Business of Banking for IT


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A short training module for systems and information technology professionals that provides an overview of banking products and services. Intended to be a training program.

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Business of Banking for IT

  1. 1. Business of Banking for Information Technology a Systems PerspectiveSaunders Learning Group, LLC April 2012
  2. 2. All About Figuring Out Wall Street ... Everything has changed in the financial services industry and it affects your financial well-being. From bank failures, to record unemployment, home foreclosures and panic around the world, Figuring Out Wall Street, is the concise guide to help everyone from first time investors to veterans of banking understand what to do to persevere and restore our faith in our financial systems.Published by Saunders Learning Group.Training for financial professionals and consumers. If your interest is financial turn toSaunders Learning Group for your training needs.Contact information:, Mobile: 316-680-6482 Saunders Learning Group, LLC, Andover, KS 2
  3. 3. Reference Material Figuring Out Wall Street Consumer’s Guide To Financial Markets By Floyd Saunders Publisher: Saunders Learning Group ISBN: 978-0-9824019-0-3 available from Amazon, B&N, and http://www.figuringout or Book summary: From bank failures to home foreclosures and panic around the world, Figuring Out Wall Street, is the concise guide to help everyone understand how this latest crisis happened, who was responsible and what to do now to restore our financial systems. Written in an easy to understand manner, even the most complex financial concepts are easy to digest. This book provides help to monitor investments with a review of investment products, financial regulators and economic indicators. Learn how the stock market exchanges work and the world of investment banking, hedge funds, venture capital and private equity. Every chapter includes action plans for investing.Saunders Learning Group, LLC, Andover, KS
  4. 4. Module Objectives This training module is intended to give you a flavor of the banking business, by highlighting many of the products and services offered U.S. based banks. Other modules will provide a more in-depth view of specific lines of business in the banking industry. 1. Retail Banking Products and Services 2. Business Banking Products and Services 3. Investment Banking Products and Services 4. Wealth Management Products and Services 5. Credit Union Products and Services Saunders Learning Group, LLC, Andover, KS4
  5. 5. Retail and Business Banking Overview Retail and Business Banking Business Banking Retail Banking (AKA Corporate or Commercial Banking)Provides consumers with a wide range of Provides banking services, cash management anddeposit, savings, and loan products, loans to small businesses and corporations. Retail or ―Mass Market‖ Small Business Affluent or ―Mid Market Mid-Size Corporate Private or ―High Net Corporate Worth‖ Wealth Management Saunders Learning Group, LLC, Andover, KS Slide 5 Confidential and Proprietary
  6. 6. Retail Banking  Provides consumers with a wide range of banking products and services designedFunction to meet the needs of a varied customer base.  Acceptance of deposits in to checking and savings accounts  Transaction processing for deposit accounts  Issues credit cards and processes merchant transactions, payment processing  Arranges safe deposit boxes for customersExample  Sells certificates of deposit, retirement accounts  Provides for transfer of fundsActivities  Provides banking via ATM machines and mobile devices  Arranges a variety of personal loans  May also process applications for mortgage loans  Citibank, Bank of America, JPMorgan Chase, Wells Fargo, US Bank Example Also a variety of regional and local banks.Companies  Credit Unions perform similar functions, provide most of the same products and services. Slide 6 Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary
  7. 7. Core Banking Systems Banks around the world spend trillions of dollars in support of their information systems. In many cases each line of business will have several processing systems that may or may not be able to communicate to other systems. The diagram attempts to summarize these systems by line of business. Each of the lines of business in banking may also use several channels to interface with customers. One of the many challenges of banking is to make these channels as seamless to customers as possible. Saunders Learning Group, LLC, Andover, KS Slide 7 Confidential and Proprietary
  8. 8. Retail Banking Products and Services Cash Management – Checking & Savings, ATM cards Online Banking Mobile Banking Payment Processing Loan Products – Home, Auto, Personal, Credit Cards Saunders Learning Group, LLC, Andover, KS Slide 8 Confidential and Proprietary
  9. 9. Types of Bank Accounts1. Checking accounts are a type of deposit account for the purpose of securely providing access to funds on demand, via checks, ATM transactions, and transfers of funds. These accounts are known as demand deposit accounts (DDA).2. A deposit account is a savings account, money market or time deposit at a bank that allows money to be deposited and withdrawn by the account owner (s). Also referred to a Savings Deposit Account (SDA).3. Money market accounts is a deposit account with a higher rate of interest paid for higher balances. In the United States it is subject to regulations that limits the frequency of transactions/4. Time Deposit Account (TDA) is a deposit account that cannot be withdrawn for a fixed period of time, unless an early withdraw fee is paid. In most cases the longer the term of deposit the better the yield on the deposit.5. Transactions are recorded on the bank’s books and the resulting balance is reflected as a liability for a bank on its books.6. Some banks may charge fees for services, and in most cases the bank will pay the customer interest on funds deposited. Saunders Learning Group, LLC, Andover, KS Slide 9 Confidential and Proprietary
  10. 10. Insured Accounts  Checking, Savings accounts and bank CDs are insured by the FDIC and offer a smaller return because they are safer.  Stocks, bonds and mutual funds are not insured.• The four largest U.S. banks held $3.6 trillion in deposits as of Dec. 2011• The next 46 institutions held $2.68 trillion in deposits Saunders Learning Group, LLC, Andover, KS
  11. 11. Automatic Teller Machines or ATMs An automated teller machine (ATM) is a telecommunications devices used to store and dispense cash, allow account holders access to accounts and to perform a variety of financial transactions including transfer of funds, payments, and cash advances on credit cards. A customer is identified by inserting a plastic ATM card with a magnetic stripe or chip that contains a unique card number and security information. Authentication is done by having the customer enter a personal identification number (PIN). ATMs are also popular when traveling as it makes it easy to withdraw money in a local currency and effect payments for goods and services in other countries. The bank provides the exchange rate when settling transactions. There are about 401,500 ATMs in the United States, about 1.75 million machines worldwide. About half of the ATMs in the U.S. are operated by financial institutions. The other half are operated by independent sales organizations. According to the U.S. Treasury Department, about $978 billion in cash was in circulation in 2010, compared to about $829 billion in 2007. Meanwhile, ATM cash withdrawals are on the upswing. A January 2011 report says ATM transaction volume grew 0.8% annually between 2006 and 2009, but dollar volume of ATM withdrawals increased by nearly 3% a year. Saunders Learning Group, LLC, Andover, KS Slide 11 Confidential and Proprietary
  12. 12. How important are ATM’s to a Bank?Consider these facts: The typical ATM customer will spend 20-25% more than a non-ATM customer if the ATM is located in a store The largest portion of regular ATM users (40%) visit an average of 10 times a month 60% of Americans between the ages of 25 and 34 and 51% between 35 and 49, use ATMs eight (8) times a month The typical ATM user visits an ATM an average of 7.4 times per month The average amount of money withdrawn is $60.45 with $20 being the most common withdrawal The most popular day for ATM usage is Friday Americans cite 24-hour access as the most beneficial feature for ATM usage Half of all adult Americans use ATMs regularly, with younger Americans and those with high incomes using them most often Overall, 60% of those making over $40,000 a year use ATMs, while only 30% of Americans making less than $20,000 a year use them Saunders Learning Group, LLC, Andover, KS Slide 12 Confidential and Proprietary
  13. 13. Online Banking Consumers use online banking to check balances, pay bills and transfer funds. Banks that provide online banking can reduce processing costs and provide a wide range of services to customers 24 hours day from anywhere. While most traditional banks offer online banking, some banks are only available to customers online (no branches). Ally bank is a leading example. Online banking has also allowed non- banks the ability to offer banking services to their customers. Allstate bank is an example of a non-bank offering financial services online. Saunders Learning Group, LLC, Andover, KS 13 subtitle
  14. 14. Online Banking Online banking is more than 1/3 of the transaction volume at most banks. Saunders Learning Group, LLC, Andover, KS Slide 14 Confidential and Proprietary
  15. 15. Virtual BanksVirtual banks are banks without bricks; from the customers perspective, they exist entirely on the Internet, where theyoffer pretty much the same range of services and adhere to the same federal regulations as your corner bank.Virtual banks pass the money they save on overhead like buildings and tellers along to you in the form of higher yields,lower fees and more generous account thresholds. Advantages of online banking Disadvantages of online banking Convenience: banking is available 24 hours a day,  Because they have no ATM machines, virtual banks seven days a week, and just a mouse click away. typically charge the same surcharge that your brick- and-mortar bank would if you used another banks Ubiquity: You can log on from anywhere, instantly to automated teller. your online bank and take care of business.  Many virtual banks wont accept deposits via ATM; Transaction speed: Online banks execute and confirm youll have to either deposit the check by mail or transactions at or quicker than ATM processing transfer money from another account. speeds.  Start-up may take time: In order to register for your Efficiency: You can access and manage all of your bank banks online program, you will probably have to accounts, including IRAs, CDs, even securities, from provide ID and sign up via the mail. one secure site.  Learning curve: Banking sites can be difficult to Effectiveness: Many online banking sites now offer navigate at first. sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing  Bank site changes: Even the largest banks periodically programs to help you manage all of your assets more upgrade their online programs, adding new features in effectively. Most are also compatible with money unfamiliar places. managing programs such as Quicken and Microsoft Money. Saunders Learning Group, LLC, Andover, KS Slide 15 Confidential and Proprietary
  16. 16. Mobile Banking – Great Potential for Growth Both Starbucks (reporting 20 million mobile transactions) and PayPal (expecting $3.5 billion of mobile transactions in 2011) reporting strong growth in their mobile banking initiatives Bank of America has 29 million online banking users, and now has more than two million mobile users. That number doubled in less than a year. It’s also half of the current number of mobile banking households in the U.S. Several other interesting stats from BofA: — More than 40% of active mobile bankers -- someone whos logged in within the past 90 days -- use an iPhone or iPod touch. Thats about double the usage youd expect given Apples 23% share of the U.S. installed smart phone base. — The bank believes the mobile channel is driving some new business to the bank with 8% to 10% of mobile bankers, almost 200,000, having signed up for the service within 90 days of opening an account. Saunders Learning Group, LLC, Andover, KS Slide 16 Confidential and Proprietary
  17. 17. Trends in Payment ProcessingA typical bank branch will see fewer than 50 check related teller transactions per day by 2014 Saunders Learning Group, LLC, Andover, KS Slide 17 Confidential and Proprietary
  18. 18. Payment Processing – Industry Trends 10 years ago 30% of checking accounts in the U.S.  Mobile Payments: Mobile payments are more had a debit card attached to them. common in developing markets, but that is Now virtually every checking account opened quickly changing. automatically has a debit card. Yet as this service grows, Gartner admits there will be challenges. Mobile payments will be a Payment processing costs less as a debit transaction if processed as a PIN transaction “highly fragmented market” where there will not rather then as a signature transaction. be “standard practices of deployment”. That makes it sound like this is one technology that 50% of incoming calls to bank call-centers are will still need some work in 2012/13, before come from people checking their bank balances. taking off. mobile banking and payments really start to pick up  Money Transfer: This refers to people sending money via SMS messages. the average household has between 13 and 15 credit cards, 2.5 debit cards, not to mention 5+  Near Field Communications (NFC): More popular loyalty cards. in some European and Asian markets than in the U.S., NFC still isn’t a standard feature on many of In 2001, credit cards with rewards programs accounted for just 20% of all general purpose today’s phones. That may be about to change, credit cards, but 40% of all card spend. too. Gartner says that NFC-enabled phones will begin to ship in volume, with Asia leading 2010, 90% of credit cards with rewards. deployments, followed by Europe and North Credit card issuers know that reward cards drive America. NFC can be use to effect payments from people to spend more. a mobile device. Saunders Learning Group, LLC, Andover, KS 18 subtitle
  19. 19. ACH Payment ProcessingPayment Processing flow:1. Consumer authorizes debt2. Business sends payment Service Provider3. Submits to ACH system4. The Federal Reserve receives debts & credits from banks5. Fed settles transactions6. Consumer sees transaction on statement.7. Frequently used for any sort of re-occurring payment.• ACH processing started in 1972. National Automated Clearing House Association (NACHA) was established in 1974.• The 1980 Monetary Control Act allowed private sector ACH operators to compete with the Federal Reserve Bank.• Today both NACHA and the Federal Reserve govern the rules and regulation of the ACH network.• The ACH Network processes over 8 billion transactions and $21 trillion annually.• The Federal Reserve Banks process nearly 60% of commercial interbank ACH transactions.• The Electronic Payments Network (EPN), the private sector ACH operator processes the remaining 40%. Saunders Learning Group, LLC, Andover, KS subtitle 19
  20. 20. Electronic Payment System Banks use electronic payment systems to transfer trillions of dollars between banks and bank customers every business day of the year. The process flow below highlights the steps in this process. The process includes the payment order, ratification, confirmation, sending, receiving, issuing a payment and final settlement of the transaction. Saunders Learning Group, LLC, Andover, KS 20 subtitle
  21. 21. Loan Products Bank loan products are typically separated by the markets they serve: — Retail lending to consumers, includes:  Personal loans  Home loans  Mortgage Loans  Auto Loans — Corporate lending includes:  Term loans  Working Capital loans  Mortgage loans  Equipment financing  Receivable financing  Trade Finance  And Small Business Administration loans Each loan product has a series of steps from origination, credit analysis to approval and disbursement. Once a loan is disbursed it must be serviced until closed. Saunders Learning Group, LLC, Andover, KS 21 subtitle
  22. 22. Typical Loan Decision Process Customer Loan application Bank requests a performs Credit Yes Loan docs is completed prepared loan credit Decisio (could be n online) analysis Credit No Report inform customer Employment Verification Customer Bank Bank Bank signs verifies prepares Loan accounting funds loans documents loan systems Loan serves entries updatedThis generalized process is followed for all loan types, with different loans requiring moredocumentation or verification. For example a loan secured by real estate needs an appraisal toset the value of the property. Inventory financing might need to be secured by a lien on theinventory. Title to an auto would be retained by the bank until the loan is paid off etc. Saunders Learning Group, LLC, Andover, KS Slide 22 Confidential and Proprietary
  23. 23. Loan Origination Business Process Loan origination includes the business processes, supporting services, and operational systems needed to create loans, set up the accounting of the loan transaction and operationally support the servicing of the loan, until it closes (or is paid off). Saunders Learning Group, LLC, Andover, KS Slide 23 Confidential and Proprietary
  24. 24. Modern Approach to Core Banking SystemsThe components needed toaccomplish a core systemrenewal include: Process server solutions Service registry/repository solutions Portal server solutions Rules engine solutions Enterprise Service Bus solutions Master data management solutions Saunders Learning Group, LLC, Andover, KS Slide 24 Confidential and Proprietary
  25. 25. Credit Card Companies A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holders promise to pay for these goods and services. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. The concept of using a card for purchases was described in 1887 by Edward Bellamy in his utopian novel Looking Backward. Credit Card Issuers vs. Credit Card Associations: What the difference is between the two logos featured on many of your credit cards? — The issuing bank (such as Chase) funds the transactions, and the card association (like Visa) processes them. — Issuing banks are the financial institutions that issue credit cards. They lend us the money we charge on our card, and then we pay them back at the end of the month. If we default on our credit card bill, the issuing bank must suffer the loss (though we as consumers will suffer a lower credit rating). Card issuers also set the terms of our credit card agreements, like the APR and other fees. Issuing banks can be large, national institutions or smaller, local banks, or even credit unions. 90% of credit card accounts in the U.S. are issued by five banks: JPMorgan Chase, Citigroup, Bank of America, Capital One, and HSBC. — Card associations process the credit card transactions. They are responsible for setting the transaction terms and fees for merchants and the card-issuers. Visa and MasterCard are the two major examples of card associations. — Card associations are actually cooperatives comprised of thousands of issuing banks. For example, Citigroup owns 9.5% of MasterCard, Chase owns 8.5%, and HSBC and Bank of America each own 5.1%. — Familiar Card association brands include Visa, MasterCard, American Express, Discover, and Diners Club. Visa, MasterCard and American Express issuers co-brand with their card association. Saunders Learning Group, LLC, Andover, KS Slide 25 Confidential and Proprietary
  26. 26. Credit Card Transaction Flow Saunders Learning Group, LLC, Andover, KS Slide 26 Confidential and Proprietary
  27. 27. Business Banking  Provides day-to-day financial advice, products and services focused on smallFunction to mid-size businesses often headquartered in the local community.  Provides credit analysis to determine appropriate financial products, loans and services  Generates loan proposals and documents to support funding requirements of small to mid-size businesses  Arranges for deposit services and cash management product to more efficientlyExample collect available cash balances into consolidate accountsactivities  Offers payroll processing and check cashing for employees  May offer retirement plans for employees of companies  May also offer advice and coordination of various other services in the community (accounting, legal, tax, financial planning are examples.)  Provides lines of credit, equipment financing and term loans  Letters of credit for financing export/import activities  Merchant credit card processing Example  Citibank, Bank of America, JPMorgan Chase, Wells FargoCompanies Slide 27 Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary
  28. 28. Business Banking Products and Services Many of the banking products and services provided to consumers will be similar for business banking. Businesses need checking, savings and time deposit accounts. Businesses need financing for their business operations and they need other services, including: — Business Loans — Trade Financing — Letters of Credit — Payroll processing — Retirement plans Saunders Learning Group, LLC, Andover, KS Slide 28 Confidential and Proprietary
  29. 29. Business Loan Types Term loans – Working Capital Mortgage loans – Equipment Receivable Trade Finance – Small Business Loans for a loans – Provided Provided by Financing – financing The processes of Administration specific time by banks and banks and Loans that are money loans period, where non-banks that mortgage loan used to finance management, the principal specialize in originators (see the purchase of banking and and interest is providing the mortgage specific types of investment to repaid at the businesses with banking course equipment, facilitate theend of the term. this sort of for more which may be movement ofUsed to finance product. A loan details). converted to a trade between a variety of whose purpose is Frequently this term loan and countries. These business needs to finance is used to paid for by the processes or activities. everyday finance economic use of include operations of a construction of the equipment. importers, company. commercial Banks generally exporters, buildings and secure the loan financers, offices. with the insurers and equipment title. service providers. Saunders Learning Group, LLC, Andover, KS Slide 29 Confidential and Proprietary
  30. 30. Credit Card Payment Processing Most banks that provide business services include the ability to process credit card payments for merchants. 1. Customer starts a transaction at the merchant’s business 2. The merchant’s payment device contacts a gateway provider to reach the merchant bank’s processor 3. The processing service, then connects to the credit card network, which in tern communicates with the customer’s bank to determine if funds are available for the purchase transaction, if funds are available, the transaction is approved and the routing is reversed. 4. The merchant then completes the transaction and the process occurs a second time to transfer funds from the customer’s account to the merchant’s accounts. 5. All of this happens is mere seconds, from just about anywhere in the world. Source: Saunders Learning Group, LLC, Andover, KS Slide 30 Confidential and Proprietary
  31. 31. Processing flow for e-checking services Saunders Learning Group, LLC, Andover, KS subtitle 31
  32. 32. Payroll Processing Banks compete for the business of processing payroll with dedicated payroll processing firms like ADP and local accountants/CPAs who offer this services. This service is often offered in order to provide a more complete range of services to business customers. Critical to payroll processing is insuring deductions for taxes and benefits are properly accounted for and processed. A typical payroll process is shown in the diagram. Saunders Learning Group, LLC, Andover, KS 32 subtitle
  33. 33. Trade Finance Trade financing has a number of risks around payment and settlement of trade transactions. This is summarized in the payment risk diagram. The trade finance business is considered to be one of the most complex areas of wholesale banking, with as many as 12 parties getting involved at different points in an end-to-end transaction. The trade finance business is moving towards processing paperless transactions with minimal manual intervention. Banks are looking to automation to reduce their overall cost, improve business processes, compress the physical and financial supply chains, and increase their market share. The top 20 banks in trade finance account for 55% of market share, while the remaining 45% is spread across another 400 banks. The trade business has not changed much in the past hundred years and still involves various parties that work together to move goods and transfer funds around the world. Banks play a key role and act as intermediaries providing risk mitigation and settlement services, while ultimately striving for a competitive advantage over other banks. Technological advancements have raised the expectation of corporate clients, who demand more from their banks and expect a high quality of service to match their individual needs. These customers now expect a ‘zero-latency environment’ to meet their demands for more information. The banks, while trying to reduce operating costs, are forced to improve efficiencies to meet customer demands. Saunders Learning Group, LLC, Andover, KS 33 subtitle
  34. 34. Letters of Credit Trade-related credit is issued primarily by banks via ―letters of credit,‖ the purpose of which is to secure payment for the exporter. Letters of credit prove that a business is able to pay and allow exporters to load cargo for shipments with the assurance of being paid. This is how it works: Company A located in the Republic of A wants to buy goods from Company B located in B-land. — Company A and B draw up a sales contract for the agreed sales price of $100,000. — Company A would then go to its bank, A Plus Bank, and apply for a letter of credit for $100,000 with Company B as the beneficiary. (The letter of credit is done either through a standard loan underwriting process or funded with a deposit and an associated fee). — A Plus Bank sends a copy of the letter of credit to B Bank, which notifies Company B that its payment is available when the terms and conditions of the letter of credit have been met (normally upon receipt of shipping documents). — Once the documents have been confirmed, A Plus Bank transfers the $100,000 to Bank B to be credited to Company B. Saunders Learning Group, LLC, Andover, KS Slide 34 Confidential and Proprietary
  35. 35. Retirement Plan Services Small business owners face challenges with retirement plan administration. Banks typically offer a range of simple retirement plans that work well for a business. Banks benefit from offering this service by collecting fees for plan administration and processing contributions. SIMPLE 401k  SEP IRAs — A SIMPLE 401k allows for easy administration of a — A simplified employee pension plan can be plan for businesses with fewer than 101 employees established through an IRA to generate tax and no other retirement plan options. The only benefits and savings for a business owner restriction is an employer must offer either: a and employees of a small business. matching contribution up to 3 percent of each  SIMPLE IRAs employees pay or a non-elective contribution of 2 — A SIMPLE (Savings Incentive Match Plan for percent of each eligible employees pay. Employees). The plan differs from a 401k Single-Participant 401k because each employee sets up her own IRA. — This option allows a small business owner to The employer simply manages or matches increase the contribution limits. With this option, an contributions, as willing, throughout the employer can opt to either make contributions as a year. business owner or as an employee. Saunders Learning Group, LLC, Andover, KS 35 subtitle
  36. 36. IB Banking/Brokerage Firm Overview Investment Banking and Brokerage Firms Investing Banking Brokerage and Capital MarketsBrings in client money that the firm will be paid Provides advice and banking services toto manage and invest, and that the firm can corporations, arranges complex financialalso lend to others. transactions such as mergers, and trades stocks/bonds for the firm’s clients. Private Bank/ Retail Investment Banking Brokerage Equity Research Corporate Banking Sales and Trading Transaction Services Saunders Learning Group, LLC, Andover, KS Slide 36 Confidential and Proprietary
  37. 37. Private Bank  Provides banking and other services to clients with large amounts of moneyFunction to invest (typically more than $10 million, but some banks start at $1MM)  Handling client requests, e.g. investment advice, buying or selling a certain stock or bond, or arranging a large loans  Prospecting new clients through networking and cooperation with other divisions of the bank Examples:Example  Meet with client in order to discuss strategies to minimize taxes or achieveactivities other financial objectives  Advise client on investing in non-traditional areas such as art or sophisticated financial instruments such as hedge funds  Meet with investment bankers in order to bring CEO of a client company in on a personal basis as a private bank client  Arrange large personal loans using assets such as planes or company stock as collateral  Citibank Private Bank, UBS, Bank of America Private Bank, Northern Trust ExampleCompanies Slide Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary 37
  38. 38. Retail Brokerage  Provides banking and other services to clients with varying amounts ofFunction money to invest  Handling client requests, e.g. investment advice, buying or selling a certain stock or bond  Prospecting clients (usually through "cold calling") Examples:Example  Call all the lawyers at a particular law firm to see whether any are interested in opening up an accountactivities  Buy 500 shares of Procter & Gamble on a client’s behalf  Distribute mutual fund information to a client and recommend the best investments for a client’s objectives  Inform the client of new products (such as different types of insurance or annuities) that the brokerage is offering that could be useful in attaining certain financial goals  Smith Barney, Charles Schwab, Morgan Stanley, Fidelity, Raymond James ExampleCompanies Slide 38 Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary
  39. 39. Equity Research  Creates research reports recommending selling or buying certain company stocks;Function often also produces other types of economic and financial reports  Build complex Excel spreadsheets that help predict the future financial performance of companies  Publish reports involving financial projections as well as other types of data that help predict the future performance of a companyExample  Research on industries (such as restaurants or oil companies) and on economic trends (such as the price of gold or the Japanese economy)activities Examples:  Publish a 10-page report predicting the stock performance of Coca-Cola including full financial statements, using e.g. regulatory filings, conversations with executives at the company, information on Coca-Cola’s market share in selected markets, etc.  Monitor news on specific companies  Speak with people inside the company, and sometimes investment managers within the company, about the prospects of an investment  Smith Barney, JPMorgan, Goldman Sachs, Credit Suisse Example  Equity research was traditionally a function of an investment bank so mostCompanies investment banks will have an affiliated research unit Slide 39 Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary
  40. 40. Investment Banking  Provides financial advice and services to corporate clientsFunction  Build complex spreadsheets that help predict the future financial performance of companies  Put together proposals for bank services that could be useful to a client (for example, might include financial statistics or ideas for companies to buy)Example  Draft and proofread financial statements and regulatory documents  Meet with and build relationships with client executivesactivities Examples:  Help a company determine a fair price at which to sell itself to a competitor (or vice versa)  Draft legal and regulatory documents for issuing stocks or bonds, then travel with client executives to help sell the new stocks or bonds (Road Shows)  Citibank Private Bank, UBS, Bank of America Private Bank, Morgan Stanley, Example Goldman SachsCompanies Slide 40 Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary
  41. 41. Corporate Banking  Provides day-to-day financial advice and services to corporate clients; many areFunction similar to those offered by a consumer bank, but on a much larger scale  Build complex Excel spreadsheets that help predict the future financial performance of companies  Put together PowerPoint proposals for bank services that could be useful to a client (for example, might include financial statistics or ideas for companies to buy)  Draft and proofread financial statements and regulatory documentsExample  Meet with and build relationships with client executives Examples:activities  Arrange a regular multi-billion dollar loan to a corporation to help it expand its operations  Arrange a special type of loan that allows a company to borrow money at a low interest rate and that is collateralized with some of the company’s assets (such as planes or construction equipment)  Arrange a mortgage on an industrial property such as a factory  Citigroup Investment Bank, JPMorgan, Goldman Sachs, Credit Suisse Example  There is some overlap between all four ―Banking and Capital Markets‖ functions someCompanies companies will typically offer all of them, but specialize in one or two areas Slide 41 Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary
  42. 42. Sales and Trading  Buy and sell stocks and bonds for large investors such as companies andFunction Governments  Sell company or government stocks and bonds to financial investment firms (such as other banks, mutual fund companies, and hedge funds)  Fulfill orders to sell or buy large quantities of stocks and bonds at a predetermined price  Check to see whether trades are executed correctlyExample Examples:activities  Buy 500,000 shares of Nike for a hedge fund that wants to invest in Nike stock  Call investment firms to persuade them to buy their stocks and bonds through you in exchange for a commission  Put together a group of investors to buy a large amount of new stock that is coming to market  Citigroup Investment Bank, JPMorgan, Goldman Sachs, Credit Suisse Example  There is some overlap between all four ―Banking and Capital Markets‖ functionsCompanies some companies will typically offer all of them, but specialize in one or two areas. Slide Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary 42
  43. 43. Transaction Services  Provides operational services for managing very large amounts of cash, stocks andFunction bonds including technology support  Especially broad variety of day-to-day job functions, depending on the specific area  Collect, analyze and report financial data for clients, including a clients day-to-day financial status  Implement a technology solution for helping clients trade stocks more efficiently  Meet with and build relationships with client executivesExample Examples:activities  Train a client in the use of a new financial reporting system  Supervise and check the transfer of a large amount of money or stock from an client’s account to another company  Design and develop database to store records relating to claims in a class-action suit  Compute interest due on a bond and inform the issuer of the bond, then coordinate payment to all bondholders  Citigroup, JPMorgan, Northern Trust, Bank of New York, Wells Fargo Example  There is some overlap between all four ―Banking and Capital Markets‖ functionsCompanies some companies will typically offer all of them, but specialize in one or two areas Slide Saunders Learning Group, LLC,Andover, KS Confidential and Proprietary 43
  44. 44. Wealth Management Services A professional service which is the combination of financial/investment advice, accounting/tax services, and legal/estate planning for one fee. This service is also known as ―Private Banking‖. The typical client has a net worth of over one million US dollars. Wealth management is big business. The 40 largest wealth management firms boosted their assets under management by 13%, to $3.9 trillion in 1911.  Wealth management services are usually The U.S. is still home to the single provided by teams of product specialist and largest High New Worth Individuals investment managers. (HNWI) segment in the world, with its 3.1 million or 28.6% of the global HNWI  Because each client’s needs are different population. Asia-Pacific posted the specialists in wealth management need to an strongest regional growth and has now in-depth knowledge of the services and surpassed Europe in terms of HNWI products offered by a bank and how to apply population, expanding 9.7% to 3.3 those to meet the needs of clients. million, while Europe grew 6.3% to 3.1 million.Saunders Learning Group, LLC, Andover, KS Slide 44 Confidential and Proprietary
  45. 45. Innovations and the Future of Banking Capture new opportunities –opportunities exist to adapt products to the needs of customers, and to find new pockets of growth. — Offering discounts to customers based on spending habits via their bank statements or by text message. — Location based alerts to use credit/debt card for purchases at a discount. Disruptive technology - Opportunity lies in the potential for disruptive technology in both consumer and wholesale banking—yet many of banking’s digital strategies are still in their infancy. Mobile payments from both banks and non-banks will continue to grow and has the potential to replace ATMs and Debit Cards. Online banking - banks can eliminate as much as half of the cost of their branches by moving sales and service online. Cutting processing time - Some banks using techniques like Lean Six Sigma and other techniques have for example, cut the time to process a mortgage to 60 minutes, from days. The Bank of the future will have touch screens and Surface technology to display product information and help customers with selecting accounts, loan processing and typical banking transactions. Branches may be completely automated, with access to customer service via a in- branch phone. More banking will be done via mobile phones and online banking. Non-banks will continue to penetrate the payments processing business of banks. Saunders Learning Group, LLC, Andover, KS Slide 45 Confidential and Proprietary
  46. 46. A Future Model of Integrated Banking Systems The model on the left attempts to present a series of integrated banking systems all in communication with each other, sharing master data about clients and servicing the needs of a wide range of banking clients. Banks are faced with several challenges in reaching this target: — Legacy systems have vast amounts of client data and may be written in different, disparate programming languages — New products and services are completing for the IT budgets as mobile banking, payment systems and competitors all draw the attention of management. — Customers expect more services and products that provide rapid straight through processing. — Regulations continue to drive the way banks provide services and supporting SWIFT: Society for Worldwide Interbank Financial Telecommunication supplies secure messaging services and interface softwar systems must match those to wholesale financial entitiesis. SECOM the Swiss securities settlement system operated by SIX SIS Ltd and stands for requirements with a balance to Settlement Communication System. The Financial Information eXchange (FIX) Protocol is a messaging standard developed specifically for the real-time electronic exchange of securities transactions. customer services and profitability. Saunders Learning Group, LLC, Andover, KS Slide 46 Confidential and Proprietary
  47. 47. Credit Unions Credit Unions are similar to banks, except for the following differences: — Credit Unions are member owned. Each depositor is issued shares of ownership based on deposits held — Profits are returned to the members in the form of dividends to their savings account — Interest rates at credit unions are typically less than at banks for loans, due to their non-profit, member owned status. — Credit Unions offer customers many of the same products and services as retail banks. — Credit Unions are formed by the members having a common interest (working at the same company for example). — Credit Unions are chartered and regulated by the National Credit Union Administration. Saunders Learning Group, LLC, Andover, KS Slide 47 Confidential and Proprietary
  48. 48. Trends in the Credit Union MarketThe total number of credit unions have declined in the financial crisis. Loan growth has started to increase as thefinancial crisis of 2008-09 fades. As consumer’s dissatisfaction grows with traditional retail banks, it is likely thatcredit unions will continue to grow. Saunders Learning Group, LLC, Andover, KS Slide 48 Confidential and Proprietary
  49. 49. QuestionsSaunders Learning Group, LLC, Andover, KS