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LIBF Unit 1 > Topic 7 - Providers > Flashcards

Topic 7 - Providers Flashcards

1
Q

Purpose of providers

A
  • usually offer financial products + services enabling ppl to make transactions, save, invest, borrow + protect themselves (insurance)
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2
Q

How are recent financial service providers specialised?

A
  • using only some communication channels
  • offering certain types of product
  • allowing certain types of ppl to be customers
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3
Q

Types of financial services providers

A
  • banks
  • building societies
  • credit unions
  • national savings + investments (NS&I)
  • post office
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4
Q

How do banks make money

A
  • charging fees + from interest rate margin
  • margin = diff. between interest charged to borrowers (APR/EAR) + interest rate banks pay to savers (AER)
  • fees allow banks to pay their costs (rent/premises,staffing, administration, utilities) + make a profit
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5
Q

Considerations when choosing a financial services provider

A
  • advantages + disadvantages of type of provider
  • how they wish to operate their accounts + communicate w provider
  • how safe their funds are
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6
Q

Why should PRA be considered when choosing a provider

A
  • financial providers must be checked + authorised by PRA (Prudential regulation authority)
  • PRA + FCA (financial conduct authority) work together ensuring providers work appropriately e.g. manage risk well + treat customers fairly
  • providers can be checked if they are regulated by looking at financial services register
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7
Q

Usual characteristics of banks

A
  • public limited companies: shares of bank can be bought + sold on stock exchange
  • services offered to individuals = retail banking
  • offers wide range of financial services
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8
Q

Products + services offered by banks

A
  • make transactions
  • save
  • borrow
  • invest
  • protect themselves
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9
Q

7 e.g. of how ppl can make transactions

A
  • transfer by current account
  • direct debit
  • standing order
  • credit card
  • debit card
  • cash card
  • cheque
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10
Q

3 ways/accounts in which customers can save

A
  • ISA
  • personal account
  • bonds
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11
Q

4 diff. e.g. of loans

A
  • overdraft
  • personal loan
  • credit card
  • mortgage
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12
Q

How to invest

A
  • buy stocks + shares
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13
Q

Banks ways to protect themselves

A
  • home insurance
  • car insurance
  • life assurance
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14
Q

Meaning of banks being public limited companies

A
  • raise capital by selling shares on stock market
    • buyers of shares = shareholders: part owners of company
  • shareholders can receive a proportion of profits in form of dividends
  • banks need to satisfy shareholders by providing a dividend so have to make profits
  • shareholders also gain if share price inc. (more likely if demand for shares is high: follows from high profits)
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15
Q

Banks as global businesses

A
  • operate on global scale
  • banking groups = when providers merge/acquire other providers
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16
Q

Advantages of banks

A
  • easy access to diff. products + services
  • banks can invest in new products + services
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17
Q

Disadvantages of banks

A
  • customer service may be less efficient than smaller organisations
  • global nature of financial services market means events in other countries may have impact on UK banks (e.g. financial crises + domino effect)
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18
Q

What is a building society

A
  • mutual organisations owned by their customers (members)
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19
Q

Original function of building societies

A
  • provides saving accounts + mortgages
  • now provide wider range of financial services (e.g. current accounts, credit cards + insurance)
20
Q

Advantages of building societies

A
  • all customers are members
  • no shareholders so don’t need to maximise profits to give shareholders dividends
  • all profits a building society makes are used to benefit its members
  • building society’s customer service tends to score more highly than banks: mutual status + smaller than banks
  • demutualisation means building society becomes a bank
  • tend to only operate within UK + some have local focus only
  • < banks = more personalised service
21
Q

Disadvantages of building societies

A
  • smaller = unlikely to invest in research + development for innovative products or services
  • need to rely on partners to offer a range of services (e.g. insurance policies)
22
Q

Why are building societies smaller than banks?

A
  • 75% of assets must be mortgages
  • 50% of total funding must come from members’ deposits
  • restrictions on unsecured loans a building society can make
23
Q

Demutualisation

A
  • process of building society changing mutual status to banks
    • no building society restrictions
  • means largest building societies can become banks
    • receive shares + cash
  • no building societies that demutualised are operating as individual providers now
24
Q

What are credit unions

A
  • mutual organisations owned + run by members
  • members must share a common bond
25
Q

common bonds members of credit unions can share

A
  • live + work in certain area
  • work for specific employer
  • work in particular industry
  • belong to specific organisation (e.g. church)
26
Q

Membership of credit unions

A
  • smaller than banks + most building societies
  • after jan 2012, law changed allowing credit to offer memberships to >1 group of ppl
    • could include organisations (community groups, businesses, social enterprises + individuals)
27
Q

Products offered by credit unions

A
  • 2 main products: savings + loans

Also offer:
- life assurance
- credit union current account
- credit card or debit card
- pre-paid payment card

28
Q

Advantages of credit unions

A
  • lower operating costs than other providers (banks)
  • profits used for benefits of members
  • provide local, community-focused service
  • inspire customer loyalty through common bond
29
Q

Disadvantages of credit unions

A
  • offer limited product range
30
Q

National Savings + Investments (NS&I)

A
  • when customers busy it’s products they’re lending money to gov.
  • all money in NS&I products is 100% safe
  • premium bonds + all products must be applied for online, telephone or post
31
Q

Products offered by NS&I

A
  • cash ISA
  • savings account
  • investment account
  • income bonds
  • premium bonds
32
Q

The Post office

A
  • financial services very accessible to customers: many post office within UK
  • provides full range of financial services, provided by partner banks + insurance companies
  • sells foreign currency w/o charging fee 
33
Q

financial services offered by post office

A
  • savings accounts, mortgages + a credit card
  • loans
  • cash ISA
  • home + car insurance policies
  • travel insurance
  • life cover/free new parent life cover
  • pet insurance
34
Q

What are the ‘Big five’ banks in the UK

A
  • Barclays
  • HSBC
  • Lloyds banking group
  • Standard Chartered
  • Royal Bank of Scotland Group
35
Q

Communication methods

A
  • branches
  • online banking
  • telephone
  • mobile banking
  • post
36
Q

Advantages of branches

A
  • customers can talk to someone in person (face to face communication)
  • branch can advertise all its products
  • more personal customer service
37
Q

Disadvantages of branches

A
  • may not be convenient to visit them (e.g. maybe at work)
  • expensive for provider to run the branch
  • metro bank have inc. opening times to react to this
38
Q

Advantages of online banking

A
  • website open 24/7: convenient
  • carry out banking transactions immediately: fast
  • can research products
  • apply for products online
  • low cost for providers compared to branches
39
Q

Disadvantages of online banking

A
  • security issues
  • lack of personal contact: inferior customer service

Banks have addressed these issues
- antifraud issues, security measures (passwords)
- customers can contact staff by email for individual issues

40
Q

Advantages of telephone

A
  • customers can contact from wherever
  • longer opening hours than a branch
  • cheaper costs than a branch
  • customers can access specialist advice + speak to staff w specific knowledge
41
Q

Disadvantages of telephone

A
  • potential fraud
  • quality of customer service
42
Q

Mobile banking

A
  • combines advantages + disadvantages of online + telephone banking
  • uses software (apps)
  • quick + convenient
  • requires sophisticated security
43
Q

Post advantages

A
  • delivers a physical message
  • most convenient method for customers needing to return a signed contract
44
Q

Post disadvantages

A
  • takes time for info. to arrive
  • risk of documents being lost in transmit
45
Q

Choosing a provider

A
  • identify types of product needed
  • research best rates
  • consider safety of products, level of customer service, values of organisation
  • how they want to communicate w provider
  • check if provider is regulated

LIBF Unit 1 (12 decks)

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