A concise overview of the retail banking business in the United States. Part of a continuing series of presentations on the financial services industry.

1. Financial Services Industry Training
Retail Banking
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Saunders Learning Group, LLC, Andover, KS

2. Training from Saunders Learning Group
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
floyd@floydsaunders.com for more
information.
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3. Retail Banking
Function  Provides consumers with a wide range of banking products and services designed
to 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
Example  Sells certificates of deposit, retirement accounts
Activities  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
Example Also a variety of regional and local banks.
Companies  Credit Unions perform similar functions, provide most of the same products and
services.
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4. 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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5. 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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6. 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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7. 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
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8. 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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9. How important are ATM’s to a Bank?
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
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10. 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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11. Online Banking
Online banking is more than 1/3 of the transaction
volume at most banks.
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12. Virtual Banks
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.
Advantages of online banking Disadvantages of online banking
 Convenience: banking is available 24 hours a day,  Because they have no ATM machines, virtual banks
seven days a week, and just a mouse click away. typically charge the same surcharge that your brick-
 Ubiquity: You can log on from anywhere, and-mortar bank would if you used another bank's
instantly to your online bank and take care of automated teller.
business.
 Many virtual banks won't accept deposits via ATM;
 Transaction speed: Online banks execute and
confirm transactions at or quicker than ATM you'll have to either deposit the check by mail or
processing speeds. transfer money from another account.
 Efficiency: You can access and manage all of your  Start-up may take time: In order to register for your
bank accounts, including IRAs, CDs, even bank's online program, you will probably have to
securities, from one secure site. provide ID and sign up via the mail.
 Effectiveness: Many online banking sites now  Learning curve: Banking sites can be difficult to
offer sophisticated tools, including account navigate at first.
aggregation, stock quotes, rate alerts and
portfolio managing programs to help you manage  Bank site changes: Even the largest banks
all of your assets more effectively. Most are also periodically upgrade their online programs, adding
compatible with money managing programs such new features in unfamiliar places.
as Quicken and Microsoft Money.
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13. 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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14. Trends in Payment Processing
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.
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15. Payment Processing – Industry Trends
 10 years ago 30% of checking accounts in the  Mobile Payments: Mobile payments are more
U.S. had a debit card attached to them. common in developing markets, but that is
 Now virtually every checking account opened quickly changing.
automatically has a debit card. Yet as this service grows, Gartner admits there
 Payment processing costs less as a debit will be challenges. Mobile payments will be a
transaction if processed as a PIN transaction “highly fragmented market” where there will
rather then as a signature transaction. not be “standard practices of deployment”.
 50% of incoming calls to bank call-centers are That makes it sound like this is one technology
come from people checking their bank that will still need some work in 2012/13,
balances. before taking off.
 mobile banking and payments really start to
pick up  Money Transfer: This refers to people sending
money via SMS messages.
 the average household has between 13 and 15
credit cards, 2.5 debit cards, not to mention 5+  Near Field Communications (NFC): More
loyalty cards. popular in some European and Asian markets
 In 2001, credit cards with rewards programs than in the U.S., NFC still isn’t a standard
accounted for just 20% of all general purpose feature on many of today’s phones. That may
credit cards, but 40% of all card spend. be about to change, too. Gartner says that NFC-
 2010, 90% of credit cards with rewards. enabled phones will begin to ship in volume,
 Credit card issuers know that reward cards with Asia leading deployments, followed by
drive people to spend more. Europe and North America. NFC can be use to
effect payments from a mobile device.
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16. ACH Payment Processing
Payment Processing flow:
1. Consumer authorizes debt
2. Business sends payment Service Provider
3. Submits to ACH system
4. The Federal Reserve receives debts & credits
from banks
5. Fed settles transactions
6. 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%.
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17. 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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18. 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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19. Typical loan decision process
Customer Bank
Loan application performs Yes Loan docs
requests a Credit prepared
is completed credit
loan (could be online)
Decision
analysis
Credit No
Report inform customer
Employment
Verification
Customer Bank Bank
prepares Bank
signs verifies Loan systems
accounting funds loan Loan serves
loans documents entries updated
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.
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20. 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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21. 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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22. 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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23. Credit Card Transaction Flow
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24. Thank You !
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25. Questions
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26. 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.
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