Hi there! If you’re a project manager or business analyst working in the banking domain – good for you! The banking industry is one of the best places to work in terms of projects.
It never ceases to amaze me how much innovation and creativity there is in terms of strategic, system and business transformation work you can do in the banking industry.
However, for many of my readers, banking is not their industry and several of them come from say, IT or other industries. How do you then gain a good grounding in banking domain knowledge?
That’s the purpose of this article – how to understand the banking domain. Let’s get started and hopefully by the end of the article you’ll know a thing or two about the basics of the industry.
Understanding the banking domain is essential if you’re in a banking project
The first thing I’d like to cover is to discuss how you can go about gaining and understanding the banking industry.
The best way, without a doubt, is to actually work in the industry. Many of the best project managers and business analysts I know started out as sales, operations, IT or finance personnel in the bank.
You’d be surprised – many of those who started out in line roles in banks (i.e. non-project roles) – eventually move on to project based roles. These folks have the banking domain knowledge they need to do well.
The second way to get banking knowledge is to read up. Banking is a vast industry – from sales, products, customers, systems, regulations, etc. – all that content is bound to leave you confounded.
What I used to do is to go to the library, find e.g. three books with an overview of the banking industry, then read all the resources highlighted within those books. If you cover about ten books on banking, you’ll pick up at least the basics.
Then there are the professional certifications, degrees and diploma programs. I highly recommend these over books actually – they give you a more structured approach to study and you’re sort of “forced” by the classes to finish your knowledge journey. And the good thing is, you get a paper qualification and something to show at the end of it.
Case Study: For me, I started out in IT consulting for government institutions and never had a ounce of banking knowledge. All I knew about banking was the retail branch that I’d visit over my young adult life!
After seven years doing government (and some insurance) consulting work, I was serious about breaking into the banking industry. I knew all the “hot projects” were there.
So I read up books. I took up the CFA (didn’t pass Level 1, unfortunately :P). I took up a one and a half Master’s program in Financial Engineering (and graduated). And I also switched from IT consulting into a bank. Then went on to do many banking projects – from strategy to system implementation.
I did all this and today, I’d say I know enough about the banking industry – but not enough! I don’t know as much as 20 year-old banking executives in the banks and I’m still trying to learn from them every day. It’s sort of a never ending journey.
Here’s the other thing I know about banking domain knowledge – you need to know where to start!
I’ve written a bit about this over here. And I’ll try to elaborate a bit more here so you understand the “scope of things” in the banking industry.
I also present simple frameworks to give you a broad perspective into banks' business models, customers, distribution channels and operations. Check it out here.
2. Types of Banks
The first thing you need to know is that there are different types of banks out there – retail banks, commercial banks, investment banks and private banks.
Retail banks deal with simple deposits / loans and other standard products and services we’re all used to in our “friendly-neighborhood” bank.
Commercial banks handle kind of the same deposits / loans but do it for corprorations and Small-Medium-Enterprises (SMEs). Also, the products and services offered are more complicated, and may include trade finance, corporate credit, project financing, etc.
Investment banks are very “securities” focused. They do a lot of trading in various asset classes like equities, bonds, funds, derivatives, etc. They are the “manufacturers” of investment products and tend to sell them through other banks who have the network and reach to a broad customer base.
Private banks cater exclusively to high-net worth individuals and require a minimum amount of “Assets Under Management” (AuM) in order for a client to be signed up. They offer, besides the standard retail products and services, other things like more complex investment portfolios and banking / financial planning services.
That said, there are many financial institutions out there that play one or more roles similar to the banks above. So you may have a private bank that is also a retail bank, etc.
The banking landscape is not “one size fits all” so expect to see the above categories of banks and everything in between.
3. Client Segments
The next thing about banks? The types of clients they handle. Usually a bank will “segment” their customers into categories like mass affluent, private clients and corporate clients.
Affluent clients tend to be the “normal” man on the street. “Mass Affluent” clients have a bit more disposable income and the bank may offer “priority banking services” to them, e.g. slightly better credit terms or vouchers / discounts.
Private clients and corporate clients tend to be “bigger ticket” clients to banks and they need a lot of attention. Don’t a bank to send out nmass email campaigns to these customers. They’ll usually dedicate one or two Relationship Managers to service each of these highly valued customers.
3. Bank Structure
A bank is also typically split into front, middle and back offices.
The front office is the customer touchpoint – where the sales person meets the customer, and where the customer comes in to make an enquiry.
The middle office is where checks and balances are made. If a customer wants to open a private banking account, complex credit or Know-Your-Client (KYC) checks may be done in the middle office. Trade orders from customers are also validated in middle office.
The back office is the engine room. Here, client statements, interest accrual, IT systems and other day-to-day operations happen. Documentation from customers flow to the back office. Trade settlement, reconciliation and accounting also happen in the back.
4. Important Topics There are some other important topics worth noting, in order to understand banking. I’ll illustrate a few of these below.
- Customer Account Opening
- Products and Services
- Trade Lifecycle
- Customer Relationship Management
Client Account Opening. The client account opening process is one of the most important to understand in a bank. It involves a client filling up an application form, plus checks on the customer’s background and KYC, before the actual account can be opened.
Banks spend a LOT of time optimizing this process because it is usually the first time a customer experiences a bank’s services and it cannot be allowed to be sub-par.
Products. Banks have many, many products and services. I can’t do justice to all the products / services offered by banks in this article (maybe I’ll write a book about it!).
However, some of the common products and services offered by banks should be understood if you want to know the industry.
Deposits, loans, trading and brokerage (e.g. in equities, bonds, funds, derivatives), custody services, IPOs, trade finance, project financing, cash management are some examples of what you see being offered by banks.
Trade lifecycle. Understanding the “trade lifecycle” – the process by which trades are captured, validated, executed and then settled in a bank is crucial knowledge. If you can understand this, you will understand how the trading flow happens in investment banks – this is a BIG piece of banking domain knowledge.
You may want to check out this book to understand more about the trade lifecycle. It was really useful to me when I started out trying to understand banking operations. Click here to find out more.
Customer Relationship Management. Another aspect that is critical to understand about banking is customer relationship management, or CRM. How customer experience is impacted and how marketing campaigns are exceuted to attract new business. CRM is a big priority for many banks as it directly influences the “top line”, i.e. revenue. You get customer experience right – you will get more revenue – it’s a very clear priority to many bank’s CEOs.
Wrapping Up … I hope the above has given you some great backgronud on how to understand the banking domain. Banking as an industry is a key employer of project managers and business analysts – you’ll do well to know a significant chunk of the domain before you apply for jobs in this space.
However – do understand that banking domain knowledge is not something you can just “get” overnight. It takes years and even after you think you know it all, there’s something new to learn again. It’s always evolving, but that’s also what keeps it interesting.
Until next time, have fun learning about the banking domain!