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Banks are financial institutions that, in their simplest form, accept • Loans and other credit products. Typically representing the
deposits and use these funds to make loans. They offer these biggest area of business within corporate banking and one
loans in return for an interest payment and may charge borrowers of the largest sources of profit and risk
different rates based on an assessment of the borrowers’ ability to • Treasury and cash management services. Managing a
pay back the loan. This risk-based pricing is determined through company’s working capital and currency conversion
credit scoring. Banks also enable buyers and sellers to conduct requirements
transactions through a variety of payments methods for a fee, • Equipment lending. Customizing loans and leases for a range
offering them convenience, risk minimization and security. Interest of equipment used by companies in diverse sectors, such as
payments on loans, called interest income, as well as fees collected manufacturing, transportation and information technology
from money transfers, payments and other services, called fee or • Trade finance. Lending for trade purposes, issuing letters of
transaction income, form the majority of a bank’s revenue. credit, factoring, export credit and insurance
Key segments
Banks and firms in the banking industry can be broadly classified into the following segments:
Key performance indicators (KPIs) comparisons; the data associated with each key term should be
The three primary areas of analysis and comparison are financial taken in context according to the bank’s segment, size and
performance, operational performance and customer performance. other determining factors.
The disparate nature of banks in different segments affect
Financial Financial performance is a subjective Assessment includes the following five categories:
performance measure of how well a firm can use • Growth. Total assets, total revenue, net income
assets from its primary mode of
• Cash management. Loan-to-assets ratio, loan-to-deposit ratio
business and generate revenues.
• Cost management. Cost income ratio, selling, general and administrative
expenses (SG&A) margin
• Asset management. Return on equity (ROE), return on assets (ROA)
• Soundness. Tier 1 capital percent, non-performing loans percent,
capital-to-asset ratio
Customer service Customer service performance can take Some of the measures include:
performance several forms, which aim to measure the • Customer satisfaction indices
level and quality of staff interaction with
• Customer churn
clients. Comparisons of banks’ customer
service levels are frequently carried out • Customer sentiment as expressed by internet client tracking
by the banks themselves, by analysts and • Average income per customer
sometimes by industry regulators. • Number of investigations
• Customers per employee
• Number of ATMs
• Revenue per customer
• Customers per bank
What is the competitive landscape system, for example, only releases four or five new licenses
each year. However, market entry sometimes occurs by buying
for banks? a small bank to gain a license and basic infrastructure, then scaling
The competitive landscape of the banking industry is different up the business.
from country to country. For example, in the US there are still
thousands of banks of different sizes and types catering to Banks are increasingly facing a lot of competition from startup
different market segments despite significant consolidation, while technology firms, as well as companies from other industries like
in Australia, there are fewer than a hundred banks. Despite these telecom, e-commerce and internet aggregators. A dip in bank
differences, market share concentration tends to be very high trust levels since 2008, especially in developed markets, coupled
in the banking industry due to economies of scale and scope. with the increasingly easy and cost-effective access to high-quality
Additionally, banking in many countries is often dominated by enterprise technology and availability of funding, has resulted in
state-owned or formerly state-owned and recently privatized the emergence of FinTech firms. These FinTech firms are competing
banks. For example, China’s large banks are all state owned, with banks in focused service lines like lending, payments and
as are many of the larger banks in India, Brazil and Russia. personal financial and investment management, as well as
full-fledged digitally native banks. Technology has enabled many
In the last few decades, strong growth in global trade and of these firms to increase their speed to market and ability to
commerce, coupled with a significant number of mergers and scale across many geographical markets. Also, the evolution of
acquisitions, has led to the rise of large global banks. These regulatory oversight over these firms is still far from mature,
global banks have operations in multiple lines of business and resulting in FinTechs often enjoying lower levels of regulation
geographical markets. The credit crisis of 2008 and subsequent when compared to traditional banks. Additionally, telecom and
sluggish global economic recovery have, however, forced many internet firms with large existing customer bases have launched
of these global banks to scale back operations in certain lines financial services closely tied to their value chains, such as
of business and geographies. payments and digital wallets, in competition with banks.
While governments and regulators worldwide are trying to lower Apart from FinTech firms, there are also plenty of traditional
the barriers to entry, it’s deliberately difficult to set up a new substitutes to the banking industry. Banks face strong
bank because of the inherent risks of a failure, which, in turn, competition from specialized non-banking financial services
affect economic stability. For this reason, the banking industry companies in most other service lines like fixed-income
remains licensed to a high degree, with only a small number of deposits, consumer lending and payments.
new licenses typically issued every year. The Australian banking
Major banks
Some of the major banks in different markets include:
Geography Banks
How are banks organized and what are the key functions?
The core functions of a bank are loosely split between front-office and back-office functions. These front and back distinctions
are, of course, permeable. Risk management, for example, is a critical function that underpins most banking activities. The core
executive titles and functional areas specific to banking are detailed below:
Front office In banking, front-office staff deal • Customer management • Head of Sales
directly with clients through a branch • Customer sales and servicing • Customer Care Executive
office or indirectly through internet
• Marketing and business development • Branch Manager
banking or a call center.
• Product development • Chief Marketing Officer
Back office— Core banking functions include • Distribution services • Chief Operating Officer
core banking deposit, loan and credit processing • Financial management • Chief Information Officer
capabilities. They interface with the
• Retail products • Retail banking line-of-business
general ledger systems.
• Fulfillment (LOB) executives
Back office— This back-office function deals with • Cash management • Head of Payments
payments and the processing of payments, such as • Merchant services • Head of Clearing
transactions the transfer of funds between parties
• Payments • Head of Liquidity Management
through a variety of different means.
Risk The various risk management functions • Financial controls • Chief Risk Officer
management ensure the bank’s operations can • Information security and privacy • Chief Compliance Officer
continue with an acceptable level of
• Risk management, including credit, • Chief Information Security Officer
risk and the allocation of capital and
market and operational
resources are optimized.
Where can I learn more about the banking industry and what IBM offers?
Educational resources
Learn and build your eminence
• Banking Industry Solutions | Industry Solution Sales Kits
• Know Your Industry | Banking
• Learn about the banking industry | Banking Industry Training
• Understand market trends | Banking bluemine
• Participate in the Banking Solutions Community Calls;
weekly on Wednesdays at 9:00 AM Eastern Standard Time (EST) | Call details and replays of calls