owners can save a lot of time by using online banking for paying bills, doing bank transfers, checking balances, and even accepting payments. They or they employees won't have to spend time going to the bank and waiting in line for doing these. Most banks today offer this solution for free and when opening an account, just make sure the institution offers a safe and secure online banking service. Its website should not suffer from regular glitches and has a good and reliable loading speed.

They have little to no monthly fees. If you make the mistake of opening a business bank account that come with monthly fees, a portion of your hard-earned money will simply go to paying for these fees. To make sure you will enjoy this service, find out what this free banking offer includes. Check if each transaction is free no matter what the balance in your account may be or if there a minimum balance requirement. You would also do well to find out if printed checks for the account, cash deposits, and cashing checks are also free. Don't forget to ask about ATM fees, debit cards and bill payments as well, especially if these are services your business needs. Choose a bank and an account that includes all of these for free.

The authority of the local branch to grant loans. Lastly, most businesses need some extra funds from time to time to keep things flowing smoothly. You can plan for any unexpected credit needs by choosing a bank that allows branch personnel to make credit decisions in the local branch instead of always referring to their main office. This is a free feature that can be a really valuable convenience for business owners who may need money in a hurry. With this feature, you won't have to wait for weeks to receive the approval of an emergency loan you applied for which your business really needs.

[Clay]

One of the most misunderstood terms, especially when one relates it to banking, is that little word "risk". Risk and banking seem to automatically go together just like a hand with a glove or Jack pairs with Jill.

In the post "2008 Financial Crisis" world, putting the words "risk" and "bank" together conjures up the image of a monolithic bank rampaging through the economy wreaking havoc as it goes.

This image is of course totally unfair. Banks, like any other firm or even individuals are exposed to many different forms of risk. Banks too in their own right are a source of a number of risks as well. However this is outside of our present scope.

This article will explain what risk is and some of the different types of risk that banks and other financial institutions are exposed to in their everyday business activities.

Let us start our journey with a visit to the dictionary. Once upon a time this meant a trip to the bookshelf, but today thanks to the wonders of technology the "word" is at ones fingertips. The definition of "Risk" being "exposure to the chance of injury or loss" is typical (with thanks to Dictionery.com).

There may be other variations on this theme, but what we have is good enough. The key elements of "risk" are EXPOSURE to the CHANCE of LOSS. In other words the possibility that something will cause a financial or other loss. This is the basis for understanding the different types of risks that banks face.

Let us take a look at a typical bank. In its very simplest form, banks take in deposits and lend this out in the form of loans. Should the borrower not repay his or her loan the bank is faced with Credit risk. This is the possibility that a borrower will be unable to make payment of the amount due. Credit risk is absolute. It's the chance that the borrower will never be able to repay the loan. Credit Risk implies bankruptcy.

Liquidity risk is on the other hand not absolute. It is the possibility that a borrower will be unable to make payment of the amount due at the time that it is due. However the reason for this could be timing issues. It does not imply that the borrower is insolvent as he may be able to repay the loan at a later time.

Between them, Credit risk and Liquidity risk are the major business risks that banks face because they are part and parcel of the business of banking.

In recent years there has been a growing realization that Operational risk is another source of danger to a bank. This was given voice and form in the Basel Accords, where Operational Risk has been defined as "the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events".

Operational risk can be subdivided into seven distinct categories. In what follows we examine each of these categories and briefly explain what types of risks they cover.

• Internal Fraud. Generally this covers fraud by bank staff such as the stealing of assets, theft of client information, covering up errors, intentional mismarking of positions, bribery etc.
• External Fraud. Where non-bank staff are involved such as in computer hacking, third-party theft, forgery.
• Employment Practices and Workplace Safety. Discriminatory staff policies, workers compensation claims, employee health and safety issues.
• Clients, Products and Business Practice. This is a very wide field and generally covers market manipulation, antitrust issues, improper trading activities, bank product defects, fiduciary breaches, account churning. The sub-prime Mortgage debacle is a clear example of a product defect.
• Damage to Physical Assets. This covers things like natural disasters, terrorism and vandalism - anything that results in actual damage or destruction of the bank's physical assets.
• Business Disruption and Systems Failures. Power failures, computer software and hardware failures. A hurricane or a flood that results in banking services being disrupted also falls into this category.
• Execution, Delivery and Process Management. This covers things like data capture errors, accounting errors, failure to meet legal reporting requirement, negligent loss of client assets.

[Becky]

On understanding the motives of bankers and clients in the banking business using the knowledge of psychology...

As financial markets are going through rapid changes and considerable turmoil, I thought I must do a psychology of banking. I'll steer clear of all economics and focus simply on what it means to be a banker or an investor from the psychological perspective. Of course the driving force of banking is money and banks thrive on a consumerist culture. Banks have diverse functions from stabilizing an economy to stabilizing a person's credit history and banks can have commercial, investment, savings, retail, private or mortgage focus. There are two ways by which the psychology of banking could be framed. One way is to understand the psychology of the banker and the other is getting into the mind of the client or the customer/investor. Banking is like any other business yet the only difference between banking and other businesses is that in case of banking, bankers and clients deal directly and only with money and this can have a significant impact on how much importance they give to their banking operations. Money is something primal and raw, it's almost like an object stimulating some sort of basic need, and the prospect of dealing with raw money is exciting and intimidating.

The Banker:

The banker's psychology is based on his personal, social and political need for money. The banker first and foremost is concerned about his own profits, about how much more he is adding up to his account and it is almost an addiction. Just as a merchant or shop owner is obsessed with the goods available, the banker will be obsessed with the money he is able to lend, borrow or do business with. The dire need for making more money is what drives bankers in the first instance. This could be considered as a 'personal' need and craving for money to largely fulfill personal wants. Any investment or commercial banker or broker or anyone in the financial sector will presumably have a healthy or unhealthy personal need for money. Of course, we all need and love money but bankers are more focused on money.

Secondly, the banker being in love with money, is focused not just on his money but also on other people's money. It is essential to understand that money remains the prime object of attention for a banker and the smell of money could make him rather altruistic in focus so there is a general or 'social' need to protect and nurture other people's money as well.

Thirdly the banker has a larger political need whether he manipulates/controls his money or other people's money and this 'political' need would stem from understanding the economic condition of the country and a realization that he has an active part to play in stabilizing the economy.

Whereas the first personal need for money satisfies basic drives of individuals, the social need to protect other people's money is rather altruistic and the political need to stabilize a nation's economy is largely a power need. Money to a banker thus serves his altruistic wants, his power needs and his personal desires. This can almost be explained psychologically with a Maslow's hierarchical model in which the basic desires come first, followed by power needs and then by altruistic needs. Considering this, any banker would be first interested in his own profits, secondly in the economy and stability of the nation and only lastly concerned about his clients and investors.

The Clients:

The second aspect of the discussion is on how banking could help in deriving the psychology of clients, customers or investors. There are different types of clients and people have different priorities or expectations from banks and bankers. The customers may have borrowing need, investment need or saving need based on their age or the phase of life they are in. For example, young students and people with lower income are interested in borrowing facilities through credit cards and loans and they consider the banks as a support to hold on to for their financial problems. Of course borrowing is equally important to businessmen and professionals but the motivation may be different. The 'borrowing' need arising in turn from personal or professional needs would be the most important reason for banking among young people and young people, students, graduates or people who are between jobs or newly employed will be propelled to banking due to their borrowing needs. So generally, the 18-30 years old are usually less interested in interest rates and more interested in the borrowing facilities they can get on their credit cards or loans during this 'stepping in' phase of their life.

The young professionals and middle aged individuals are usually more banking savvy and would be looking to increase their already earned money through investments. This is the group focused on better interest rates and better returns on investments rather than direct borrowing unless absolutely necessary. The 'investment' need of young and middle aged professionals can overlap with borrowing needs when buying a house or setting up a new business becomes a priority. Yet these are again investments so the 30-55 year old are mainly looking for investments and banking helps to satisfy their investment need during the crucial 'building up' phase of their life. The late middle age to old age is marked by a heightened fear of life's losses and need to save for the future. We are attuned to worry about the future and mainly about old age and dependence. The decline of physical strength and a productive work life being very real, we want to save for old age, which begins after 50 and continues at least until 70. Although this realization should occur to us earlier, we usually don't seem to manifest our saving needs until we at least reach late middle age. During the late middle age, the banking needs are primarily motivated by a 'saving' need and clients in their late middle age are looking to save their earnings and not too concerned with investments. This is a time when people begin to consciously move away from social and professional life although very gradually. Elderly men and women simply want their money to be there when they need it during this 'moving away' phase of life.

Of course during very old age, the need to borrow, invest or save decline progressively. The psychological phases described above are general and do not consider individual differences. Many people develop saving or investment needs early in life and there could be social and cultural patterns in banking and financial behavior of individuals. Considering a more subjective/individualistic viewpoint, the borrowing, saving and investment needs in any individual can be interestingly explained with the help of psychoanalysis. Freud suggested that all of us go through oral, anal, phallic, latency and genital phases of sexuality in our childhood and our personality patterns are largely shaped by whether we have effectively resolved conflicts during this period or simply became fixated at a certain stage. Thus anal retentive personalities are ones who have excessive need for control or precision so these individuals are more likely to save from a very young age and even show extreme parsimony in money matters or banking behavior. The anal expulsive personality is the one who wastes too much so these individuals will be interested in excessive borrowing and can turn their credit history into a mess. The oral aggressive personalities are the ones who are ambitious and have extreme investment needs and although this may be a positive aspect, bankers should be aware of the more psychological aspects of individuals before lending them too soon. Maybe banks should perform psychological tests on individuals before lending to understand which clients are likely to repay and which clients are not likely to fulfill obligations and maybe then we will be able to avert banking disasters in the future.