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Introduction to Retail Banking

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Introduction to Retail Banking
Nick Money
Co-operative Ways Forward Conference
January 2014

Published in: Business, Economy & Finance
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Introduction to Retail Banking

  1. 1. An introduction to retail banking Nick Money 17 January 2014
  2. 2. The agenda •  What is “retail banking” and who does it? •  Why isn’t there more change in this market? •  What does the future hold for this market? 1"
  3. 3. What is retail banking? Lending"money" (revenue)" Holding" money" Handling" money" Lending"money" (capital)" 2"
  4. 4. Who does it? Credit'unions' Holding" money" Building'socie0es' Lending"money" (revenue)" Banks' Handling" money" Lending"money" (capital)" 3"
  5. 5. What is retail banking? Lending money •  Lending"money" • Overdra;s,"loans" and"credit"cards" (unsecured)" • Mortgages"(secured)" Interest income driven by value, term and price •  Objective to lend at higher rates to consumers than the funds cost (funds from consumers or the market) •  Balancing timing risks - “Borrowing short and lending long” •  Covering operational costs and bad debts •  Regulatory capital an additional ‘cost’ •  Ancillary revenues e.g. insurance, charges •  Differences for secured vs. unsecured 4"
  6. 6. What is retail banking? Holding money •  Income driven by value, term and price of deposits •  Net income from paying lower rates than can be earned on those funds from lending (to consumers or the market) •  Covering operational costs •  Liquidity required Holding"money" •  Liquid"savings"/" deposits" •  Fixed"term" 5"
  7. 7. What is retail banking? Moving money •  •  Current"accounts" •  Payments" •  ATMs" •  Foreign"exchange" •  Covering operational costs – clearing system is a massive cost •  Moving"money" Income is generally fee-based Regulatory capital an additional ‘cost’ •  Ancillary revenues e.g. insurance, charges •  Massively high volumes •  Be part of the system or be an ‘agency’ bank (use someone else’s system) 6"
  8. 8. Why do banks do the things that make us mad? •  Changing rates on savings account ‘hot offers’ •  “Penalty” charges on current accounts •  Declining loan applications from longstanding customers •  Declining banking applications from start-ups / small organisations •  Payment protection insurance 7"
  9. 9. Why isn’t there more change in this market? •  Complex –  Regulation –  Technology •  Few successful new entrants competing with banks •  Expensive –  Regulation –  Capital –  Service channels •  Basic flaws –  Customer inertia –  Economics of free banking •  Drive for economies of scale •  Credit unions growing but still tiny •  Building societies defending and consolidating 8"
  10. 10. What does the future hold? •  REGULATION •  REGULATION •  REGULATION •  Branches vs. mobile / online •  Mobile and non-banking payments •  Crowd-sourcing / peer-to-peer lending 9"

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