The alternate revenue sources are an essential part of the income of any bank which increases the profitability of these financial institutions. These alternate revenue sources play an important role when it comes to competing with other financial institutional. In order to service in the financial market it is quite important for the banks to keep looking for alternate revenue sources so that they can increase their profits and sustain in this competitive field.
There are many ways in which the banks try to expand their alternate revenue sources. Some of these institutes focus on the housing lending area while some may focus on the fee earning activities. Although in the current scenario it has been observed that most of the banks are inclining towards the second option of focusing on the fee earning activities.
Now although some sources of alternate revenue income have been known to the banks for several years now, with the growing completion in the market, it has been found that new options are being generated in the market every other week.
Now these revenue sources have in recent times been proved to be quite dominating in the building up strategies in order to improve the financial management of the banks. These may include things like credit card fees, fees that are related to the electronic fund transfer, deposited service charges and many more.
Here is a list of some of the alternate revenue sources that help banks in increasing their profits.
Interest on investments
Banks provide loans to several entities like individuals, corporate and even industries. With that these banks also make serve investments in various rated securities of the government and hence they earn a significant amount of interest and dividends by making this investment. This is a good option for alternate revenue sources for the banks.
This is yet another great option for alternate revenue sources. The fee income is taken by financial institutions from customers through account related charges. These lead to the generation of non sufficient fun fees, late fees, charges related to overdraft. Wire transfer fees, over the time limit fees, charges of the monthly services and many more. In this way banks charge fees for performing services and earn profits.
The Forex or the currency market is basically a globalized decentralized market that deals with currency trading. Here banks deal with these operations like buying, selling or exchanging of the currencies and also act as brokers thus earning a fair amount of income from it.
Commission on third party products
This is yet another effective method to generate alternative revenue sources. In this the banks distribute insurances and other mutual fund products to their customer base and thus earn commission income which adds to their overall profits.
Thus even if the banks are quite aware of generating the traditional sources of fee income expanding in this field by opting for better alternate revenue sources will help them in improving the sales and servicing, relationships as well as investments strategies.