Retail banking

Saunders Learning Group, LLC, Andover, KSSaunders Learning Group, LLC

Retail Banking

Financial Services Industry Training

Saunders Learning Group, LLC, Andover, KS

Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry.

Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs.

Contact the founder, Floyd Saunders at 316-680-6482 or at [email protected] for more information.

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Training from Saunders Learning Group

mailto:[email protected]


Retail Banking

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Function

Example Activities

Example Companies

Provides consumers with a wide range of banking products and services designedto meet the needs of a varied customer base.

Acceptance of deposits in to checking and savings accounts Transaction processing for deposit accounts Issues credit cards and processes merchant transactions, payment processing Arranges safe deposit boxes for customers Sells certificates of deposit, retirement accounts Provides for transfer of funds Provides banking via ATM machines and mobile devices Arranges a variety of personal loans May also process applications for mortgage loans

Citibank, Bank of America, JPMorgan Chase, Wells Fargo, US Bank Also a variety of regional and local banks.

Credit Unions perform similar functions, provide most of the same products andservices.


Core Banking Systems

Banks around the world spend trillions of dollars in support of their information systems. In many cases each line of business will have several processing systems that may or may not be able to communicate to other systems.

The diagram attempts to summarize these systems by line of business.

Each of the lines of business in banking may also use several channels to interface with customers. One of the many challenges of banking is to make these channels as seamless to customers as possible.

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Retail Banking Products and Services

Cash Management – Checking & Savings, ATM cards

Online Banking

Mobile Banking

Payment Processing

Loan Products – Home, Auto, Personal, Credit Cards

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Types of Bank Accounts

1. Checking accounts are a type of deposit account for the purpose of securely providing access to funds on demand, via checks, ATM transactions, and transfers of funds. These accounts are known as demand deposit accounts (DDA).

2. A deposit account is a savings account, money market or time deposit at a bank that allows money to be deposited and withdrawn by the account owner (s). Also referred to a Savings Deposit Account (SDA).

3. Money market accounts is a deposit account with a higher rate of interest paid for higher balances. In the United States it is subject to regulations that limits the frequency of transactions/

4. Time Deposit Account (TDA) is a deposit account that cannot be withdrawn for a fixed period of time, unless an early withdraw fee is paid. In most cases the longer the term of deposit the better the yield on the deposit.

5. Transactions are recorded on the bank’s books and the resulting balance is reflected as a liability for a bank on it’s books.

6. Some banks may charge fees for services, and in most cases the bank will pay the customer interest on funds deposited.

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Insured Accounts

Checking, Savings accounts and bank CDs are insured by the FDIC and offer a smaller return because they are safer.

Stocks, bonds and mutual funds are not insured.

• The four largest U.S. banks held $3.6 trillion in deposits as of Dec. 2011• The next 46 institutions held $2.68 trillion in deposits


Automatic Teller Machines or ATMs

An automated teller machine (ATM),is a telecommunications devices used to store and dispense cash, allow account holders access to accounts and to perform a variety of financial transactions including transfer of funds, payments, and cash advances on credit cards.

A customer is identified by inserting a plastic ATM card with a magnetic stripe or chip that contains a unique card number and security information. Authentication is done by having the customer enter a personal identification number (PIN).

ATMs are also popular when traveling as it makes it easy to withdraw money in a local currency and effect payments for goods and services in other countries. The bank provides the exchange rate when settling transactions.

There are about 401,500 ATMs in the United States, about 1.75 million machines worldwide.

About half of the ATMs in the U.S. are operated by financial institutions. The other half are operated by independent sales organizations.

According to the U.S. Treasury Department, about $978 billion in cash was in circulation in 2010, compared to about $829 billion in 2007.

Meanwhile, ATM cash withdrawals are on the upswing. A January 2011 report says ATM transaction volume grew 0.8% annually between 2006 and 2009, but dollar volume of ATM withdrawals increased by nearly 3% a year.

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How important are ATM’s to a Bank?

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Consider these facts: The typical ATM customer will spend 20-25% more than a non-ATM customer if the

ATM is located in a store The largest portion of regular ATM users (40%) visit an average of 10 times a month

60% of Americans between the ages of 25 and 34 and 51% between 35 and 49, use ATMs eight (8) times a month

The typical ATM user visits an ATM an average of 7.4 times per month The average amount of money withdrawn is $60.45 with $20 being the most common

withdrawal The most popular day for ATM usage is Friday Americans cite 24-hour access as the most beneficial feature for ATM usage Half of all adult Americans use ATMs regularly, with younger Americans and those with

high incomes using them most often Overall, 60% of those making over $40,000 a year use ATMs, while only 30% of

Americans making less than $20,000 a year use them


Online Banking

Consumers use online banking to check balances, pay bills and transfer funds.

Banks that provide online banking can reduce processing costs and provide a wide range of services to customers 24 hours day from anywhere.

While most traditional banks offer online banking, some banks are only available to customers online (no branches). Ally bank is a leading example.

Online banking as also allowed non-banks the ability to offer banking services to their customers. Allstate bank is an example of a non-bank offering financial services online.

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Online Banking

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Online banking is more than 1/3 of the transaction volume at most banks.


Virtual Banks

Advantages of online banking Convenience: banking is available 24 hours a day,

seven days a week, and just a mouse click away. Ubiquity: You can log on from anywhere,

instantly to your online bank and take care of business.

Transaction speed: Online banks execute and confirm transactions at or quicker than ATM processing speeds.

Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site.

Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money.

Disadvantages of online banking Because they have no ATM machines, virtual banks

typically charge the same surcharge that your brick-and-mortar bank would if you used another bank's automated teller.

Many virtual banks won't accept deposits via ATM; you'll have to either deposit the check by mail or transfer money from another account.

Start-up may take time: In order to register for your bank's online program, you will probably have to provide ID and sign up via the mail.

Learning curve: Banking sites can be difficult to navigate at first.

Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places.

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Virtual banks are banks without bricks; from the customer's perspective, they exist entirely on the Internet, where they offer pretty much the same range of services and adhere to the same federal regulations as your corner bank.Virtual banks pass the money they save on overhead like buildings and tellers along to you in the form of higher yields, lower fees and more generous account thresholds.


Mobile Banking – great potential for growth

Both Starbucks (reporting 20 million mobile transactions) and PayPal (expecting $3.5 billion of mobile transactions in 2011) reporting strong growth in their mobile banking initiatives

Bank of America has 29 million online banking users, and now has more than two million mobile users. That number doubled in less than a year. It’s also half of the current number of mobile banking households in the U.S.

Several other interesting stats from BofA: More than 40% of active mobile bankers -- someone who's

logged in within the past 90 days -- use an iPhone or iPod touch. That's about double the usage you'd expect given Apple's 23% share of the U.S. installed smart phone base.

The bank believes the mobile channel is driving some new business to the bank with 8% to 10% of mobile bankers, almost 200,000, having signed up for the service within 90 days of opening an account.

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Trends in Payment Processing

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A typical bank branch will see fewer than 100 check related teller transactions per day by 2011 and that by 2014, this volume will half to just 50 daily transactions.


Payment Processing – Industry Trends

10 years ago 30% of checking accounts in the U.S. had a debit card attached to them.

Now virtually every checking account opened automatically has a debit card.

Payment processing costs less as a debit transaction if processed as a PIN transaction rather then as a signature transaction.

50% of incoming calls to bank call-centers are come from people checking their bank balances.

mobile banking and payments really start to pick up

the average household has between 13 and 15 credit cards, 2.5 debit cards, not to mention 5+ loyalty cards.

In 2001, credit cards with rewards programs accounted for just 20% of all general purpose credit cards, but 40% of all card spend.

2010, 90% of credit cards with rewards. Credit card issuers know that reward cards

drive people to spend more.

Mobile Payments: Mobile payments are more common in developing markets, but that is quickly changing. Yet as this service grows, Gartner admits there will be challenges. Mobile payments will be a “highly fragmented market” where there will not be “standard practices of deployment”. That makes it sound like this is one technology that will still need some work in 2012/13, before taking off.

Money Transfer: This refers to people sending money via SMS messages.

Near Field Communications (NFC): More popular in some European and Asian markets than in the U.S., NFC still isn’t a standard feature on many of today’s phones. That may be about to change, too. Gartner says that NFC-enabled phones will begin to ship in volume, with Asia leading deployments, followed by Europe and North America. NFC can be use to effect payments from a mobile device.

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ACH Payment Processing

Payment Processing flow:1. Consumer authorizes debt2. Business sends payment Service Provider3. Submits to ACH system4. The Federal Reserve receives debts & credits

from banks5. Fed settles transactions6. Consumer sees transaction on statement.7. Frequently used for any sort of re-occurring

payment.• ACH processing started in 1972. National Automated Clearing

House Association (NACHA) was established in 1974. • The 1980 Monetary Control Act allowed private sector ACH

operators to compete with the Federal Reserve Bank.• Today both NACHA and the Federal Reserve govern the rules and

regulation of the ACH network.• The ACH Network processes over 8 billion transactions and $21

trillion annually. • The Federal Reserve Banks process nearly 60% of commercial

interbank ACH transactions. • The Electronic Payments Network (EPN), the private sector ACH

operator processes the remaining 40%.


Electronic Payment System

Banks use electronic payment systems to transfer trillions of dollars between banks and bank customers every business day of the year. The process flow below highlights the steps in this process. The process includes the payment order, ratification, confirmation, sending, receiving, issuing a payment and final settlement of the transaction.

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Loan Products Bank loan products are typically

separated by the markets they serve: Retail lending to consumers, includes:

• Personal loans• Home loans• Mortgage Loans• Auto Loans

Corporate lending includes:• Term loans• Working Capital loans• Mortgage loans• Equipment financing• Receivable financing• Trade Finance• And Small Business Administration

loans Each loan product has a series of steps

from origination, credit analysis to approval and disbursement. Once a loan is disbursed it must be serviced until closed.

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Typical loan decision process

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Customer requests a

loan

Loan application is completed

(could be online)

Bank performs

credit analysis

Employment Verification

Credit Report

Credit Decision

Yes Loan docs prepared

Customer signsloans

Bank verifies

documents

Bank prepares

accounting entries

Bank funds loan Loan systems

updated Loan serves

This generalized process is followed for all loan types, with different loans requiring more documentation or verification. For example a loan secured by real estate needs an appraisal to set the value of the property. Inventory financing might need to be secured by a lien on the inventory. Title to an auto would be retained by the bank until the loan is paid off etc.

Noinform customer


Loan origination business process Loan origination includes the business processes, supporting services, and operational systems

needed to create loans, set up the accounting of the loan transaction and operationally support the servicing of the loan, until it closes (or is paid off).

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Modern approach to core banking systems

The components needed to accomplish a core system renewal include: Process server solutions Service

registry/repository solutions

Portal server solutions Rules engine solutions Enterprise Service Bus

solutions Master data

management solutions

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Credit Card Companies A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and

services based on the holder's promise to pay for these goods and services. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.

The concept of using a card for purchases was described in 1887 by Edward Bellamy in his utopian novel Looking Backward.

Credit Card Issuers vs. Credit Card Associations: What the difference is between the two logos featured on many of your credit cards?

The issuing bank (such as Chase) funds the transactions, and the card association (like Visa) processes them.

Issuing banks are the financial institutions that issue credit cards.They lend us the money we charge on our card, and then we pay them back at the end of the month. If we default on our credit card bill, the issuing bank must suffer the loss (though we as consumers will suffer a lower credit rating). Card issuers also set the terms of our credit card agreements, like the APR and other fees. Issuing banks can be large, national institutions or smaller, local banks, or even credit unions. 90% of credit card accounts in the U.S. are issued by five banks: JPMorgan Chase, Citigroup, Bank of America, Capital One, and HSBC.

Card associations process the credit card transactions. They are responsible for setting the transaction terms and fees for merchants and the card-issuers. Visa and MasterCard are the two major examples of card associations.

Card associations are actually cooperatives comprised of thousands of issuing banks. For example, Citigroup owns 9.5% of MasterCard, Chase owns 8.5%, and HSBC and Bank of America each own 5.1%.

Familiar Card association brands include Visa, MasterCard, American Express, Discover, Diner's Club, and JCB. Visa, MasterCard and American Express issuers co-brand with their card association.

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Credit Card Transaction Flow

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Saunders Learning Group, LLC, Andover, KSSaunders Learning Group, LLC

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About the Author

Floyd Saunders has worked on Wall Street with both Bank of America and JPMorgan, where is was a vice president in global financial systems. He has worked across the industry in retail, commercial, and investment banking.

He has taught courses in Money and Banking and extensively for the American Institute of Banking and various colleges.

As a consultant, he developed and taught a wide range of banking and investing courses.

He authored three programs for the American Bankers Association: Banking on Mutual Funds and Annuities, Introduction to Securities Markets and Investing in Securities.

Retail banking

Economy & Finance

Transcript of Retail banking