Entrepreneurs must be familiar with bank business models to understand how banks make money. There are a few different types of bank business models, each with its features and benefits. To make the most informed decision regarding banking, entrepreneurs need to be familiar with all the different bank business models.
Five Bank Business Models to Consider
The banking industry has changed a lot over the years, and there are now a variety of bank business models to choose from. Here are five of the most popular bank business models:
1. Traditional Bank
The traditional bank business model is the most common type of bank. Traditional banks offer various products and services, including savings and checking accounts, loans, and investment services. They make money by charging fees for their services and earning interest on the money they lend.
Traditional banks can take between 60-70% of their revenue from interest on loans. The rest of their revenue comes from fees for services, such as account maintenance, ATM, and credit card fees.
2. Online Bank
The online bank business model is becoming increasingly popular. Online banks offer many of the same products and services as traditional banks but do not have physical branches. This allows them to save on operating costs, which they can pass on to their customers through lower fees. Online banks also tend to offer higher interest rates than traditional banks.
Online banks can earn between 60-80% of their revenue from interest on loans. The rest of their revenue comes from fees for services, such as account maintenance, ATM, and credit card fees.
3. Community Bank
Community banks are smaller, regional banks that focus on serving the needs of their local communities. They offer various personal and business banking services, including savings and checking accounts, loans, and investment services. Community banks typically offer higher interest rates than traditional banks and may offer special programs to support local businesses.
Community banks can earn between 50-60% of their revenue from interest on loans. The rest of their revenue comes from fees for services, such as account maintenance, ATM, and credit card fees.
4. Credit Union
Credit unions are member-owned financial institutions that offer a range of personal and business banking services. Credit unions typically offer lower fees and higher interest rates than traditional banks. They also often have special programs to support their members, such as financial education and counseling services.
Revenues for credit unions range between 50-60% from interest on loans and the rest from fees charged for services, such as account maintenance fees, ATM fees, and credit card fees.
5. Commercial Bank
The commercial bank business model is similar to the traditional bank model, but it focuses on serving businesses rather than individuals. Commercial banks offer a wide range of products and services, including savings and checking accounts, loans, and investment services. They make money by charging fees for their services and earning interest on the money they lend.
For commercial banks, revenues come primarily from interest on loans, accounting for 70-80% of their total income. The rest of their revenue comes from fees for services, such as account maintenance, ATM, and credit card fees.
How Banks Make Money
In general, banks make money by:
- Charging fees for their products and services
- Earning interest on the money they lend out
- Investing in financial markets
Each bank has its unique business model, so the specific ways banks make money will vary from bank to bank. However, the three general methods described above are the most common.
Conclusion
There are a variety of bank business models, and each has its own set of benefits and drawbacks. Entrepreneurs must be familiar with all the different bank business models to make the most informed decision when it comes to banking. Generally, banks make money by charging fees for their products and services, earning interest on the money they lend out, and investing in financial markets.