IGCSE Economics 0455: Unit 3 Money & Banking
Maybe we should start a bank!
Scenario:
You are part of a team tasked with launching a new commercial bank to compete against established banks in the economy. You realized that the existing competition offers poor customer service and relatively high interest rates for borrowers and relatively low interest rates for savers! Additionally, many elderly cannot access their local bank because it has been closed and now only, online access remains!
Your goal is to design a bank that will attract customers, meet the needs of the economy, and be profitable!
Start by discussing these points that friends made:
“All you need to do is offer 8% interest and you’ll attract all the money”
“How on earth will you gain people’s trust initially”!
“When the economy is growing rapidly, we’ll make easy money”
Phase 1: Research and Planning
Research key functions of commercial banks:
- What basic services do commercial banks offer?
- How is a commercial bank different from a central bank?
- What types of loans will you offer? Loans for businesses or individuals (or both)?
- What conditions will be attached to the loans? Do you require collateral?
- How will you facilitate payments (e.g., offering online banking, mobile banking)?
- Will you have a physical presence or just online? Why have you decided this?
- Consider factors affecting borrowing in your economy:
- What will your interest rates be? Why?
- How will you attract borrowers (low-income vs. high-income clients)?
- What external factors might affect your customers’ ability to borrow (e.g., inflation, income levels)?
Phase 2: Design Your Bank
Create a business plan that answers these questions:
- What will your bank be called, and what is your unique selling point?
- Example: “EasyBank – Making Loans Accessible to All”
- What savings and loan products will you provide?
- How will these meet customer needs (e.g., competitive interest rates, flexible repayment)?
- Will you lend more to businesses, individuals, or both? Why?
- How will you ensure profitability while minimizing risk?
- What innovative features will attract customers (e.g., student loans, ethical lending policies)?
Some advice before you start!
Before you begin creating your business plan, there are a few things you should consider to set yourself up for success:
Research: Begin by researching the banking industry to understand current market trends and customer needs. This will help you create a unique selling point (USP) for your bank. You could focus on innovation, customer service, or convenience to differentiate your business from others.
Target Audience: Consider who your bank will serve. Will it focus on individuals, businesses, or both? Understanding your customer base will help you tailor your products and services accordingly.
Products and Services: Think about the types of savings and loan products you will offer. Consider customer needs such as competitive interest rates, flexible repayment plans, and online banking options. Will you provide products tailored to specific groups, such as students or small businesses?
Risk Management: Carefully plan how your bank will ensure profitability while minimizing risk. What strategies will you implement to prevent loan defaults and ensure financial stability? Look into risk mitigation tools, such as credit scoring or collateral-based lending.
Innovation and Features: Consider incorporating innovative features into your bank’s offerings to attract customers. Ethical lending policies or technology-driven services like mobile apps could be attractive to modern customers.
Starting with these elements will help you develop a comprehensive and well-structured business plan! Remember, the idea isn’t to write a lot, but to get to grips with money and banking (specifically) the difference between banks. But, also (super important) how do banks make money! Is higher interest the best way to attract customers? Do all customers want the same thing from a bank? You could even ask some staff members what attracts them and whether (in general) they are borrowers or savers! Good luck!