Business Model Of Banks
Banks are companies (usually listed on the stock market) and therefore shareholders, and they run for themselves. Banks need to make enough money to pay their employees, maintain property and do business.
There are three main ways banks make money:
By charging interest on loans, by charging for services rendered and trading financial instruments in the financial markets.
Commercial and commercial banks need more customers to invest in them, as banks use these deposits to earn enough money to stay in business. They need to make money and they do this in many different ways.
To encourage people to keep their money in the bank, the bank will pay them a small amount of interest (interest). This interest is paid on the bank’s income by borrowing money from other customers.
Banks also lend large sums of money. Most of these loans are short-lived, usually no more than three months, usually overnight
If the bank has a surplus of liquid (existing) assets the bank can make money by borrowing these assets from other banks in the banking market. As money flows in and out, banks will borrow and lend money to the banking market as needed.
Banks lend money to customers at a higher rate than their creditors or lenders. The distinction, known as a margin or curve, is maintained by the bank. For example, if a bank pays 1% interest on deposits, it can charge 6% interest on the loan amount.
Borrowing takes the form of overdrafts, bank loans, mortgages (local loans) and credit card services. The bank will consider the cost of making the money available to the borrower and increase the interest rate.
Bank-approved loans will vary in size, and may have fixed or variable interest rates but, in all cases, the bank will lend the customer a higher interest rate than the lender.
Deposits are bank loans. If everyone wants their money back at once, the bank will not be able to pay. Because they are borrowing money, banks need to carry a cushion of cash in order to have enough money to pay for those customers who are likely to withdraw their money at any time.
One way banks make money is through billing. Many retail and commercial banks will charge for certain services, for example, processing checks, other transactions and unauthorized borrowing e.g. if the client exceeds the overdraft limit.
Investment banks make huge sums of money by advising large corporations and government institutions on issuing bonds and shares (securities), as well as documenting these issues.
Investment banks charge a fee for consulting clients who want to bid on other companies for mergers and acquisitions, or administrative purchases. These deals can be very complex and provide an important source of revenue and the opportunity to document the shares associated with these deals.
Investment banks also make their money by trading securities in secondary markets. Their purpose is to sell these securities for more than they pay or to buy them for less than what they sold. The difference, called the turn, is maintained by the bank.
Banks also buy and sell currencies from all over the world, trying to take advantage of the different prices of these conflicting, ever-changing currencies.
Let’s take a look at some of the benefits to payment banks (this applies not only to Banks in India, but also in the UK and other countries where banking licenses are issued):
Inheritance: The payment bank is not created with an asset code. This is a great benefit. Not having to force the code for decades is a huge advantage. Building from scratch without relying on the middle of the legacy code gives you the freedom to do things in an impossible way.
Cloud: Cloud-based apps save costs and allow payment banks to learn more. Recently, the UK financial regulator allowed payment banks to opt for cloud-based services.
Better Code: Most banks use the most sensible code today, Ruby, Python, Angular, JS, Objective C, etc. By addressing a code base that allows for faster application development in a connected, mobile world, something I can do. it has been very difficult to do with legacy code or non-internet / mobile scripts ready to speak.
UI / UX: The entire UI / UX is millennial and how it interacts with applications today. From the very beginning, every user who rides / registers the experience is the one who complies with the time mark.
These are some of the benefits that payment banks have. So, in coming to your question what their income model is, here is a list below:
Metadata: Practical and behavioral data equals digital gold. Banks can use this data to improve and promote their customers’ products / services, in a way that has never been seen before. Some of these services can be stopped in real time based on specific causes (think of instant credit, cash withdrawal, insurance, etc.)
Low Costs: It has been argued that because payment banks are not bound by any legacy system or process, they can operate and perform a much simpler function, which contributes directly to the latter.
Digital Branches: Many payment banks have chosen to open only one branch or head office, all of which are digital. When you move from the visible (atomic) space to the digital space (electrons), the cost reduction is enormous. Otherwise, the branches die. This is a proven fact now. Digital onboarding is the name of the game and earning / withdrawing money, ATMs and network agent is the first way today.
Float on Money: Because payment banks actually try to mimic digital savings funds, as long as they are able to store money within the ecosystem, these paying banks will be able to reach a decent deposit amount they can use to earn more money (establishing. Night loans, etc.)
Debt and Immediate Credit: As these banks are able to access consumer financial behavior and other metadata that traditional banks do not have, borrowing is a very powerful game here. Providing quick credit or low credit can be a huge benefit to these paying banks.
Small Transfer Fees: One of the main objectives of these banks is to have 100,00s of small items within their ecosystem and charge very low fees. These fees can be significantly lower to enable additional transactions such as cash in the digital environment. All of these funds will be combined as additional bank income.
Exchanges: Exchange benefits will always be available. By withdrawing banks again, they will earn money every time their users swipe their cards or pay with their cards.
The key here is to access the bank’s metadata and what are the estimated revenue opportunities.
