Investor's wiki

Financial Supermarket

Financial Supermarket

What Is a Financial Supermarket?

The term financial supermarket alludes to a financial institution that offers a large number of financial services. These services incorporate ordinary banking and lending, as well as further developed services, for example, stock brokerage, insurance, and even investment banking. This gives consumers a one-stop-shop experience, permitting them to hold their accounts with a single entity. Institutions can increase fee revenues and consumer loyalty while making it more challenging for their customers to need to switch to another provider.

Grasping Financial Supermarkets

Diversification isn't just a strategy that investors need to adopt to spread out their risk. Numerous businesses have needed to expand their offerings to stay profitable and flourish in a competitive marketplace. This remembers firms for the financial industry — specifically banks.

The financial industry was once exceptionally compartmentalized. Commercial banks traditionally offered their clients a select rundown of services, for example, checking accounts and essential lending services. Different institutions managed developing businesses. Furthermore, one more layer of companies specialized in investment services. In any case, the face of banking has changed. Enter the financial supermarket.

As the name suggests, a financial supermarket offers various financial products and services under one rooftop. This business model utilizes specially prepared people for retail and additionally commercial clients. For example, retail clients can accomplish their personal banking needs (ordinary banking as well as insurance and investments) through one bank. What's more, in the event that someone claims a business, they can likewise do their business banking at a similar firm.

Special Considerations

Financial supermarkets were famous during the 1980s and 1990s. In any case, the practice of bundling services was exceptionally disapproved of by regulatory authorities. In fact, legal rules thwarted the growth of this business model for a long while. However, that would change.

A substantial amount of regulation was eliminated in 1999 with the entry of the Gramm-Leach-Bliley Act (GLBA). By revoking the Glass-Steagall Act of 1933, the GLBA made it legal for commercial banks to offer many financial services, like stock brokerage, insurance, and investment banking.

The GLBA is additionally called the Financial Services Modernization Act of 1999.

Benefits and Disadvantages of Financial Supermarkets

Financial supermarkets have benefits and downsides for the two institutions and consumers. We've listed the absolute most common ones below.

Benefits

As verified above, offering numerous services in one place permits banks to furnish their customers with a one-stop shop consequently expanding loyalty to their brands.

Financial supermarkets can support their revenue through fees, for example, administration and management fees, commission revenues from brokerage services, and nd insurance premiums for those that offer insurance services. Businesses can likewise charge consumers fees in the event that they opt to transfer their finances to a contender.

Consumers benefit as a result of the convenience of achieving numerous financial objectives all from a single bank branch, instead of dealing with several distinct financial service providers. In addition, customers today have the benefit of dealing with their affairs through online and mobile banking applications.

Burdens

The supermarket model increases the customer's switching costs. On the off chance that a wide range of parts of a customer's financial affairs are dependent on a single institution, then, at that point, transferring to another institution could be costly and tedious.

Financial supermarkets might try to take advantage of consumers with higher fees and switching costs, making those with various accounts especially vulnerable. This was the case with Wells Fargo (WFC). The bank was fined $1 billion out of 2018 for supposedly charging customers erratic fees for different services like vehicle insurance, mortgages, and ordinary banking.

Pros

  • Providing customers with a one-stop-shop

  • Boost revenue through increased fees

  • Convenience for consumers

Cons

  • High cost of switching to another institution

  • Higher fees and switching costs may be exploitative

## Financial Supermarkets and Fintech

Traditional banks aren't the only ones adopting the financial supermarket business model. In fact, a number of financial technology (fintech) companies are likewise taking a gander at imbuing components of this into their operations. Fintech became famous in the 21st century as a method for assisting consumers and businesses with dealing with their finances through algorithms and specialized software available on PCs, tablets, smartphones, and other digital gadgets.

There are several companies that are investigating or have proactively set up a financial supermarket model. For example, InvestCloud announced plans to foster a platform of financial arrangements. The company, which was established in 2010, creates cloud-based financial services. In February 2021, InvestCloud said it was making a financial supermarket to serve global wealth and asset management clients.

Fintech supermarkets, as they are in some cases called, could upset the traditional banking sector. Customers might be drawn to these new substances on account of lower fees, greater accessibility, more transparency, and an overall better customer experience. That is on the grounds that they might be better able to address the issues of the wealth sector, prominently due to their:

  • Advancement
  • Notorieties
  • More extensive customer base
  • The mastery of the experts they utilize

Specialists caution that these substances will be a lot bigger (and, surprisingly, more remarkable) than traditional banks. To stay competitive and remain above water, banks might have to search out partnerships with financial companies or non-banking online monsters (think WealthFront or Amazon),

Financial companies that operate under a supermarket model can increase prices without the threat of their customers switching to a contender, in this way expanding the company's profit margin.

Illustration of a Financial Supermarket

Here is a theoretical guide to show how financial supermarkets work. Suppose you finish school and have a brand new position however you really want to get your financial affairs moving. This incorporates opening another bank account. Your options are:

  • XYZ Financial, which is a national bank that follows a financial supermarket business model
  • ABC Savings, which is a nearby credit union that centers basically around traditional services, for example, checking and savings accounts

That's what you know whether you pick XYZ Financial, you can access different services than what ABC Savings offers. This incorporates insurance products, stock brokerage services, and different loans. However, having every one of your financial affairs tied up in one institution could make it challenging for you to change banks assuming that you become discontent with the firm's pricing or customer service from now on.

The Bottom Line

Banking has progressed significantly. Financial companies were traditionally compartmentalized, offering fundamental services to their clientele. In any case, with the rise of technology and looser financial regulations, these companies have needed to do a turn around and rethink the manner in which they carry on with work. The rising prominence of the financial supermarket model is fundamentally altering the manner in which banks operate and how consumers approach their finances by permitting firms to consolidate their services and by giving clients convenience all under one rooftop.

Features

  • The Gramm-Leach-Bliley Act of 1999 slackened financial limitations, making it legal for commercial banks to offer a scope of different services.
  • Insurance, brokerage, and lending services are commonly offered by most financial supermarkets while certain firms incorporate investment banking also.
  • Traditional banking might be upset by fintech supermarkets, which are made by companies that foster cloud-based financial services.
  • Financial supermarkets are financial institutions whose products consolidate many services.
  • Financial supermarkets give consumers convenience and permit firms to increase fees for customers who switch their accounts to different banks.

FAQ

What Is a Fund Supermarket?

A fund supermarket is a brokerage or investment firm that gives different various mutual funds to its clientele. Funds are managed by various fund companies however can be accessed by investors through one portal or platform.

What Is the Financial Supermarket Model?

The financial supermarket model is a business model utilized by certain financial institutions. Companies that operate under this model furnish their clients with a scope of financial products and services. This lets retail and commercial customers to access every one of their accounts through a single bank.

What Is a Fintech Supermarket?

A fintech supermarket is a financial supermarket offered by a financial technology company. Additionally called fintechs, these are companies that offer cloud-based financial services to their clients. Fintech supermarkets contend with financial supermarkets, which are offered by traditional banks.