Banks and Banking in a Digital Age

Question 1

What is a Bank?

Answer 1

They are authorised (or licensed) by a regulatory or governmental authority to take deposits and lend money.

Question 2

Banks Role in Society

Answer 2

•A financial Ontermediary between Savers and Borrowers.
•Creation of Money.
•Creates/Offers Products and Services.

Question 3

Retail Banking

Answer 3

•Customers are Individuals and small Businesses.
•Services Offered: Savings, Loans, Mortgages, Insurance, Pensions and Current Accounts.

Question 4

Commercial Bank
(Retail)

Answer 4

•Service Retail and Corporate Clients.
•Taking Deposits and Providing Loans.
•Owned by Shareholders.
•Profits paid by Dividend to Shareholders.

Question 5

Savings Banks
(Retail)

Answer 5

•Offer Similar Products/Services to Retail Banks.
•Mutually owned by their Customers

Question 6

Co-operative Banks
(Retail)

Answer 6

•Similar to Savings Banks.
•Trend to merge and form larger banks and to become PLC’s.

Question 7

Building Societies
(Retail)

Answer 7

•Focus on retail deposit taking and mortgage lending.
•Mutually owned by customers/members.

Question 8

Credit Unions
(Retail)

Answer 8

•Non Profit co-operative organisations.
•Mutually owned by customers/members.
•Members Pool Save and lend to each other.

Question 9

Finance Houses
(Retail)

Answer 9

•Companies who provide loans to individuals/companies.
•The money they lend comes from investors in the company.

Question 10

Challenger Banks
(Retail)

Answer 10

•Established mid-sized banks.
•Specialist Banks
•Fintechs

Question 11

Fintech’s
(Retail)

Answer 11

•Companies who have applied technology to banking to offer additional services to improve customer experience.

•Digital only bank= full bank license
•Neo banks= no bank license but partners with a bank that does
•Non-banks= no bank license but meet necessary conditions to provide financial services

Question 12

Private Banking

Answer 12

Providing Financial Services to wealthy clients

Question 13

Corporate Banking

Answer 13

Similar to retail but for large companies.

Question 14

Wholesale Banking

Answer 14

Borrowing/Lending large sums of money with large clients, financial institutions, governments etc.

Question 15

Investment Banking

Answer 15

•Providing advice to corporate customers who want to raise finance.
•Buying & Selling shares/bonds on behalf of corporate, private and the bank.
•Managing customers investments.

Question 16

Islamic Banking

Answer 16

Shariah Law doesn’t allow interest (Riba).
However it encourages entrepreneurial activities so banks have alternative options to offer.

Question 17

International Banking

Answer 17

Banks offer services resident in other countries and in currencies other than their own.

Question 18

3 Trends Reshaping Banking

Answer 18

•Technology
•Globalisation
•Demographics

Question 19

Evolution of Banking

Answer 19

•1472-1980 Banking centred around branches (1967 first ATM).

•1980-2007 Self service in branches, online.

•2007-2017 Mobile banking, Fintechs, Digital Only banks

•2017-Now Real time banking everywhere.

Question 20

Digital and Data Innovation

Answer 20

•Open API: different pieces of software interact with each other (allows customers to see all accounts with different providers).

•Advanced Analytics: predict customer behaviour, improve risk assessments.

•AI/Machine learning: computer programmes that simulate human intelligence.

•Conversational Interfaces: chatbots and voice assistants.

•Cloud Processing: delivery of services over the internet.

•Augmented/ Virtual Reality: augmented reality ADDS to reality… virtual reality REPLACES reality.

Question 21

Digital and Data Innovations 2

Answer 21

•Mobility and Wearables: customers wear traceable technology.

•RPA: use of computer software robots to perform tasks.

•IoT: different devices are connected together to produce data.

•Block Chain: record of transactions where blocks are linked together in a chain to allow individuals to pay each other without a central clearing point.

•Quantum Computing: manipulate multiple combinations of data at the same time.

Question 22

Functions of a Bank

Answer 22

•Accept deposits from Savers.
•Grant loans to Borrow.
•Act as an agent for payments.

Question 23

Savers Benefits

Answer 23

•Access money on demand.
•Reduced risk through diversification with other savers.
•Lower transaction costs.

Question 24

Borrowers Benefits

Answer 24

•Long term loans.
•Lower interest rates.
•More likely to find a loan.
•Lower Transaction costs.

Question 25

Savers & Borrowers

Answer 25

SAVERS
•Creditors of the bank.
•Earn interest.

BORROWERS
•Debtors of the bank.
•Pay Interest.

Question 26

Profit

Answer 26

Banks make money by:
•Charging interest on loans.
•Charging fees for products and services.
•Earning interest by investing money deposited by savers.

Question 27

Banks Assets

Answer 27

•Notes & Coins.
•Deposits at BoE.
•Loans to other banks.
•Bills.
•Investments (Gilts).
•Premises and Equipment.
•Advances (Loans).

Question 28

Credit

Answer 28

Banks create credit by:
•Attracting deposits by paying interest to savers.
•Redistributing deposits to borrowers who in turn spend the money in the economy.
•Only keeping enough cash (usually 10%) in reserves to cover a fraction of savers deposits.

Question 29

Stakeholders

Answer 29

•Shareholders: demanding dividends.
•Customers: want low cost products and services.
•Employees: want high salaries and job satisfaction.
•Government & Regulators: want economic growth and stability.

Question 30

Stakeholders 2

Answer 30

•Economic: suppliers, shareholders, customers.
•Social/Political: councils, regulators, government agencies.
•Technological: suppliers and users of new technology.
•Community: those who live where a bank has a branch
•Internal: bank employees

Question 31

Statements

Answer 31

•Mission Statement: sets out what the bank is trying to do.
•Vision Statement: what the bank hopes to do in the future.
•Statement of Corporate Values: core principles underpinning the bank.
•Objectives: statements of specific outcomes the bank wants to achieve.

Question 32

Sustainability

Answer 32

•Economic needs
•Social needs
•Environmental needs

Question 33

Corporate Social Responsibility

Answer 33

•Organisational governance
•Human rights
•Labour Practices
•The environment
•Fair operating practices
•Consumer issues
•Community involvement & development

Benefits:
•Reputation
•Ability to attract & retain workers or members, customers, clients or users
•Relationships with companies, governments, the media, suppliers, peers and the community in which it operates.

Question 34

UN Sustainable Development Goals (2015)

Answer 34

1.Poverty
2.Hunger
3.Healthy lives
4.Education
5.Gender Equality
6.Water & Sanitation
7.Energy
8.Economic growth/employment
9.Infrastructure, Industrialisation & Innovation
10.Inequality
11.Inclusive, Safe, Sustainable cities
12.Sustainable consumption & production
13.Climate Change
14.Conserve the seas
15.Ecosystems
16.Inclusivity, accountability, access to justice
17.Global sustainable development

Launched in 2017

Question 35

What Can Banks Do?

Answer 35

•Link investment decisions with SDGs
•Link obligation to act in the best interests with SDGs
•Engage with companies they hold a stake in
•Provide loans for SDGs solutions
•Allow SDG entrepreneurs access to finance
•Develop products to allow investors access to SDG solutions
•Ensure activities support the achievement of SDGs