Editor’s note: This article was first published in September 2010. The example rates (3.5% on a fixed-term deposit, 7.5% on loans), the 12 euro a year account maintenance fee and the prediction that bank branches would largely disappear in favour of online banking and ATMs reflect that time.
The perfect business system already exists. We see it every day, but so far few people have stopped to think about how it could be developed in another type of business. It isn’t easy, but I’m sure someone will come up with a good business idea to transfer the banking business model to other products or services. Let’s look at why banking is the perfect business system.
1. It meets a need: Can you live without a bank account? Obviously yes, but keeping our money in the bank gives us a sense of security we wouldn’t have if we kept it under the mattress. Other companies’ billing systems depend on the banking system: your electricity, water and internet bills all go through the bank, which turns it into a necessity.
2. Innovation and convenience: With the same staff as before, or fewer, a bank today is available to you 24 hours a day thanks to ATMs and the internet, while more specific matters are dealt with during office hours. Over time, bank branches will largely disappear, giving way to all kinds of transactions online and at ATMs.
3. A perfect system for selling and reinvesting: Its raw material is money. Investment funds, fixed-term deposits and all kinds of financial vehicles pay customers for bringing in their money, and that money in turn meets another customer’s need through credit or a loan. In basic financial maths, we all know that if a €1,000 fixed-term deposit earns you 3.50%, you make €35, and if that €1,000 is lent to another customer at 7.50% interest, the bank’s margin is 4%. Now multiply that by millions of customers.
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4. A very cheap service: As you build up your financial knowledge you may realise that a bank starts robbing you the moment you walk through the door, but the idea that wins over a customer is a good one. What’s €12 a year for maintaining my account? Better still, €1 a month is nothing. True, but one euro a month from millions of customers adds up to millions of euros.
5. Diversification and a wide range of services: With money as their main raw material, they cover insurance and investments, and they act as estate agents too. What would be a disaster in any other business, such as a customer failing to pay for a product, is a new business opportunity for them, since as a rule they take no risks thanks to guarantees.
6. Perfect customer tie-in: When a customer goes to a bank for a loan or credit they need, desperately or moderately, the bank will grant it. That loan already carries interest, and in some cases you’ll also have to take out other financial products with them: pension plans, insurance, or putting part of your money into an investment fund.
7. Conveniences that generate profit: We’re talking about credit cards. When you pay in a shop with your credit card, the shop pays the bank a small percentage of the purchase. Add the fee for your card, the annual maintenance charge and the monthly interest on deferred payments, and the credit card becomes a bank’s most profitable product, and of course a ruin the consumer agrees to: the deeper in debt they are, the more profit they bring the bank.
Do you still have any doubt that banking is the perfect business system? Now try to apply some points of that system to another kind of business that offers consumers the same ingredients: need, profitability, low cost, ease of purchase and a diversified range of products or services.
Put your mind to work on a good business idea to build the perfect business system. Have a good afternoon.
Further reading
- The secret of success, knowing it depends on you
- How to find business ideas
- Donald Trump and the entrepreneur’s mindset
Featured image: Jim Killock, CC BY-SA 2.0, via Flickr.
