Here’s an interesting question – do you know what exactly is “banking domain knowledge”?
Sometimes we struggle with its definition because banking domain knowledge is very broad. The term “banking” can cover anything from retail banking, investment banking and private banking. It can cover front-office trading, sales and back-office operations, banking regulations and corporate strategy.
How do you make sense of it all?
When I was starting out in my career as a banking industry consultant, I found that there were very few books or resources which could help me understand banking end-to-end.
I also spent a lot of time surfing the Internet finding small pockets of information, but never getting the “big picture” of banking. I wasted a lot of time mucking around.
Without a full understanding of what the “banking domain” was, I found it very difficult to zoom in on areas of interest or see how the different parts of banking connected with one another.
In this article, I want to first define for you the term “banking domain knowledge” and provide you with a good framework for understanding banking end-to-end.
Of course, I won’t be able to cover everything about banking, but I hope you give you an appreciation of what the various key areas are, so you can go off and learn more in specific areas.
Let’s first define what banking domain knowledge is. To me:
Definition: Banking domain knowledge is that body of knowledge about how different banking segments operate – across customers, sales & distribution, products & services, people, process and technology.
As you can see, this definition pretty much covers end-to-end how a bank operates. I often use this definition when doing consulting work with banks and find it tremendously useful.
Of course, there are other peripheral areas which I’ve omitted, e.g. securities brokerage, independent financial institutions, family offices, bancassurance (banks selling insurance). However, this definition is good enough to cover 80% of what banks do – and that’s sufficient for now.
2. A Framework for Understanding Banks
In my line of work (consulting), we are used to having “frameworks” – to help us understand our clients and how they work. Frameworks help to structure our thoughts and draw borders around our knowledge and research.
It’s no different for banking domain knowledge.
I find it extremely useful to structure our thoughts about banks in the following manner:
Diagram of a bank operating model
This diagram is what I term a “bank operating model” – it shows you in a visual manner how a bank’s operations are laid out. You’ll also notice that each component in the diagram is also covered in the definition I’ve used previously.
Let’s try to go through each of these operating model components briefly.
- Banking segments – refers to the type of banking, e.g. retail banking, corporate banking, investment banking or private banking.
- Customers – the individuals and corporations who buy the bank’s products and services.
- Sales and distribution – how the bank sells to and reaches its customers, e.g. branches, online, email, mobile
- Products and services – deposit accounts, loans, equities trading, custody services, the things the bank sells to you or for which it charges a fee to customers.
- People, process and technology – how the organization operates across the three facets – people (i.e. job roles and responsibilities, organization structures), process (how customer transactions are fulfilled and what procedures to follow) and technology (what IT systems are used to support the business). More on this later in this article.
3. The People, Process and Technology
A huge part of understanding how a bank works involves sorting out three components – its people, process and technology.
- People. A bank is run by people – from the front-office Relationship Manager, middle-office Credit Officer to the back-office Payments Officer. Typically, formal organizational structures, business committees and job roles and responsibilities are drawn up to structure a bank. The setup of a retail bank would differ from that of a private bank, for example.A retail bank would have a large number of employees manning its branch network, while a private bank would offer more personalized services through its smaller Relationship Manager teams.
- Processes. How does a bank operate everyday? How does each employee fulfill a customer transaction, e.g. process a loan and pay out money to a customer? How does it screen its customers or approve payments? How are equity trades captured, confirmed and settled in a bank?All these are embedded in banking processes.Understanding banking processes is a huge part of banking domain knowledge – once you can see how transactions are fulfilled in a bank, you will start seeing how everything thing works “end-to-end” in banking.
For more information on banking business process flows, check out detailed flow diagrams illustrating everything from customer account opening, deposit and loan transaction fulfillment, through to securities and derivatives trading and settlement.
- Technology. The third, very important aspect of banking domain knowledge are the IT systems that power banks.Indeed, there are a huge variety of banking systems that I’ve come across in my career – some of the important ones being core banking, trading and payment systems.Core banking systems, in particular, are critical to banking operations. They are essentially the “heart of a bank”, control the customer cash accounts and are intricately linked to surrounding systems like customer relationship, credit, trading and payment systems. Core banking system vendors like Temenos, Avaloq and Olympic which have built very successful businesses around core banking system implementations for large banks.
Trading systems like Murex and Sophis handle securities and derivative trading for banks, allowing them to connect to markets and exchanges throughout the world.
Payment systems help connect bank’s systems to payment networks which can wire domestic and international payments across standard formats like e.g. SWIFT.
Wrapping Up …
As you can see, the term “banking domain knowledge” covers a very broad scope. If you want to understand banking, it is imperative that you set out a framework or lens with which to analyze banks.
Once you see banks through a framework, it’s much easier to see how various banking components connect together and work to deliver products and services to clients.