There is possibility for a new bank model, but that has little to do with high profit and low savings interest.
The traditional bank model is set up as follows:
- An investment is made
- The investment has a certain length of time
- This investment generates future cash flows
- There is a certain collateral factor of these cash flows
- Based on the time, cash flows and collateral factor, you can calculate the value of future cash flows in the present
This model money for all investments and therefore also for the new bank model.
The only ways to set this up are:
- Shorten the length of the investment
- Higher future cash flows (higher turnover, lower costs)
- More certainty about future cash flows
Investors expect a similar future cash flow in an investment with equal maturity and equal (un) certainty over future cash flows.Either, with constant investment time and uncertainty, profitability will have to be comparable or better.
Now that we have thrown profitability out of the window as a decisive factor, we can start looking at the low savings rate.
The low savings rate is the result of two factors:
- Very low risk in the market.
Interest is a reflection of risk.
See also the model as described above.
Due to the low risk, the interest on loans received is low, and thus also the interest for money on the bank.
In the United States, it has been in the meantime, but in Europe there are other problems (a discrepancy between Germany where an interest rate increase is needed, and southern Europe where the same interest rate increase is disastrous), which keeps interest rates low.
Any investment (and thus interest/risk) can be deposited against this 鈧?艙no risk rente 鈧?If this interest rate is low, other returns (read risk premiums) will also be low.
The low savings rates have little to do with what banks want to give, and everything with the risk in the market and the low 鈧?艙no risk rente 鈧?
New bank models are possible.
What FinTech is working on is business models that transform a small piece of Efficient customer service from banks into new services.
This creates higher future cash flows (due to greater Efficiency, read cost reduction), and thus a higher profitability on the investment.
Also, service models offer a higher level of certainty about future cash flows (less risk) and thus the investor also gains returns.
The customer is also the winner, in any case at short notice.Because the costs go down, if only to win customers.
The question is, however, what is going to happen with the inefficient service provided by banks.If it is not disrupted by a FinTech, banks continue to struggle with this. And that may mean that they have to stop the services.
The consequence of this is noticeable in small municipalities where the physical bank no longer exists and people for personal contact to the city must kilometers away.
That’s fine for the youth with the mobile bank app, but for the 80 supercentenarian it’s a gem anyway.And this is a development that was deployed years ago, before FinTech came on. But it gives a perspective in which the banking system moves.
Anyone who has a little longer in financial services knows stories about misses and misconduct.However, these stories are not tied to the financial services, I can also pick them up from experiences with other employers.
However, the financial sector is very sensitive to public incentives, because if the customers are not happy they get their money away.There are few other sectors in which the 鈧?艙power 鈧?of the customers is as large as in the Financial service provision.
Only the perspective is different, because there is a substantial amount of money in the banking sector and everyone wants to exert influence on it.
And therefore, banks are grawers, the rewards are too high, the gains are too exorbitant, everything should be cheaper and all wealth should be distributed among normal people.Where those normal people are of course you and I.
But if you look at the business model for banks you should note that:
- Banks ‘ profitability is determined by investors investing their money elsewhere if the risk/income ratio becomes unbalanced
- The low interest rate is due to the low market risk and the incentive programme of central governments
- FinTech tries to fish the currants from the PAP, where profitability for investors (risk/income ratio) will be at least equal to the traditional bank model
- Better operation and lower execution costs, but the interest rate will not be much better for new banks
- And that you as a customer who also needs 鈧?艙pap service 鈧?in time to observe that there are only currants to get
Now let’s look at the question again:
- High profit: No, the profit is for the investors in relation to the risk incurred
- Extremely low interest rate: No, the interest rate is in proportion to market risk, which is low, and remains low in Europe due to the ECB’s interest rate policy
- Is another bank model possible: Yes, but not based on profitability and low interest rates.
The new model is based on:
- Shorter investment time
- Higher expected cash flows
- More certainty about the expected future cash flows
鈧?”this model is applicable to any investment
Either, the question is based on wrong assumptions.
鈧?”Edit 27 Feb 2019 鈧? 鈧?”
Today in my FD newsletter: Japanese situations threaten Dutch banks (may be behind paywall)
Short Digest of FD itself: due to continued low interest rates, banks ‘ profitability is increasingly under pressure.In Japan, banks have been struggling since 1999 with ultra low interest rates.
Of course it can be different.Unfortunately, it is not a priority for banks to make customers rich, but rather to get better from them.
I already knew from 2006 that it was impossible that within 1 to 3 years there was not a blast of a crisis to arrive.
I told it to my manager after thoroughly deepened in the 鈧?虄stinking Thinking on which the creation of the ZGZ promising junk funds was based.A short-sighted investor, with or without experience, could have just and unsuspecting ingardens. The copywriters of the glossy leaflets had done a splendid job, but healthy peasant minds were sufficient to recognise the fallability.
My manager asked me if I sometimes saw things that were technically impossible.
鈧?虄Yes, you take me the words out of the mouth.
鈧?虄Or Are you also one that thinks the hot water invented?
鈧?虄So I would not argue, but I fear that there may technically be more than you think.
鈧?虄 So, you, claiming that we are guided by idiots?
鈧?虄Not at All, because they do not lead, they blindly follow the wise policies of others who knowingly turn them into a big leg.
鈧?虄And You [rand Debiel knows how we can avoid this so-called crisis?
鈧?虄Of course, I do not like to ridicule with empty chats.
鈧?虄I would not have been so busy, I would listen, but unfortunately not now.
鈧?虄OK, I write it conciously and in plain language, you have less pressure, you know me to find.
鈧?虄One last question: Would you like the interest on mortgages, on credit card debts, car financings from customers you know that the risk of 0.0 USD in instalments is higher than 60%, dare to make funds and that as a CERTAIN high-yield investment Prices?
He became pissig. 鈧?虄How did you actually think I am your boss and you are not mine? By cheating customers? No so, I would never do that, clearly?
鈧?虄Not really.Because such products will be on our sales advice week after week.
鈧?虄That will be.I am your boss because I w脙 漏 脙 漏 t How those products are secured and you read online cowboy stories.
鈧?虄Ok, do I give you my concise letter before or after the crash?
鈧?虄Do not Make me out, at work now, Hup Hup.
鈧?虄You Said that against your cowboy or against his horse?
He never asked me for my letter and saw the shares he got as a bonus bags of 85 EUR/piece to 2.5 EUR/piece.Mine had long been sold and I bought his own, which are now again at 75 EUR, but have also been sold again.
He got exactly 15 minutes to leave the property with the security.Now he leeks with other junk as 鈧?虄private Banker脗 , yes! I believe he lives with older ladies and gentlemen, whose money he shifts from savings accounts to short-term saving accounts. Because he works with larger amounts than the individual investors, he obtains a higher interest than the ones he shows in the newspaper. They are happy with a skinny extra half-percentage and he with the extra-crumps, over which he holds his mouth. Fun right?
Banks are large companies often listed on the stock exchange and on profit.They find that more money makes more money as long as you limit the risks. That’s exactly what they do. They have been given more regulation and need to limit their risks. That’s exactly what they do, further limiting profit and risk. And we all play with it to further the wallet of the average banker.
You can hardly ignore it, even though it seems so unfair.This is what we have all worked for to get here. That we are trying to change this huge system, that is going to take a long time. Because all attempts to make something else beautiful are actually used to make another equally well-crooked system out of it, after all, it remains large companies on profit.
So a new bank model means that we first have to step off the fact that all these big banks are big companies with a single right of existence more profit.
That is a tricky question.Most banks are just listed on the stock Exchange and have the first goal to make the shareholders earn as much as possible. Part of the profits to give savers does not fit into that system.
It would be good if the real banking activities, such as savings, financing and payments, were linked separately from such things as investing, derivatives and advice.The risk-鈩?s in those branches of sport endanger ordinary banking.
Moreover, the banks do not determine the interest level.Ultimately, the amount of interest is determined by supply and demand on the bond market. The short-term interest can be determined by the ECB in Frankfurt.
Well, it starts portable making of your bank account, just as it is made possible with your phone number.
Banks have the scabies to that idea, and have connected it with IBAN even more strongly to the name of their company.We must then let us know in all the direction of politics and AFM that we want this.
Those low savings interest comes by those bozos in the central Bank of Europe, which, as far as I know, is not controlled by the politics and can go Z N own course.
By purchasing debts and keeping interest rates low (i.e. between banks it is cheap to borrow) that perverse situation arose.
We do not have much leverage to bring a bank to other thoughts.
Think about one:
- No shopper at a single bank.
Buy your insurances with another offer
Doesn’t mean you also have to save or invest there, right?
Banks are becoming very nervous of a bankrun.
Annuities, insurance, savings constructions.. You can probably for a large part without it. And insurance.. They don’t want to be out anyway.
If we could now port our account, we could give a bank a tap on the fingers by moving our business transparently to the least corrupt of that moment.As said, something to keep our political representatives once again.
Choose to put your savings on that account with the highest revenue.Then the market can do its job. As long as everyone accepts growming low interest rates, I see no reason why banks should raise interest rates. Yeah it would be neat , though.But Banks neat? Come on, it’s just companies though, who want to make a profit. So make sure they do then IF they offer good services and otherwise not. Should you find the profits of a bank very high? Buy stocks, I’d say, then profit for you. Don’t even have to be the bank where your savings stand.
Transform all banks into associations or foundations
Actually, it is like with the privatisation of public transport: as long as people make a profit with what it is now, there will be no attempt to do anything about it.
The state also spins yarn: 4% tax is still calculated on savings.You don’t get that return anywhere…
Yes, a State bank, a system bank for citizens, without a profit-making purpose, with the sole aim of providing a bank account to everyone.
On this account you could do all your business with the state.
Receive income?Fine. Money transfer, pay in the store? Also fine. Save? No, unfortunately. Receive interest? No, unfortunately.
The 鈧?艙ordinary banken 鈧?could provide for that kind of service, just like hypothelks, continuous credit and everything that has to do with it.
It would be harder for the larger banks to wear out their services if you are not obliged to be connected to exist.