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Banks - Facts

 

 

A bank  is an institution that invests money deposited by customers or subscribers, typically pays interest on deposits, and usually offers a range of other additional services (source: Oxford dictionary).

 

First bank

You probably heard that the oldest bank that still exists and was ever mentioned in history was Banca Monte dei Paschi di Siena in Tuscany, Italy. It was first mentioned in 1472, but it was actually founded in it's present structure in 1624 (source: wikipedia). 

 

Purposes of banks

The main purpose of banks is to intermediate value flow between lenders and borrowers. They store valuable items like money and other assets and they protect them by providing confidentiality, integrity and availability while in their management.

Customers need to be assured that their identity, the type and the amount of the assets they hold within a bank is kept confidential. The bank will do everything in it's power to make sure those assets are not compromised or corrupted while they are inside its premisses.

The last but not the least, banks needs to provide customers access, in different forms, to the their valuables.

 

How do banks make profit

Nothing runs without profit. So initially banks lent assets and charged a percentage of the value the borrower needed as interest. 

In a search for liquidity, banks attracted customers with the interest paid in return for them keeping their assets within the bank. As the saying goes, bank always wins. They always pay less in interest to the lenders then the interest they charge from burrowers.

Their liquidity sources are primarily central and commercial banks, but businesses and retail customers fill in the blanks.

Then banks needed to find more ways to become or stay competitive and profitable in a more and more changing business environment. This is why they started to charge commission, based most probably on risk management, on at least some of their services.

 

Presence

Established banks have been and continue to be located in the heart of the society, occupying big and fancy buildings. They need to  make them selves as big and visible as possible in the eyes of their customers.

The digital era started to challenge the status quo. The afore mentioned actors started invest heavily in online presence as well. The majority of banks we have today are in a race with their competitors to digitize their own services as efficient and fast as possible. Along them there are other banks, businesses that launched digital products, from e-money services to fully fledged digital banking services that have little to no offline presence.

The online presence is possible by exposing an interface to the old mainframes running Cobol or leveraging the power of private and public cloud with the use of latest technologies available.

We will continue our journey visualizing the future of the banks in any form of existence.

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