7. Providers Flashcards
1
Q
What do providers provide?
A
Full range of financial products and services that enable people to make transactions, save, invest, borrow and protect themselves by taking out insurance
2
Q
How do banks and building societies provide these services?
A
- banks tend to provide these products themselves
- building societies tend to provide savings and borrowing products themselves + work with partners to provide insurance + long term investment
3
Q
Examples of providers of financial services
A
- banks
- building societies
- credit unions
- post office
- national savings and investments
4
Q
How do financial services providers make money?
A
- by charging fees e.g. overdraft charges
- interest rate margin
- the fees allow the banks to pay their costs and make a profit
- costs such as rent/premises, staffing, administration
5
Q
What is the interest rate margin?
A
Difference between interest the banks pay to savers (AER) and the interest they charged to borrowers (APR or EAR)
6
Q
What should people consider when choosing a provider?
A
- how they wish to operate their accounts and communicate with their provider - e.g. by visiting a branch, via the internet or by mobile phone
- how safe the funds are
7
Q
What organisations protect the interests of financial services customers?
A
- financial providers must be checked + authorised by the PRA- Prudential Regulation Authority
- PRA and FCA (financial conduct authority)work together to ensure financial service providers work appropriately e.g. manage risk well and treat customers fairly
- providers can be checked if they are regulated by looking at the financial services register
8
Q
What are the usual characteristics of banks?
A
- they are public limited companies - means shares of the bank can be bought and sold on the stock exchange
- retail banking covers the services banks offer to individuals
- offer a wide range of financial services
9
Q
Services offered by banks
A
- make transactions - current accounts, debit card, credit card, standing order, direct debits, cash cards, cheques
- save - cash ISAs, saving accounts, bonds
- invest - buying stocks + shares
- borrow - overdrafts, personal loans, credit cards, mortgages
- protect themselves - home and content insurance, car insurance, life insurance
10
Q
What do banks being public limited companies mean?
A
- banks raise money to fund their operations by selling shares
- buyers of these shares are shareholders
- shareholders are part owners of the company (bank)
- shareholders receive a proportion of the profits in the form of dividends - payed once or twice a year
- shareholders can only gain if the share prices increase - meaning banks need to make profits to get shareholders
- there is pressure to pay dividends if possible because otherwise investors will sell their shares - lowering the share price
11
Q
How do banks operate?
A
- on a global scale
- larger organisations often have grown through merging e.g. Lloyds banking group
- offering a very wide range of financial products and services
12
Q
Advantages of banks
A
- customers have easy access to a large range of financial products
- banks can afford to invest in new products and services e.g. HSBC launched First Direct - online bank and telephone banking only
- Barclays launched contactless payment cards
- branches give the feel of better customer service
13
Q
Disadvantages of large banks
A
- customer service may be less efficient than smaller organisations
- the global nature of the financial services market means events in other countries can have an impact on UK banks e.g. Financial crisis and the domino effect
14
Q
What are building societies?
A
- Mutual organisations owned by their customers, who are called members
- originally set up to provide saving accounts and mortgages
- now provide a wider range of financial services - current accounts, credit cards and insurance
15
Q
Why are building societies smaller than banks?
A
- 75% of their assets must be mortgages
- 50% of their total funding must come from members’ deposits
- there are restrictions on the amount of unsecured loans a building society can make
- restrictions mean they take fewer risks than banks when making loans + borrowing funds for their business
16
Q
Advantages of building societies
A
- all customer are members
- no shareholders - don’t need to maximise profit to give dividends
- all profits made are used to benefits its members
- customer services tends to score more highly because of mutual status and the fact they are smaller than banks
- tend to only operate in uk and some have local focus
- smaller - offer more personalised service
