Why Banks Exists? - Explained

As per your knowledge, you know that Banks are financial institutions involved in various financial activities. Existence of banks depending on the products and services that they offer and at which price they offer their services. And definitely, the supply and demand need to be sustainable to their existence. Let's get one by one.

Industry

Every bank does have its strategic level management analyze and decide which segmentation they choose in the industry. Whether micro-financing products or macro financing products or both. This industry selection is directly proportional to the number of capital investments that they do have and cash flow of the organization and many more factors.

There are multiple banking industries that do exist in the world. Some of them are, Agriculture bank, Commercial Banks, Development Banks and etc...

Products and Services

When a bank choose which industry where they want to be with the potential they do have with them, they can decide the products and services that they can offer. These products & and services definitely should comply with the central bank or the federal reserve bank.

Bank's products and services depend on what customers need in the majority. Providing products and services to the end customer needs a strategic analysis to rectify the true demand and the availability of the products and services. There are many products what banks do offer in general and also there are some products that banks do offer customizing from customer to customer.

Credit Cards, Debit Cards, Internet Debit Cards, Vehicle Leasing, Home Loans, Personal Loans are a few common products that target personal individuals. Business Loans, Corporate Credit Cards, Corporate Leasing are a few products that banks offer to corporate businesses.

Each and every product is designed to suit the customer requirement most of the time. And of cause banks design their products to gain a maximum possible return from their sales channels.

Supply and Demand

Supply and demand are extremely crucial for financial institutions like banks. Because a large proportion of the cash which they have is not owned by the bank, but by the customers of the banks. If a customer comes to a bank and makes a term deposit of 5000USD for 1 year period at an interest rate of 1.2% per month. Probably the bank does have the possibility to lend 5000USD to another customer for a period of 1 year or less than that period. But if the borrowed customer doesn't pay the borrowed amount, then the bank is in trouble. Because the bank will need to pay the first customer with the interest amount that they promised to the customer. This is a very simple scenario and banks can go bankrupt due to mismatch of supply and demand on the products which directly impacts the bank's cash flow.

Banks do manage the supply and demand on their products and banks do analyze the capability of repayment for the customers before they lend some amount of cash to the customer to confirm whether the customer is capable of repaying the amount with the interest.

Pricing

Each and every product do have pricing, though you ask to borrow some amount of cash from the bank or you deposit some amount of your cash in the bank, there's a fee that the bank does charge from you by telling you or not telling you. In almost all the banking products which lend you money, there is a clear notification of what are the chargers that you need to make in different scenarios. 

For the banking products that you use to deposit your money for a return of your money, they do have hidden fees that they charge from you. If you deposit 5000USD on a term deposit at an interest rate of 1.2% per month you think it's clean and there are no fees probably. But the bank lends your 5000USD at 1.8% to another customer who wants to borrow some cash. There's a hidden fee of 0.6% that you won't be able to hear from your bank. And when it comes to credit cards, there are chargers applied to your credit card account, like delayed payment, over-limit fees, and many more.

Conclusion

Banks do exist to help individuals who need financial support and to generate revenue to the bank. They like your cash and they like you if you borrow some cash from them too which eventually generates revenue to the banks. If you are a customer, there are many ways that you can crack the banking products in which you can benefit your daily schedules and keep your financial track records easy and efficient.