Traditional versus modern banking

Traditionally, banks’ main business consisted of taking deposits and making loans and the majority of their income was derived from lending business. Up until the 1990s many banking markets were highly regulated and competition was restricted. The implementation of the EU’s 1988 Second Banking Directive in 1992 established a formal definition of what constituted banking business throughout Europe and this introduced the so-called universal banking model. From 1992 onwards banks throughout the European Union could undertake a broad range of financial services activity.
• Insurance
• Securities/investment banking
• Pensions
• Other financial services
Income sources:
• Net interest income
Income sources:
• Net interest income
• Fee and commission income
Competitive environment:
• Restricted
Competitive environment:
• High competition
Strategic focus:
• Assets size and growth
Strategic focus:
• Returns to shareholders
• Creating shareholder value
Customer focus:
• Supply led
Customer focus:
• Demand led
• Creating value for customers
Banks have had to pay much greater attention to the performance of their operations and in particular to rewarding their owners. Traditionally, when banking markets were relatively restricted and uncompetitive there was less pressure on banks to generate high profits in order to boost their stock prices and keep shareholders happy. Typically, banks focused on strategies based on asset growth – in other words they sought to become larger as this was viewed as the main indicator of commercial success. Nowadays, bank strategy focuses on creating value for shareholders.
Universal banking and the bancassurance trend
One area that deserves particular attention regarding the adoption of the universal banking model has been the increased role of commercial banks in the assurance area. The combination of banking and insurance is known as ‘bancassurance’ or ‘allfinanz’.
Bancassurance is a French term used to define the distribution of insurance products through a bank’s distribution channels. Since the 1980’s, the trend towards bancassurance has been steadily increasing. Some of the reasons put forward to explain such a trend are:
• Cross-selling...

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