Poll: the method for implementing the incumbency advantage for established banks

[David]

The user LT3001 suggested two methods for implementing the incumbency advantage for established banks. Which method do you prefer?

1) There is not enough of an incumbency advantage for established banks (in real life banking is a scale business with high barriers to entry). In real life, established banks also have a significant funding cost advantage over new players. One way to do this is to differentiate between 'transactional' deposits which don't pay interest (or pay very little interest), and time deposits which pay a lot of interest (closer to central bank benchmark rates). What you could do is tie the level of customer service rating, brand, wait times etc to the amount of 'core' (transactional, low cost) deposits. As a bank invests in its network and customer service and brand, a greater share of their deposits come from transactional deposits which have a much lower interest rate (and are also much slower to change, and reflect relative brand/service quality etc more than rates), whereas anyone can pay up to get a lot of time deposits fast (where share should change more quickly and be rate sensitive). That way there is a greater reward to investing in customer service, brand, and the number of branches, in the form of lower funding costs. It also gives existing incumbants and advantage over new entrants.

2) What you could do is have an additional slider tab for investments in technology/ATM network, that was a lot like content spend for media companies, where the rating can go from 0 to 100. It costs a lot of money and changes slowly. The long term reward for this investment would be as the rating went up, the % of deposits that were transactional deposits that paid no interest would also slowly rise. This would steadily lower funding costs over time, and create a reward for making these significant investments. This would allow the bank to be more profitable in the long run and/or invest in lower risk assets, and would create an important advantage of incumbent banks long in operation over new entrants, much like what happens in media. I think this would be a great addition.

This post is a follow-up to the original post: http://www.capitalism2.com/forum/viewto ... =52&t=7086

[David]

Update: in the upcoming version 6.3.00, the brand rating of a bank will have a bigger effect on retaining its customer, and serve as a similar function as the the incumbency advantage for established banks.

Subsequently dev team has decided not to implement additional incumbency advantage for established banks for the concern that any additional incumbency advantage for established banks will make new banks even harder to compete.