The typical savings and loan banking model that has been in use by your local banks for hundreds of years is very simple. The bank loans money out to consumers and collects interest on that loan as they are paid back. Where does that money come from? It comes from you, the consumers who are saving money in the bank. It also comes from other individuals, funds, or even the central bank. The bank is actually borrowing their money themselves in this situation, from you or a central bank, and has to pay interest on the money they borrow as well. The bank therefore profits on the difference in interest collected on loans to their consumers and the interest they pay to the organizations or individuals that give them money. This is called the “Spread”.
The spread has been the basics of banking for hundreds of years. Even the people that store money in the bank have their own concept of a spread. They have cash that earns 0% interest. If they “lend” it to a bank by keeping it in an account and therefore earn their own spread at whatever interest rate their savings account pays. Because of this, it’s very easy to understand how valuable your savings account is to a bank. Say your bank has an average spread of 5% and you keep $100,000 in your savings account. That means you are worth $5,000 to your bank every year! If they’re paying you a good interest rate then that’s great for everyone. But what if you only have $100 in savings? Now your bank is only making about $5 by having you as a customer. And that’s before all of the costs of running a bank: building branches, employing bank tellers, transporting cash, printing statements, etc. Those expenses become very prohibitive and are the reason that it’s impossible to serve customers who do not have a lot of money.
So how have banks solved this problem to make banking accessible for everyone? You already know. They started charging FEES! Now instead of just being worth a few dollars to the banks, the fees that you pay for basic services make you a profitable and sustainable customer. This is great because now the lowest-income consumers can take advantage of the security and growth potential of a bank. Except you can’t. For you, those fees are so large that it makes more sense to leave your money at home.
But guess what? Wala has discovered an innovative way to CHANGE BANKING! We have figured out how we can take advantage of the economics of the banking system and mobile technology to provide you with the same type of banking that the super rich get. Actually, I take that back. Our solution will be better than any bank because we will be bringing you the best technological solutions available all through the Wala platform to give you not just the best bank account, but the best financial experience. You will no longer be the afterthought of the financial services system. You will flourish financially and reach stability with Wala.
How do banks make money?
The economics of banking makes it impossible for banks to service mass-market consumers, but Wala can!
25 Aug 2016