6 Facts that Define Modern Banking (2024)

6 Facts that Define Modern Banking (1)

An absurd phrase that has been creating waves in next generation finance world, is about existence of banks. It says,

The Banks exist because of only one reason: People do not trust each other

Irrespective of how harsh or disrespectful is may sound, it is true. We might not trust our next door neighbor with a couple of thousand bucks, but the bank, where our money is deposited, might give him a loan of a million.

Do not just believe the air conditioned offices, the always happy to help you officers and random happy advertisem*nts. Be an active customer and try to explore almost every dimension of the institution, with which you keep your money.

In this brief article, we will explore 6 facts about banking that every customer needs to know and be aware about.

The Consumer is the Producer

The survival statement for any bank is to accept deposits from the public and give funds on credit. In the whole process, no money of the bank is used or spent. The firm makes a good profit out of the margin between the interest rates of accepting deposits and giving credit.

In other words, whatever deposits you make into the bank are the source of funds for the bank. Whatever the credit the bank gives, are the source of the interest based income for the bank.

Longer you keep your deposits, longer the bank can rely on the same to fetch profits and give a part of it as interest to you.

You are your Credit Score

Whenever you approach the bank for a loan and think that they will offer you a lesser rate on the basis of your good income or reputation or the amount of collateral, you are plain wrong.

The bank runs on the idea of generating credit score and then deciding how much to lend, at what interest rate to lend. All the other concerns such as your income, reputation, collateral, etc., and considered after they have a credit score in their hand.

Youare your credit score for the bank.

There can only be three types of credit score:

  1. High Credit: If you have taken any loans before and they have been serviced properly, you are most likely to get a high credit score and the bank would prefer to lend to you.
  2. Low Credit: You might have skipped an installment or two, which has adversely affected your credit score. Now, the bank would hesitate as much as it can, to give you a loan, irrespective of how loyal customer you are.
  3. No Credit: In case you haven’t availed any loan from the bank and this is your first one, be prepared for some strong background check. Your job, financial statements, income tax returns, family background, etc., everything would be thoroughly checked.

Risk is an important phenomena in the Bank and credit score is one of the foundations of risk calculation.

Intermediaries Rule the World

Be it SWIFT, Western Union, Electronic Transfer, Credit Card, or even a cheque,the bank cannot be avoided at any price. One has to have a bank account if he wants to send money across a state, country or a continent.

The bank would always charge you a fee for any of the transactions mentioned above, which you cannot protest at all. The bank is just being an intermediary in the whole process. Further, the settlement would take up to3-4 days to complete it. The customer is not only being charged fair amount of money, but also precious time.

Recently, the frequency of talks in reducing the costs have caught some fair attention due to the arrival of theBlockchain and fintech based services. A lot of banks have indeed shown keen interest in adopting these technologies, however, there hasn’t been an exemplary performance in the past

If you have money, then you can get money

It is an obvious fact that the loans are designed for the needy. When it comes to the bank, you must prove that you have a good net worth. The lending system is going to rate you depending the following factors:

  1. Age
  2. Locality
  3. Frequency of Change of Residence
  4. Annual Income
  5. Source of Income
  6. Type of Company work in
  7. How long have you been employed?
  8. Number of dependants
  9. Net Worth of all your assets

Long Live Hierarchy

The banks would always depend on the hierarchy since a long time. Even in the smallest branch you will find clerks that report to an officer who reports to the head of the department. The head of the department reports to the branch manager, who further reports to his higher authorities.

There exists a huge hierarchical order in the banks. It has been in the tradition of bank and has never let anyone let breach it.

So, how does a hierarchy affects a customer of the bank? From the simple process of account opening or a transaction to a risky one such as lending, the process goes in ahierarchical order. In case of account opening, the beginning can be from a clerk and process ends when the head of operations verifies the scanning process.

In case of lending, the process begins at clerical level and has to clear several levels of higher management for sanction as well as disbursal.

Coming to customer service, the grievances also travel the same way if they are beyond the level of the junior.

Imagine the amount of time that can be consumed in the process of loan sanctioning and grievance redressal.

Commission Income Always in the Picture

Be it a loan, an overdraft, a savings or a current account, you must have paid at least one of these charges:

  1. Processing Fee
  2. Ledger Folio Charges
  3. Transaction Charges
  4. Convenience Fee
  5. Review Charges
  6. Minimum Balance Charges
  7. Mortgage Charges
  8. Modification Charges
  9. Annual Card fee
  10. Chequebook charges
  11. Commission Income
  12. Custody/Locker Charges
  13. ECS Charges
  14. Risk Assessment Charges

The above mentioned charges are the source of non interest based income, which recently have become a major source of income.

These days, banks are even selling products like general insurance, life insurance, health insurance, mutual funds, gold bonds, ticket booking, stock trading and several other financial products. Fee income fetched by these products has formed a critical source revenue source for the banks.

It is true that banks are a primary source that depict a country’s economic health. Their presence is vital to the government, businesses and the common man. However, most of the people are not interested in understanding the processes of the bank, but are more inclined towards just getting their task done on time.

After all, your bank is the gateway to your financial freedom.

6 Facts that Define Modern Banking (2024)

FAQs

What are 5 facts about banks? ›

Banking Fast Facts
  • $17.1 trillion in deposits are held by banks.
  • 94.6% of households have either a checking or savings account.
  • $83.1 billion in FDIC assessments paid by banks over last 10 years.
  • 251 million retail customers and 55 million small business customers.
Mar 17, 2021

What are 5 good things about banking? ›

  • Your money is safe. ...
  • Your money is protected against error and fraud. ...
  • You get your money faster with no check-cashing.
  • You can make online purchases with ease and peace.
  • You have access to other products from the bank. ...
  • You can transfer money to family and friends with.
  • You have proof of payment.

What are the 5 most important banking services? ›

The 5 most important banking services are checking and savings accounts, loan and mortgage services, wealth management, providing Credit and Debit Cards, Overdraft services. You can read about the Types of Banks in India – Category and Functions of Banks in India in the given link.

What are the 5 elements of banking? ›

The 5 Cs of credit or 5 Cs of banking are a common reference to the major elements of a banker's analysis when considering a request for a loan. Namely, these are Cash Flow, Collateral, Capital, Character, and Conditions.

What are 4 facts about banks? ›

You may be surprised.
  • Online banks offer higher interest rates than brick-and-mortar institutions. ...
  • Banks aren't required to have FDIC insurance. ...
  • The Federal Reserve sets the interest rate on your savings account. ...
  • If you notify your bank of fraudulent activity, you won't be on the hook for it.
Dec 3, 2018

What is the meaning of modern banking? ›

Modern Banking or Internet banking offers a range of facilities, including online bill payments, fund transfers, online shopping, and investment opportunities. This is just not time saving but also allows individuals to carry out these activities from the comfort of their homes.

What are the 4 benefits of banking? ›

Benefits of a Bank Account
  • Bank accounts offer convenience. For example, if you have a checking account, you can easily pay by check or through online bill pay. ...
  • Bank accounts are safe. Your money will be protected from theft and fires. ...
  • It's an easy way to save money. ...
  • Bank accounts are cheaper.

What are 3 benefits of banks? ›

The Benefits of Using a Bank
  • Accounts that fit your needs. A big benefit of using a bank is that there are several types of bank accounts you can access for free or by paying a low fee. ...
  • No fees to deposit your money. ...
  • Easily manage your money. ...
  • Get unexpected income quicker. ...
  • Access bank statements. ...
  • Protect your money.
Mar 3, 2022

What are 3 things a bank does? ›

Although banks do many things, their primary role is to take in funds—called deposits—from those with money, pool them, and lend them to those who need funds.

Who are the big 4 in banking? ›

The “big four banks” in the United States are JPMorgan Chase, Bank of America, Wells Fargo, and Citibank. These banks are not only the largest in the United States, but also rank among the top banks worldwide by market capitalization, with JPMorgan Chase being the most valuable bank in the world.

What are the 7 Ps in the banking service? ›

And to create the necessary blend, firms often involved in the seven “Ps” of marketing also can be known as the four “Ps” consisting of Product, Price, Place, Promotion, People, Process, and Physical Evidence (can be also grouped as Product, Price, Place, and Promotion).

What is basic of banking? ›

Basics of Banking – Meaning & Overview

A bank is known as a financial institution responsible for accepting deposits from the public and creates a demand deposit while simultaneously providing loans to its borrowers. Banks can perform these lending activities either directly or through capital markets.

What are the 5 banking ethics? ›

The ethical banking movement includes: ethical investment, impact investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, and social enterprise.

Why is banking important? ›

How Do Banks Drive the Economy? The banking sector is crucial to the modern economy. As the primary supplier of credit, it provides money for people to buy cars and homes and for businesses to buy equipment, expand their operations, and meet their payrolls.

What are the 4 C's of banking? ›

Standards may differ from lender to lender, but there are four core components — the four C's — that lenders will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.

What are 2 facts about the bank of the United States? ›

It helped fund the public debt left from the American Revolution, facilitated the issuance of a stable national currency, and provided a convenient means of exchange for all the people of the United States.

What are 5 facts about credit unions? ›

Here are other lesser-known facts about credit unions:
  • Credit unions aren't FDIC insured.
  • Most deposits are insured through the NCUA.
  • You have to be eligible to join a credit union.
  • Once a member, always a member.
  • Every member has a vote.
  • Credit unions may use different terminology.
  • You must have a share account.

What are the basic things to know about bank? ›

Banks perform a myriad of functions, including deposits and withdrawals, currency exchange, forex trading, and wealth management. Also, they act as a link between depositors and borrowers, and they use the funds deposited by their customers to provide credit facilities to people who want to borrow.

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