10-04-2017, 07:21 PM
You know, one of the most common questions I get from my readers is this - how do I increase my banking domain knowledge? Many professionals I know - particularly those in IT and engineering - want to make a switch over to the banking industry, citing better pay and prospects.
Well, I can identify with that.
I switched from an IT background when I was a fresh graduate into a business analyst role, moved to working for banks, before settling on being a banking consultant.
I guess for an IT professional, sitting down and writing code day in and day out can get repetitive. Many IT professionals I know like to get out there, interact with users, understand the business and maybe even move into a business related role. And banking is one of the best industries for this as it is fast paced, pays pretty well and has good prospects.
That said, it's not easy to gain access to banking domain knowledge, or knowledge of any industry for that matter.
In banking, who is going to teach you about the front to back office, treasury and payment systems or structured products? Unless you've worked in bank in various roles for many years, it's unlikely you can gain access to that knowledge.
In this article, I want to introduce some essential bank domain knowledge to you, so as to help you better understand your banking clients or stakeholders. I'll focus on banking here and perhaps expand to insurance or other industries in the future.
1. Overview
First off, to gain a basic level of banking domain knowledge, let's aim to understand a few things:
Types of banks. What are the various types of banks out there? Not all of them are made equal. You have retail, commercial, investment, private banks and universal banks, plus many financial institutions that do almost everything in between.
Bank structure. How are banks structured? A typical bank Generally has a front, middle and back office, with the front focusing on sales, the middle office on control and the back office on settlements.
Products and services. What are the products and services sold by banks? What can you buy from them? That's an essential bit of knowledge to understand as well.
Ok, let's drill in on each of these topics.
2. Types of Banks
There are generally five types of banks out there - retail banks, commercial banks, investment banks, private banks and universal banks. I'll run through each of these.
Retail Banks
A retail bank is usually your neighborhood friendly bank. It's where you place your savings and do everyday transactional stuff like paying your bills, signing up for a credit or debit card and receiving your salary.
The customers a retail bank focuses on belong to the mass consumer segment, usually with annual incomes up to US $100K (though this definition may defer from bank to bank).
Commercial Banks
Sometimes also called corporate banks or merchant banks, these banks provide products and services to businesses. These can range from large corporations to the small "mom and pop" shops in your neighborhood. They focus on things like business loans, payments and also checking facilities for business purposes.
Investment Banks
Investment banks are focused on investments. They usually have large corporations as clientele and offer very specific investment services - trading, brokerage and also IPO or merger and acquisition support.
Many of these banks also run what is called a proprietary trading desk - meaning it has a department of traders who buy and sell investments for the bank, rather than it's clientele.
Private Banks
Private banks have lately become more widespread, particularly in Asia. They used to be boutique banks situated in Switzerland and offered banking services to very wealthy individuals and their families.
This industry has since expanded worldwide, with many banks realizing their are increasingly many rich individuals in China, India, Singapore and Hong Kong, as well as other parts of Asia.