Unit 1 Flashcards
(25 cards)
Types of retail banking
Commercial banking
Personal/business/corporate customers
-accepting deposits and providing loans
Publicly listed on the stock exchange or privately owned
Savings banks
-surplus money available
Owned by members/ shareholders
-Co operative banks
Similar to saving banks
They are owned by members
Deposit taking and loan products to personal customers and small business.
Co -operative principle Share profit with members
Building society - uk and Ireland
Australia/ New Zealand / two in eswatini.
Accept deposits from savers
Main lending business consist of monetary loans and to purchases houses - some provide personal financial services
Owned by customers
No shareholder/ don’t need to pay out dividends - long term approach to their business
43 building society -largest is nation wide
Credit unions- no profit Co- operations
Members pool savings and lend to each other 250 credit unions
88,000 credit unions in 188 counties
- Finance houses
Provide loan
Hire purchase loans installment credit to pay off over time.
Agreed number of installments
Does not accept deposits
Access money to lend out from investors and from their profit.
Challenger banks
Recently created retail banks
Challenge market dominance
Finbold 291 challenger banks increase to 43 in 2021
Digital channel - TSB, Virgin Money and Metro Bank.
Fintech
Digitally access their finances
Includes challenger banking, payment processor and budgeting app.
High level of growth in recent years 156 new fintech unicorns
Operate as a bank - Zopa
Some partnership licensed banks
Checkout.com is an international non bank fintech processes payments for other companies
Fintech
Digitally access their finances
Includes challenger banking, payment processor and budgeting app.
High level of growth in recent years 156 new fintech unicorns
Operate as a bank - Zopa
Some partnership licensed banks
Checkout.com is an international non bank fintech processes payments for other companies
Asset and liabilities
Asset loan bank makes to its borrowers. Borrows owe money to the bank
liabilities- include the deposits that a bank accepts from its savers - the bank owns this money to savers
Profitability
Profitable and maximise return for its shareholder
Commercial banks make profit three ways
1) rate of interest
-paying depositors a lower rate of interest on their savings than they charge the borrowers to whom they lend.
2) Fees charged
-charging fees on some products
Eg mortgages arrangements fees
3) share/bonds
- investing borrowed funds by purchasing shares and bonds in other companies, and carrying out other transactions in financial markets.
Liquidity
Turn an asset into cash or near cash.
Without significant loss of value.
Commercial banks
1) deposits made by savers
2) loans and interest payments by borrowers
3) loans from other banks in the whole sale markets
Relationship between profitability and liquidity
More profitable and asset the least liquid it is.
Example mortgage 25 years
Disintermediation
Directly from each other than going to a bank
Advantage- greater returns
Poor credit
Diverse and cost efficient
Disadvantage- needs skills, expertise and resources.
Make decision on their own
Risky
Non bank
Oldest bank
1472 on monte dei paschi siena -Italy
Three key trends are continuing to reshape the competitive environment
The shifts from branches to innovation
Digital attackers taking a significant share of traditional banks revenue streams.
Consumers demanding more digital offerings
Open APIs - open application programming interfaces
Software middleman
Different applications to communicate and interact with each other
Customers financial date shared
Open banking is conducted through API
Content drivien sharing
Collection of information
Conversational user interfaces
Chatbot/ voice user interface
Pure risk
Climate/ flooding
Speculative risk
Buys shares could either make a loss or a profit
Financial risk
Credit risk -
Borrowers fail to repay their loan
Reduces liquidity as it did not receive cash as expected
Liquidity risk -
Unable to meet a payment obligation
Depositors demand for cash
Concentration risk- no diverse in its lending
Market risk - loss from movement in prices ( interest rate )
Strategic - long term business strategy and strategic objectives profit will be reduced
Operational risk- cyber crime
Legal risk
Litigation - legal claims against the bank
Regulatory risk changes in financial regulation - stricter rules
Compliance risk- risk of sanction non compliance with laws and regulations
Conduct risk - bank fails to behave in accordance with the stated objectives and responsibilities of the customer
Retail banking
Personal / consumer banking
Providing financial services to customer
Personal banking services include
Receiving and paying money through a current account
Credit cards
Saving and investment
Loans
Mortgages
Insurance
Pension
Business banking
Small and medium seized businesses
Less than 6.5 m turnover
Current accounts
Saving accounts
Foreign currency accounts
Loans and mortgages
Assets invoice finance
Advice and money management
Insurance
Pension
Corporate banking
Large companies
More than 6.5 million annual turn over
Private banking
High net worth individuals
Investment portfolio at least 5m
Account
Loans and credit facilities
Investment and portfolio management
Wealthy service
Philanthropy services
Long term relationship
Wholesale banking
Is the borrowing and lending of money between large institutions on a very large scale. Banks borrow from and lend to each other in Financial markets eg the inter bank market, bond and equity market and forging exchange markets
Investment banking
Provision of financial serves to large corporate, pension funds and governments include
Raising capital for major investment projects
Managing corpoate mergers and and acquisition
Buying and selling shares and bond on behalf of the corpoate and high next worth customer as wee al on the banks own behalf
Angering customers investment and share portfolio
International banking
National border and engage in activities using different currencies
