5. Types of Banking

What is the difference between retail and wholesale banking

Retail Banking - Transactions are typically large volume but small value

Wholesale Banking - Transactions are typically small volume but large value

What is retail banking

The provision of banking services to individuals customers and households rather than businesses or large organisations

Examples of retail/personal banking services

Current Accounts

Savings Accounts

Mortgages

Credit Cards and Personal Loans

Payment Services

What are the types of financial institutions in retail banking

Commercial Banks

Savings Banks

Co-Operative Banks

Building Societies

Credit Unions

Finance Houses

What do commercial banks do

Accept deposits from customers and provide loans and other financial services

They have well diversified deposit and lending books and generally offer a full range of financial services including real estate and consumer lending

How do commercial banks generate income

Net Interest Income, fee-generating off balance sheet activities and non-traditional banking activities

What are savings banks

Financial Institutions which primarily encourage individuals to save money by accepting deposits and paying interest on those deposits

They also offer residential mortgage loans

They are mutual organisations owned by their depositors although in recent years many savings banks have demutualised and converted to stock issuing institutions

What are the objectives of savings banks

Social and Economic Development of the region or locality in which they operate

The maximisation of shareholder profits should not be their primary objective

What are co-operative banks

Financial institutions that are owned and controlled by their members

They focus on serving the financial needs of their members and local communities

What is a building society

A financial institution owned by its members and specialise in accepting savings deposits and providing mortgage loans typically for residential property

They do not focus on profit maximisation which enables them to run on lower costs and offer cheaper mortgages and better rates of interest than their competitors

They have a limitation on the funding they can receive from wholesale money markets

What are credit unions

Member owned financial co-operatives that encourage saving an provide loans to their member usually within a particular community or group (known as a common bond)

Their non-profit status exempts them from corporate income tax

What are finance houeses

Financial institutions that specialise in providing loans and credit facilities to individuals and businesses to help finance purchases and other financial needs

They are often owned by or operate as part of large banks or financial institutions but also large retail or motor companies

What are the source of funds for finance houses

Issuance of securities in money (such as commercial paper) and capital (stocks and bond) markets

What are the current challenges with retail banking

Very high competition - everyone is competing for the same customers

Customers’ preferences are changing - demanding fast, simple and easy user experiences

Banks are looking to innovate new processes and solutions to be able to compete in an increasingly competitive and quickly changing market

IT spending is increasing rapidly but as regulatory pressures increase, banks are forced to spend a large part of their budget on remaining compliant

What is corporate banking

A division of bank that provides financial services to companies although the term typically refers to relatively large firms

Corporate banking services for SME’s

Corporate banking services for large enterprises

What is the current challenge of corporate banking

Financing the green economy

What is investment banking

Specialised financial services provided to large companies and other financial institutions such as raising capital, managing complex financial transactions and providing strategic advisory

They do not take retail deposits or make everyday consumer loans

What specialised financial services do investment banks provide

What are the current challenges in investment banking

Regulatory Compliance

Digital Technologies and FinTech innovations

Cost Reduction

What is wealth management

Financial services provided to wealthy clients (High Net Worth Individuals- HNWI), mainly individuals and their families , typically with $100K+ investable assets

What is private banking

An important, more exclusive, subset of wealth management, typically with $1M+ of investable assets