Retail and Commercial banking
1. Intro
2. History
3. Value Chain
4. Market
5. Players
01. Overview
Everyday banking
Definition and scope
Retail banking, commercial banking, corporate banking and investment banking are all terms used to describe different segments of the banking industry. However, these segments are not always clear-cut, and definitions and terminology can vary from bank to bank and country to country.
Generally, retail banking refers to services for retail customers, i.e. individuals. They bring in customer deposits that allow banks to make loans to their retail and business customers. Commercial banking focuses on small and medium-sized businesses, including commercial loans that enable them to grow and contribute to the expansion of the economy.
Corporate banking serves larger companies, providing investment banking, foreign exchange, and treasury management services, while wholesale banking primarily provides services to other financial institutions, government agencies, and very large corporations. Investment banking refers to specialized services, such as helping companies raise capital, advising on mergers and acquisitions, restructuring, and other financial transactions.
This guide focuses on retail and commercial banking, with occasional references to other forms of banking.
Banking in our everyday lives
From holding our savings, to allowing us to pay with cash or cards, to granting us different types of loans, banks are omnipresent in our lives.
Banks are primarily used as a place to store our savings. They are considered more convenient and secure than many alternatives. In addition, banks may pay interest on savings kept in the bank.
Introduced in the late 1960s, it is estimated that there are more than 3 million ATMs worldwide today. After many years of growth, their numbers may decline in the future as digital payments become more widespread.
Bank cards (credit, debit, charge) are an efficient way to make cashless payments. Cards are linked to our bank accounts and allow us to make purchases based on our bank balance. Virtual cards are now integrated into mobile phones.
To exchange currency when abroad, banks offer foreign exchange services both in cash and with card payments.
Previous
Next
Risk management and trust at the heart of the industry
The banking industry is built on trust. We trust banks to keep our deposits safe. Conversely, banks manage the expectation that we will repay our loans through active risk management.
To mitigate the impact of borrowers who may not repay loans, banks perform in-depth risk management analyses to evaluate their loan portfolios. By forecasting the number of loans that may default, banks can account for potential losses by setting aside a provision for expected losses. The interest they charge should cover these losses. By doing this on a regular basis, the bank can avoid significant financial upheaval in the event of an increase in defaults.
Depositors trust that banks, with the correct regulatory framework in place, will properly manage their risk exposures. But if they lose that trust and start withdrawing their money, panic can spread quickly, especially via social media, and lead to a bank run.
To maintain confidence in the system, governments often have a process in place to guarantee a certain amount of depositors’ money, such as the FDIC in the US.
Digital banking and Fintech
Technology has greatly impacted retail banking by making it more convenient and accessible to customers through online and mobile banking services. Fintech has emerged as a disruptive force, offering innovative solutions and challenging traditional banking models with its use of technology.
Fintech
By fragmenting financial services, specializing in a few, and making fees more transparent, fintech has begun to disrupt the retail and commercial banking industry.
Embedding financial products
Financial products are embedded in other companies’ services to be offered at the right point in the customer journey, e.g. buy now, pay later services during checkout on e-commerce sites.
Banking-as-a-Service
Banking-as-a-service is the delivery of banking products and services through third-party providers.
It is a business model in which non-bank companies can access banking services through an API (Application Programming Interface) platform provided by a banking institution, allowing them to offer financial services to their customers without having to become a fully licensed bank themselves. This creates more flexibility and innovation in the financial industry, as well as new revenue streams for banks.
Traditional bank today
No Data Found
Source: BCG Analysis (2021)
Traditional bank tomorrow (2024)
No Data Found
02. Industry Evolution
History
The banking industry has existed for thousands of years. Though its role and purpose did not significantly change, its operations and scale dramatically did.
Understanding the origins of money (and credit) and how it drove changes in retail banking helps to better ascertain how the industry operates today. In his book The Ascent of Money (2008), Niall Ferguson explains that: “Only by understanding the origins of an institution or instrument will you find its present-day role much easier to grasp.”
From barter to cash, the development of the loan-deposit system, and the birth of banking
-1000
1300s
1400s
1600-1800s
Banking activities have existed for thousands of years
Merchants gave grain loans to farmers based on rules in The Code of Hammurabi. The code established rules on issuing contracts including loans and interest payments. Merchants acted as facilitators by transferring the commodities on behalf of others.
Shift from grains (barter) to gold (money). Gold coins mined and minted by goldsmiths were used as the accepted medium of exchange.
In ancient Greece, a more comprehensive system was created by lenders in temples. Greek banking included deposit-taking, loans, and the exchange of currency.
Managing interests and risk. Prohibition of usury
Jews in Venice were the only money lenders due to the prohibition of usury (unreasonably high interest rates) in Christianity. This gave money lending a ‘dirty’ name and it was consequently seen as a disreputable practice. As Jews were a minority ethnic group, it was difficult to enforce payment in a legal system that favored locals, leading to the problem of defaults.
The agreement of payments relied on trust: Credo in Latin (origin of Credit) means "I believe."“If they were too generous, they didn’t make any money. But if they were too hard-nosed, borrowers would eventually default. The answer was to get bigger and more powerful. It was time to invent banks.” – Niall Ferguson
The Medici family and birth of banking
The Medici family rose to prominence in Florence through their acquisition of land and art.To grow their family wealth, they needed financing. This led to Giovanni di Bicci de’ Medici’s creation of the double entry ledger accounting system and the Medici Bank.
By avoiding the collection of interest (which was illegal), the double entry system facilitated legal lending.This also worked vice versa with depositors. If an individual deposited money into the Medici Bank, they received discrezione (interest) to compensate them for risking their money.For the first time, money lending had evolved into banking.
Exchange Banks, fractional reserve, and central banks
In the early 1600s, Exchange Banks appeared to solve merchants’ challenges of dealing with multiple currencies. Accounts and checks were created to allow transactions without the need for coins.
Initially, banks’ (metal) reserves would be close to 100% of deposits. But as depositors would rarely redeem their money at the same time, they realized having a fraction of the total deposit amount in reserve was enough. During the process, it created the risk of a bank run if depositors lost confidence.Early financial crises led to the creation of central banks that would “centralize” banks’ precious metal reserves and set minimum level requirements.
Fractional reserve, money creation, and central banks
Until the 17th century, there was close to a 100% ratio between deposits and bank (precious metal) reserves (full-reserve banking). Depositors would not fear being unable to withdraw their money, and a bank run could not be envisioned. However, it limited a bank’s capacity to loan money.
By issuing loans using money from depositors, the bank generates money in the economy (a depositor still sees their total deposit amount in their account, even though a percentage has been loaned out to a creditor). As a result, the bank’s reserve is only a fraction of the total deposit amount. In this new system, depositors could lose confidence in the bank, and start withdrawing their money, resulting in a bank run.
Risks of bank runs still exist today; they are exacerbated by new communication channels, like social media platforms, that can spread panic faster than in the past. In March 2023, the Silicon Valley Bank run is a perfect example.
Over the centuries, central banks and central authorities were established to address some of these risks and to provide stability to the banking system by imposing minimum capital ratio and regulation, providing liquidity, and protecting depositors. In the US, the Federal Deposit Insurance Corporate insures depositors up to $250,000.
Read more
20th century: Crises, Regulation and Deregulation
1929 Market Crash
Deregulation
Internet Banking
Too Big to Fail
1930s
50s-80s
1990s
2000s
Glass-Steagall Act
With the development of telecommunications, the early 20th century saw banks expand in size and geography.The stock market crash of 1929 led to a sell-off in shares. As investors rushed to withdraw their money, many banks were unable to meet the demand for cash withdrawals, which in turn exacerbated the panic and led to further bank runs.
To prevent this from happening again, the Glass-Steagall Act was passed in 1933 to separate retail banking from investment banking and prevent banks from using customer deposits for investment activities.
Deregulation, fiat money, and the end of gold
Global institutions such as the World Bank and the IMF were set up to promote economic cooperation between member countries.
The oil crisis of the 1970s, which caused several stock market crashes, led to a wave of deregulation. In the US in particular, interstate banking was introduced, creating bank branches across state lines, increasing the size and influence of banks, and Glass-Steagall was effectively dismantled - retail and investment banks used the same balance sheet.
In 1971, the dollar was no longer pegged to gold, effectively ending the link between money and metal; fiat money becomes the norm.
The birth of online banking
In 1993, Stanford Credit Union launched the world's first Internet banking service.
In 1996, the first fully online bank, NetBank, was established, and in 1997,Merita Bank (now part of Nordea) offered the first SMS-based banking service.
By the early 2000s, 80% of US banks offered online banking services. In 2001, Bank of America became the first bank to reach 3 million online users.
Too Big to Fail
Products sold to customers, such as credit cards, mortgages and car loans, continued their exponential growth.
With more revenue coming in, banks were able to invest in growing their businesses both organically and through acquisitions.This accelerated the growth of banks and subsequently led to the creation of institutions that are now 'too big to fail'. As banks reached this stage, they increased interbank lending, creating a system of interdependence.
The drive to continually increase profits encouraged innovation, leading to the securitisation of complex products.
Modern history
The 2008 financial crisis
The modern history of banking is marked by the financial crisis of 2008. A mix of poor risk management and control of high-risk mortgage loans, financial innovation with the securitization of mortgages into complex financial products with higher credit ratings than the underlying loans, and deregulation are among the main causes that triggered the crisis.
The exact mechanisms that led to the crisis are beyond the scope of this guide.
The failure of the financial system led to calls for re-regulation, resulting in the Dodd-Frank Act in the United States, which established new government agencies to regulate the financial system and introduced the Volcker Rule (which reinstated some elements of the Glass-Steagall Act). At the international level, the Basel III Accord sought to improve coordination and regulation of global financial markets.
Ultimately, the banking industry slowed its lending activities with new capital ratio requirements and regulations.
Read more
Fintech and digital banks
The 2010s saw the emergence of digital-only banks such as WeBank in China or Revolut in the UK. In parallel, new fintech companies began to offer banking services without necessarily having a banking license. See the Trends chapter for more information.
03. How?
Value Chain
Overview
Day-to-day banking value added can be broken down into two groups: Deposit and Loan products, and Services (mainly payment solutions):
(Click on info icons for more information on each product and service)
Traditional banks vs. fintech companies
Traditional banks offer a full range of products and services. New financial technology (fintech) companies tend to specialize in one service, and financial services are increasingly being embedded in the offerings of business-to-consumer (B2C) companies by partnering with banks through banking-as-a-service (BaaS). See the Trends chapter for more information.
Know Your Customer (KYC) and Anti Money Laundering (AML)
Before offering products and services to new customers, financial institutions are required to perform know-your-customer (KYC) procedures to prevent money laundering, terrorist financing, and other financial crimes. Historically, banks have had problems with terrorist financing and illegal activities, such as drug trafficking. These processes are also a key aspect of risk management, as banks can confirm the validity of customer requests, such as overdrafts, which can be risky for customers with poor credit histories.
Traditionally, banks would conduct in-person verification, reducing the risk of forged documents. Digital banks have streamlined the process online, making it faster and more convenient, but increasing the risk of forgery.
From a regulatory perspective, KYC and AML requirements can be time consuming for banks. As financial services become embedded in other services (see Trends chapter), these checks can become more challenging as the lines between regulated and unregulated entities blur, resulting in different regulatory reporting requirements.
Read more
Products and Services
Banking products, such as loans and deposits (savings accounts), generate income through the margin between the interest rates charged for each product (interest received on loans vs. interest paid). Banking services, on the other hand, generate income by charging fees for services.
Deposits and Loans
Deposit and loan products are at the core of banking activities.
Banks pay interest on deposits and are required to hold a percentage of the total in reserve (capital reserve ratio) – typically between 0% and 10%. The remaining 90% is lent out in the form of loans, for which the bank is paid an interest rate. The difference between the two interest rates is how a bank makes money:
Deposit | Loan | |
|---|---|---|
Amount | $100 | $90 |
Interest rate | 1% | 3% |
Interest amount | $1 | $2,70 |
NIM | The bank makes $1.70 ($2.70-$1) on what is called the net interest margin (NIM). | |
Simplified example of how a bank makes money.
In practice, interest calculations are more complex. Banks have different terms, including:
- Quoted rates: rates may be quoted at different intervals( annually, monthly, daily).
- Balance: calculation can be based on the opening, closing, average, or lowest balance of the period.
- Interest structure: when is interest paid and added to the balance?
Deposit accounts can be divided into two groups: current accounts for daily use and savings accounts to earn interest. Each type of account has different terms including withdrawal conditions, minimum balances, interest rates, etc.
Current | Savings | Money market | Term acct. | |
|---|---|---|---|---|
Type | Transactional | Savings | Savings | Savings |
Purpose | Daily payments, cash withdrawals,… | Short-term savings | Short-term savings | Long-term savings |
Interest rate | 0 (or very low) | Lower than term account (fixed for a period of time) | Market rate (dependent on central banks) | Higher than savings acct. Amount depends on term |
Liquidity | Fully liquid | Liquid but usually no payment solutions attached | Liquid – may have monthy transactions limited | Moderate – limited nb. of withdrawals or minimum balance required |
Loans can be divided into two groups: secured (with collateral) and unsecured. Collateral can offset potential losses.Loan products have different terms. Banks tend to offer standard products, the approval of which is partially automated by the bank’s system. For more complex needs, customers will turn to specialized institutions or, in the case of large corporations, investment banks.
Overdrafts | Consumer or Trade finance | Mortgages | Business loans | |
|---|---|---|---|---|
Type | Revolving credit line | Unsecured | Secured | Secured and unsecured |
Purpose | Short-term cash flow management | Purchase of goods / services | Purchase of property | Business needs (e.g. capital investment) |
Rate | High + Fees | High | Low to medium | Varies |
Collateral | None | None | Property | Business assets |
Maturiy | Revolving | Short to medium | Long | Varies |
Schedule | n.a. | Fully amortizing repayment or interest-only with balloon payment at maturity | Varies | |
Managing Risks
A banks' primary role is risk management. They use customer deposits to offer loans and earn interest, and should maintain customer confidence to avoid a bank run.
Diversification is a key aspect of risk management. Banks should ensure that the loans they make (their assets) are diversified (in terms of individuals, companies, maturity, etc.) and that their depositors are also diversified so that the risk of them withdrawing their money all at once is limited.
Failure to manage this diversification can lead to heavy losses and bank runs, as happened to Silicon Valley Bank in 2023.
Services
Historically, the primary objective of banking services has been to facilitate transactions between merchants. They do this by offering checks, cash withdrawals, payment solutions, currency exchange, and money transfers/remittances.
Payments
Before payment processing technology was available, most payments were made with cash (or checks). People would manually withdraw money from the teller. Automated Teller Machines (ATMs) were then invented in the 1960s, but initially customers could only withdraw money from their bank's ATM.Connectivity and the development of the card network made it possible to withdraw money from another bank's ATM network for an additional fee.
With technological innovation, improved cashless payment systems were developed, making payments easier and more efficient.
Payment systems can be classified into groups: Traditional open-loop credit card transactions and closed-loop transactions. (see next slide).
Payment solutions have grown to become an industry in its own right within the financial sector and are beyond the scope of this guide.
Traditional Open-Loop Credit Card Transaction
The process involves data transfer from the merchant’s payment gateway to the acquiring bank’s processor, to the card network (Visa/Mastercard), to the card issuer (buyer’s bank) and back. A payment service provider (PSP) can fulfill the payment gateway, processor, and acquirer roles, but the system still requires multiple parties.
Closed-Loop Transaction
In a closed-loop (balanced-funded) system, all verifications are done through the digital wallet with only one third party involved.
Transfer and Exchange
Next to payments, bank transfer, remittance, and currency exchange are common services offered by banks
- Money transfer: While transfers within the same bank are instantaneous, transfers between different banks can take several days, require automatic clearing houses, and usually rely on the SWIFT network.
- Currency exchange was traditionally done with cash, but now most cross-border payments or transactions automatically generate an exchange. Banks can either charge a commission for the service or add a markup to the "real" exchange rate - the difference between the bid and ask rate, also called the spread.
- Remittance, the act of sending money abroad, used to be expensive and dominated by Western Union (without the need for a bank account). But as technology evolves, new solutions like Wise make it possible to lower the cost of sending money.
Unbundling and embedding services
Traditional banks used to be vertically integrated, offering the full spectrum of services with fees that were not always transparent.Fintech companies are unbundling banking services and tend to specialize in a few services, making them more efficient and less expensive for consumers.
Stripe's focus on online payments, Revolut's focus on money exchange, and Wise's focus on remittances are just a few examples that illustrate this trend.
Once unbundled, it is easier to embed these financial services into other consumer services (see Trends chapter for more details).
Additional daily services offered to businesses
For their day-to-day banking activities, companies may require additional services, including:
User management
Within a company, different employees may need to access the company’s bank accounts to perform different tasks:
- Prepare payments
- Approve payments
- Viewing balances
- Control payments received from customers
- Salary payments
When approving payments, managers may have different approval limits, or a dual signature may be required.
For all of these reasons, the bank should have the right set of solutions and features in its offering.
Systems interfaces
Businesses and their banks exchange information on a daily basis. Companies send payment requests (vendors, payroll) and transfers, and banks report payment confirmations and payments received. Banks will also record debit or credit card transactions that will need to be booked as business expenses.
The data can be transferred automatically through APIs or other interface workflows. The level of automation depends on the company’s and bank’s information systems.
Treasury management
As companies grow, they may open multiple bank accounts in different currencies. Managing liquidity for day-to-day operations can quickly become complex and costly. Banks can provide basic cash management services.
For larger companies, banks often offer cash pooling services, through which a company’s multiple cash accounts are consolidated into a “pool”, or single account, and used to manage the overall cash position and optimize interest income. These services are not necessarily within the scope of basic retail and commercial banking.
Retail and Commercial banking at the heart of the financial sector
Retail and commercial banking is the starting point for many other financial activities and sub-industries.
04. Market
Market
Retail and Commercial banking scope
The financial sector is often considered the heart of our economy, and in some countries it represents close to 10% of GDP. Within the financial sector, retail and commercial banking represents the largest segment; depending on the definition and boundary between commercial and corporate (or wholesale) banking, the size of the industry is close to $3 trillion. Within retail and commercial banking, Metiers.com includes day-to-day banking (deposit and payments), mortgage and consumer financing, and banking for small to medium-sized companies.
Insight
With closed to $3 T, retail and commercial banking is the largest segment within banking.
Global Retail & Commercial Banking revenue (USD T)
No Data Found
No Data Found
Source: Metiers.com estimates based on McKinsey, IbisWorld, Statista
Growth linked to deposit and loan amounts
Global income from deposit and loan products is directly related to the total amount of deposits and loans. With the exception of the months following the 2008 financial crisis, credit to the private sector (both consumers and businesses) has grown steadily since the beginning of the 21st century.
At the end of 2021, the total credit reported by the Bank of International Settlements reached $144 trillion. Approximately 55% is bank credit. Banks’ net interest margin (see Value Chain chapter) also depends on interest rates set by central banks. Changes in interest rates (such as the hikes in 2022) can have very significant positive and negative effects.
Global credit to private non-financial sector (USD T)
No Data Found
` } return seriesName } }, tooltip: { enabled: 'yes', theme: 'light', shared: 'yes' === "yes", intersect:!('yes' === "yes"), style: { fontSize: '12px', fontFamily: 'Work Sans' }, y:{ } }, responsive: [{ breakpoint: 1024, options: { chart: { height: parseInt('350') }, } }, { breakpoint: 674, options: { chart: { height: parseInt('300') }, } } ] }; if(''){ columnOptions.tooltip.y.formatter = function(val){ if(''){ let decimal = parseInt('0') || 0; if(""){ val = graphinNumberWithCommas(val,',',decimal) } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); }else{ val = parseFloat(val).toFixed(decimal) } return '' + val + ''; } return val; } } if ("" === "yes") { columnOptions.yaxis.labels.formatter = function (val) { if(''){ val = '' + val + ''; if(val){ val = val.split(',') } return val; } let stackCondition = !('') if(stackCondition ){ let decimal = parseInt('0') || 0; if(""){ val = graphinNumberWithCommas(val,',',decimal) } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); }else{ val = parseFloat(val).toFixed(decimal) } } return '' + val + ''; } } if("1"){ columnOptions.yaxis.tickAmount = parseInt(""); columnOptions.dataLabels.formatter = function (val) { if(Number.isNaN(val)){ return ''; } if(""){ val = graphinNumberWithCommas(val,',') } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); } return '' + val + ' '; }; }else{ columnOptions.dataLabels.formatter = function (val) { if(Number.isNaN(val)){ return val; } val = parseFloat(val).toFixed(parseInt("0") || 0 ) ; if(""){ val = graphinNumberWithCommas(val,',') } val = '' + val + ' '; return val; }; } if ("yes" ) { columnOptions.tooltip['enabledOnSeries'] = [0]; } if ("") { columnOptions['annotations'] = { yaxis: [ { y: 0, strokeDashArray: parseInt("0"), borderColor: '#000000' } ] }; } if(""){ let style ={ color:'#000000', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } let title = ''; let xaxisYoffset ='bottom' === 'top' ? -95 : 0; if(typeof axisTitle !== "undefined"){ axisTitle(columnOptions, 'xaxis' ,title, style ,xaxisYoffset); } } if(""){ let style ={ color:'', colors:'#000000', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } let title = ''; if(typeof axisTitle !== "undefined"){ axisTitle(columnOptions, 'yaxis' ,title, style ); } } if(''){ columnOptions.xaxis.tickAmount = parseInt("10") || 6; columnOptions.xaxis.min = parseFloat('0') || 0; columnOptions.xaxis.max = parseFloat('0') || 200; } if(''){ columnOptions.yaxis.tickAmount = parseInt("") || 6; columnOptions.yaxis.min = parseFloat('0') || 0; columnOptions.yaxis.max = parseFloat('0') || 200; } if(""){ let style = { color:'', colors:'#000000', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } columnOptions['yaxis'] = [columnOptions.yaxis] let columnYaxisTemp ={ opposite: '1', labels: { show: '', formatter: function (val) { if("" ){ val = graphinNumberWithCommas(val,',') } return '' + val + '' }, style }, tickAmount: parseInt(''), title: { text: '', style } } if(''){ columnYaxisTemp.tickAmount = parseInt('') || 6; columnYaxisTemp.min = parseFloat('0') || 0; columnYaxisTemp.max = parseFloat('0') || 200; } columnOptions.yaxis.push(columnYaxisTemp) } if (typeof initNowGraphina !== "undefined") { initNowGraphina( myElement, { ele: document.querySelector(".column-chart-2741adb_9812"), options: columnOptions, series: [{name: '', data: []}], animation: true, setting_date:{"iq_column_interval_data_refresh":null,"iq_column_can_chart_reload_ajax":false} }, '2741adb_9812' ); } if (window.ajaxIntervalGraphina_2741adb_9812 !== undefined) { clearInterval(window.ajaxIntervalGraphina_2741adb_9812) }
Source: Bank for International Settlements(BIS)
Market segmentation
No Data Found
No Data Found
Source: IBISWorld 2022, Global commercial banks
Insight
Retail customers represent 2/3 of revenues but often have lower profitability than corporate customers.
Residential mortgages remain the primary source of revenue followed by commercial and industrial loans.
05. Who ?
Key Players
Retail and commercial banking industry players can be grouped into three categories: International banks (often recognized as too big to fail), regional banks, and fintech, including digital banks and companies offering financial services without a banking license.
The market is fairly well distributed with no single player holding a massive share of the revenue – the top 5 banks comprise 13% market share. There are regional ‘specialists’ that hold a large market share in specific regions. However, there is no dominant global bank.
Globally, the top banks by revenue come from China. This is mainly due to its population and government’s control:
- ICBC, specializes in business loans
- Agricultural Bank, which initially specialized in financing enterprises in rural China, has diversified into corporate and consumer banking products.
American banks are traditionally the most internationally recognized.
Revenue market share (2021)
No Data Found
(Source: FactSet)
- Despite their size, top 5 players account for less than 15% of the market.
- Leading players are from the US and China.
Top 10 Players Revenue (B$) distribution (2021)
No Data Found
(Source: FactSet)
- Three Chinese banks are in the top 5 in terms of revenue
- The Big Four American banks (JPMorgan Chase, Bank of America, Wells Fargo, Citibank) hold 45% of all customer deposits in the US.
Market value top 20 firms/category (USD T)
No Data Found
` } return seriesName } }, tooltip: { enabled: 'yes', theme: 'light', shared: 'yes' === "yes", intersect:!('yes' === "yes"), style: { fontSize: '12px', fontFamily: 'Work Sans' }, y:{ } }, responsive: [{ breakpoint: 1024, options: { chart: { height: parseInt('350') }, } }, { breakpoint: 674, options: { chart: { height: parseInt('350') }, } } ] }; if(''){ columnOptions.tooltip.y.formatter = function(val){ if(''){ let decimal = parseInt('0') || 0; if(""){ val = graphinNumberWithCommas(val,',',decimal) } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); }else{ val = parseFloat(val).toFixed(decimal) } return '' + val + ''; } return val; } } if ("" === "yes") { columnOptions.yaxis.labels.formatter = function (val) { if(''){ val = '' + val + ''; if(val){ val = val.split(',') } return val; } let stackCondition = !('') if(stackCondition ){ let decimal = parseInt('0') || 0; if(""){ val = graphinNumberWithCommas(val,',',decimal) } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); }else{ val = parseFloat(val).toFixed(decimal) } } return '' + val + ''; } } if("1"){ columnOptions.yaxis.tickAmount = parseInt(""); columnOptions.dataLabels.formatter = function (val) { if(Number.isNaN(val)){ return ''; } if("1"){ val = graphinNumberWithCommas(val,',') } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); } return '' + val + ''; }; }else{ columnOptions.dataLabels.formatter = function (val) { if(Number.isNaN(val)){ return val; } val = parseFloat(val).toFixed(parseInt("0") || 0 ) ; if("1"){ val = graphinNumberWithCommas(val,',') } val = '' + val + ''; return val; }; } if ("yes" ) { columnOptions.tooltip['enabledOnSeries'] = [0,1,2,3]; } if ("") { columnOptions['annotations'] = { yaxis: [ { y: 0, strokeDashArray: parseInt("0"), borderColor: '#000000' } ] }; } if(""){ let style ={ color:'#061B2F', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } let title = ''; let xaxisYoffset ='bottom' === 'top' ? -95 : 0; if(typeof axisTitle !== "undefined"){ axisTitle(columnOptions, 'xaxis' ,title, style ,xaxisYoffset); } } if(""){ let style ={ color:'', colors:'#061B2F', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } let title = ''; if(typeof axisTitle !== "undefined"){ axisTitle(columnOptions, 'yaxis' ,title, style ); } } if(''){ columnOptions.xaxis.tickAmount = parseInt("6") || 6; columnOptions.xaxis.min = parseFloat('0') || 0; columnOptions.xaxis.max = parseFloat('0') || 200; } if(''){ columnOptions.yaxis.tickAmount = parseInt("") || 6; columnOptions.yaxis.min = parseFloat('0') || 0; columnOptions.yaxis.max = parseFloat('0') || 200; } if(""){ let style = { color:'', colors:'#061B2F', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } columnOptions['yaxis'] = [columnOptions.yaxis] let columnYaxisTemp ={ opposite: '1', labels: { show: '', formatter: function (val) { if("" ){ val = graphinNumberWithCommas(val,',') } return '' + val + '' }, style }, tickAmount: parseInt(''), title: { text: '', style } } if(''){ columnYaxisTemp.tickAmount = parseInt('') || 6; columnYaxisTemp.min = parseFloat('0') || 0; columnYaxisTemp.max = parseFloat('0') || 200; } columnOptions.yaxis.push(columnYaxisTemp) } if (typeof initNowGraphina !== "undefined") { initNowGraphina( myElement, { ele: document.querySelector(".column-chart-f920a4f_9812"), options: columnOptions, series: [{name: '', data: []}], animation: true, setting_date:{"iq_column_interval_data_refresh":null,"iq_column_can_chart_reload_ajax":null} }, 'f920a4f_9812' ); } if (window.ajaxIntervalGraphina_f920a4f_9812 !== undefined) { clearInterval(window.ajaxIntervalGraphina_f920a4f_9812) }
Market value growth has been driven by Payments, Information providers, and Fintechs.
Top 20 incumbent banks market value share when from 80% in 2012 to 50% by mid 2022.
Source: McKinsey, 2022 (Sept or June)
Next to traditional banks (both global and regional), new players entered the market since the 21st century including pure online/digital banks and other fintech proposing banking services without necessarily having a banking license (but rather partnering with one or more traditional banks)
(Click on information link to see more information on company)
Type | Company | Sales | HQ | ||
|---|---|---|---|---|---|
Traditional & Global Players | JPMorgan Chase |  | 139 B | US | |
Bank of America |
| 97 B | US | ||
BNP Paribas |  | 47 B | FR | ||
HSBC |
| 50.4 B | UK | ||
ICBC | 127 B | CN | |||
Digital banks | Revolut |  | .8 B | UK | |
Nubank |  | .5 B | BL |
Despite consolidation and the size of global banks, there are many financial players in the industry, including regional banks and fintech companies. Below is a non-exhaustive list of approximately 30 banking players. For digital banks only, the Financial Brand has a more comprehensive list.
Loading..........
The Data is Not Available
06. what to expect?
Trends and ESG challenges
Trends
Several trends are shaping the future of the retail and commercial banking industry:
Branchless banking
Developed countries have gradually moved from traditional retail branch banking, to Internet banking services, to full digital banking. The trend was accelerated by the Covid-19 pandemic.
Research from Strategy& suggests that the trend toward fewer bank branches will continue before stabilizing in the future.
Bank branches (European sample - thousand)
No Data Found
` } return seriesName } }, tooltip: { enabled: 'yes', theme: 'light', shared: 'yes' === "yes", intersect:!('yes' === "yes"), style: { fontSize: '12px', fontFamily: 'Work Sans' }, y:{ } }, responsive: [{ breakpoint: 1024, options: { chart: { height: parseInt('350') }, } }, { breakpoint: 674, options: { chart: { height: parseInt('350') }, } } ] }; if(''){ columnOptions.tooltip.y.formatter = function(val){ if(''){ let decimal = parseInt('0') || 0; if(""){ val = graphinNumberWithCommas(val,',',decimal) } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); }else{ val = parseFloat(val).toFixed(decimal) } return '' + val + ''; } return val; } } if ("" === "yes") { columnOptions.yaxis.labels.formatter = function (val) { if(''){ val = '' + val + ''; if(val){ val = val.split(',') } return val; } let stackCondition = !('') if(stackCondition ){ let decimal = parseInt('0') || 0; if(""){ val = graphinNumberWithCommas(val,',',decimal) } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); }else{ val = parseFloat(val).toFixed(decimal) } } return '' + val + ''; } } if("1"){ columnOptions.yaxis.tickAmount = parseInt(""); columnOptions.dataLabels.formatter = function (val) { if(Number.isNaN(val)){ return ''; } if("1"){ val = graphinNumberWithCommas(val,',') } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); } return '' + val + ''; }; }else{ columnOptions.dataLabels.formatter = function (val) { if(Number.isNaN(val)){ return val; } val = parseFloat(val).toFixed(parseInt("0") || 0 ) ; if("1"){ val = graphinNumberWithCommas(val,',') } val = '' + val + ''; return val; }; } if ("yes" ) { columnOptions.tooltip['enabledOnSeries'] = [0]; } if ("") { columnOptions['annotations'] = { yaxis: [ { y: 0, strokeDashArray: parseInt("0"), borderColor: '#000000' } ] }; } if(""){ let style ={ color:'#061B2F', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } let title = ''; let xaxisYoffset ='bottom' === 'top' ? -95 : 0; if(typeof axisTitle !== "undefined"){ axisTitle(columnOptions, 'xaxis' ,title, style ,xaxisYoffset); } } if(""){ let style ={ color:'', colors:'#061B2F', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } let title = ''; if(typeof axisTitle !== "undefined"){ axisTitle(columnOptions, 'yaxis' ,title, style ); } } if(''){ columnOptions.xaxis.tickAmount = parseInt("6") || 6; columnOptions.xaxis.min = parseFloat('0') || 0; columnOptions.xaxis.max = parseFloat('0') || 200; } if(''){ columnOptions.yaxis.tickAmount = parseInt("") || 6; columnOptions.yaxis.min = parseFloat('0') || 0; columnOptions.yaxis.max = parseFloat('0') || 200; } if(""){ let style = { color:'', colors:'#061B2F', fontSize: '12px', fontFamily: 'Work Sans', fontWeight: '', } columnOptions['yaxis'] = [columnOptions.yaxis] let columnYaxisTemp ={ opposite: '1', labels: { show: '', formatter: function (val) { if("" ){ val = graphinNumberWithCommas(val,',') } return '' + val + '' }, style }, tickAmount: parseInt(''), title: { text: '', style } } if(''){ columnYaxisTemp.tickAmount = parseInt('') || 6; columnYaxisTemp.min = parseFloat('0') || 0; columnYaxisTemp.max = parseFloat('0') || 200; } columnOptions.yaxis.push(columnYaxisTemp) } if (typeof initNowGraphina !== "undefined") { initNowGraphina( myElement, { ele: document.querySelector(".column-chart-38e26971_9812"), options: columnOptions, series: [{name: '', data: []}], animation: true, setting_date:{"iq_column_interval_data_refresh":null,"iq_column_can_chart_reload_ajax":null} }, '38e26971_9812' ); } if (window.ajaxIntervalGraphina_38e26971_9812 !== undefined) { clearInterval(window.ajaxIntervalGraphina_38e26971_9812) }
Source: Strategy& Retail Banking Monitor
Developing countries are somehow skipping the phase of having a dense network of branches. As retail banking continues to grow, these countries are moving directly to online, just as they adopted mobile phones without building an extensive network of fixed-line networks.
As seen in parts of Africa, M-Pesa, which originated in Kenya, was the first mobile payment and microfinance service on the continent. It promoted the case for branchless banking, essentially skipping the conventional steps of growth to digital banking.
Indeed, this is arguably a more efficient way to “bank the unbanked” than investing in building many bank branches.
Digital payments
Mobile payments and digital wallet usage have been growing rapidly since the mid-2010s for both online and offline transactions. Globally, some research estimates that more than 3 billion people use digital wallets in 2022 and usage is expected to continue growing at a rate of 8% through 2030.
Payment methods share at Point-of-Sales (POS)
No Data Found
` } return seriesName } }, tooltip: { enabled: '1', shared: 'yes' === "yes", intersect: !('yes' === "yes"), theme: 'light', style: { fontSize: '12px', fontFamily: 'Poppins' } }, responsive: [{ breakpoint: 1024, options: { chart: { height: parseInt('350') } } }, { breakpoint: 674, options: { chart: { height: parseInt('350') } } } ] }; if ("1" ) { lineOptions.yaxis.labels.formatter = function (val) { let decimal = parseInt('0') || 0; if("" ){ val = graphinNumberWithCommas(val,',',decimal) } else if("" && typeof graphinaAbbrNum !== "undefined"){ val = graphinaAbbrNum(val , parseInt("") || 0 ); }else{ val = parseFloat(val).toFixed(decimal) } return '' + val + '%'; } } if ("yes" ) { lineOptions.tooltip['enabledOnSeries'] = [0,1,2,3,4]; } if ("" ) { lineOptions['annotations'] = { yaxis: [ { y: 0, strokeDashArray: parseInt("0"), borderColor: '#000000' } ] }; } lineOptions['markers'] ={ size: '0_,_0_,_0_,_0_,_0'.split('_,_'), strokeColors: '#fff_,_#fff_,_#fff_,_#fff_,_#fff'.split('_,_'), strokeWidth: '0_,_0_,_0_,_0_,_0'.split('_,_'), shape: 'circle_,_circle_,_circle_,_circle_,_circle'.split('_,_'), showNullDataPoints: true, hover: { size: 3, sizeOffset: 1 } }; if(""){ let style ={ color:'#000000', fontSize: '12px', fontFamily: 'Poppins', fontWeight: '', } let title = ''; let xaxisYoffset ='' ? -95 : 0; if(typeof axisTitle !== "undefined"){ axisTitle(lineOptions, 'xaxis' ,title, style,xaxisYoffset ); } } if(""){ let style ={ color:'', colors:'#000000', fontSize: '12px', fontFamily: 'Poppins', fontWeight: '', } let title = ''; if(typeof axisTitle !== "undefined"){ axisTitle(lineOptions, 'yaxis' ,title, style ); } } if(''){ lineOptions.yaxis.tickAmount = parseInt("7") || 6; lineOptions.yaxis.min = parseFloat('0') || 0; lineOptions.yaxis.max = parseFloat('0') || 200; } if(""){ let style = { color:'', colors:'#000000', fontSize: '12px', fontFamily: 'Poppins', fontWeight: '', } lineOptions['yaxis'] = [lineOptions.yaxis] let lineYaxisTemp = { opposite: '1', labels: { show: '', formatter: function (val) { if("" ){ val = graphinNumberWithCommas(val,',') } return '' + val + '' }, style }, tickAmount: parseInt(''), title: { text: '', style } } if(''){ lineYaxisTemp.tickAmount = parseInt('') || 6; lineYaxisTemp.min = parseFloat('0') || 0; lineYaxisTemp.max = parseFloat('0') || 200; } lineOptions.yaxis.push(lineYaxisTemp) // console.log(lineYaxisTemp) } if (typeof initNowGraphina !== "undefined") { initNowGraphina( myElement, { ele: document.querySelector(".line-chart-c14e826_9812"), options: lineOptions, series: [{name: '', data: []}], animation: true, setting_date:{"iq_line_interval_data_refresh":null,"iq_line_can_chart_reload_ajax":null} }, 'c14e826_9812' ); } if (window.ajaxIntervalGraphina_c14e826_9812 !== undefined) { clearInterval(window.ajaxIntervalGraphina_c14e826_9812) }
Source: www.ark-invest.com
In addition to digital wallets, credit cards are being dematerialized with solutions such as Apple Pay. Neo-banks like Revolut offer a virtual credit card by default.
The move to cashless payments, accelerated by the Covid-19 pandemic, will continue to reduce the need for ATMs.
Open banking, Banking-as-a-Service, Embedded finance
Open banking
Open banking is a system that enables the sharing of banking data through APIs.
- Customers can authorize third parties to access their data and make payments on their behalf. This results in a more personalized and streamlined banking experience.
- Banks can partner with third parties to obtain information about customers, such as partnering with credit bureaus to assess real-time bank balances to determine creditworthiness and lead to the approval of a loan application that otherwise would not have been approved.
Open banking has several implications, including:
New products, services, and business models
As Open banking matures, we can expect to see increased collaboration between banks and third-party providers through partnerships, joint ventures, or even full integration through mergers and acquisitions.
New business models, such as Banking-as-a-Service (BaaS), can thrive with new infrastructures for third parties to develop new products and services for customers.
Regulation and data privacy challenges
Open banking raises questions and challenges around privacy and security. Banks and third parties will need to invest in robust security measures and comply with regulations (which will need to be clarified) to ensure that customer data is protected and used in a targeted manner.
Banking-as-a-Service (BaaS)
As mentioned in the Value Chain chapter, fintech companies have unbundled financial services that can then be more easily embedded with other customer services and offered by non-financial institutions.
Banking-as-a-Service (BaaS) is the delivery of banking products and services through third-party distributors (often B2C companies). It allows non-financial companies to offer financial products as part of their customer journey, backed by the infrastructure of a regulated banking institution.
See infographic
Since the first co-branded credit card, BaaS has evolved. Using new data and advanced technology, the model makes it possible to offer credit to customers who would not have been approved under a traditional banking model.
Co-branded or white label
Read More
Initially, BaaS started with B2C companies (the distributors) partnering with a financial institution to offer a co-branded or white-label product, typically a credit card.
Embedded products
Read More
As technology has evolved, B2C companies can now embed simple standard products (deposit, lending, and payment solutions) into their offerings.
Tailored solutions
Read More
With more advanced technologies, APIs and A.I., the distributor can offer more complex financial solutions to their customers.
Previous
Next
Examples of BaaS
Shopify Capital
Partnering with WebBank in the US and Banking Circle Group in the UK, Shopify Capital offers loans to its customers (online merchants).
Thanks to transaction histories, it can speed up the KYC and underwriting process using machine learning.
Its business model allows it to add a markup to its standard percentage fee for flexible loan repayments.
Stripe Treasury
Originally an online solution provider, Stripe has partnered with Evolve Bank & Trust and Goldman Sachs to offer banking services to its customers (online merchants and marketplaces) under the Stripe Treasury label.
For example, Stripe customers can offer their own customers a simple stored value account (or digital wallet) for future purchases and rewards.
Uber debit cards
Uber has partnered with Green Dot (GoBank) to offer a debit card to its drivers. The Uber Debit Card allows drivers and delivery partners to instantly cash out their trip earnings and earn cash back rewards at partner merchants, such as gas stations.
Square (Block)
Square (Block Inc.) has partnered with Sutton Bank and Marqeta (for card issuance) to expand its product offerings.
Similar to Shopify, it offers loans to its customers (small businesses) based on their sales, and repayment is automatically made with a percentage of daily sales made through Square.
Blockchain
Blockchain technology became known to the general public thanks to one of its use cases, cryptocurrency, of which Bitcoin is one of the most popular. Although the technology presents its own challenges, there are many applications in the retail and commercial industry, including:
Trust through decentralization
With the advent of fractional reserve banking in the 19th century (see the History section), trust became the backbone of the banking industry. But several financial crises and bank runs have shown that it cannot be taken for granted; risks remain and central oversight is needed. Having a transparent, decentralised ledger, as cryptocurrencies do, can help maintain trust in a system. Before the 2008 financial crisis, if large institutional investors had more visibility into the final subprime mortgages embedded in the products they were buying, they might not have invested in them.
Payments
While many peer-to-peer money transfer applications have emerged in many countries, the majority of bank transfers rely on the Society for Worldwide Interbank Financial Telecommunications (SWIFT) payment system. While the system has proven to be scalable and reliable, it still often requires one or more intermediaries to process a transfer. A decentralised ledger based on blockchain, while presenting its own challenges, does not require intermediaries and could make international payments almost instantaneous.
Trade Finance
Outside the financial sector, blockchain technology is also emerging to solve supply chain challenges, such as traceability in the food industry. More widespread adoption of blockchain technology in international supply chains could also benefit trade finance. A typical example is smart contracts, which can automatically generate a bank payment when an event occurs or when certain conditions are met. This can reduce risks and costs.
Environmental, Social, and Governance (ESG)
As more customers and stakeholders prioritize sustainable practices, banks that fail to integrate ESG considerations into their operations may face reputational and financial risks.
The banking industry in particular is expected to follow good governance practices, given the number of scandals and financial crises it has experienced throughout its history.
Governance
Given their role, banks are naturally being held to high corporate governance and transparency standards, emphasizing ethical practices, accountability, and decision-making.
However, there are many examples of poor governance in the history of banks, not only related to rogue trading, but also in retail and commercial banking.
Greed: From the very beginning of banking, the industry was built on trust. Greed, however, is often present when money is involved. A recent example was the Wells Fargo account scandal. The aftermath was a huge loss of confidence in Wells Fargo, resulting in nearly $3 billion in lawsuits against the bank.
Money Laundering: In 2012, HSBC was fined nearly $2 billion for allowing Mexican drug cartels to launder money through its accounts. Today, most banks have a Money Laundering Officer or Money Laundering Reporting Officer to ensure their compliance with anti-money laundering (AML) regulations.
Environmental
Scopes definitions
With growing environmental concerns, many companies have set targets to reduce their Scope 1 and 2 CO2 emissions. For banks, there is additional pressure to reduce Scope 3 emissions, which include those emitted by the companies they finance.
More and more examples are appearing in the media highlighting the trend and the pressure on banks. Barclays announced that it had tightened its lending criteria for coal-fired power plants and will no longer finance oil sands exploration and production. BNP Paribas has been sued for its support of fossil fuels. Activists in the US are protesting outside major banks to pressure financial institutions to divest from fossil fuel companies.
In addition to divesting from non-green industries, banks can actually play an active role by facilitating projects that have a positive environmental impact. They are developing new products such as green bonds, sustainability bonds, clean energy project finance, etc. to improve their carbon footprint. In retail banking, consumer financing for electric vehicles, green mortgages, or other home loans to finance solar panels, are some other examples of opportunities available for banks.
No Data Found
Source: McKinsey & Company. More information available in their 2022 Global Banking Review.
Social
Banks are central to the functioning of societies and economies. They play a critical role by providing a range of financial services that facilitate the flow of money and credit throughout the system.
A stable and accessible banking system is essential for countries to develop and reduce poverty.
Financial inclusion, which refers to the provision of affordable and accessible financial services to individuals and communities historically excluded from the formal financial system, has been promoted by microfinance initiatives since the early 2000s.
No Data Found
Source: Global Findex Database 2021 (Worldbank)
Access to financial services in developing countries has also been facilitated by technology and mobile solutions, such as M-PESA in Kenya.
