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

1. An introduction to retail banking
Nick Money
17 January 2014

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. What is retail banking?
Lending"money"
(revenue)"
Holding"
money"
Handling"
money"
Lending"money"
(capital)"
2"

4. Who does it?
Credit'unions'
Holding"
money"
Building'socie0es'
Lending"money"
(revenue)"
Banks'
Handling"
money"
Lending"money"
(capital)"
3"

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. 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. 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. 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. 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. What does the future hold?
• REGULATION
• REGULATION
• REGULATION
• Branches vs. mobile / online
• Mobile and non-banking
payments
• Crowd-sourcing / peer-to-peer
lending
9"