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Date: October 29, 2017
Name: Things bank never tell you
Presenter: Mike Kao
Bank is business and most young entrepreneurs tend to forget about that. Moreover, it is important for young entrepreneurs to know the other side of the equation. Mike Kao, the Investment Fund Advisor at Portfolio Strategies Corporation, invites entrepreneurs to discuss about the things bank would never tell young entrepreneurs. In this presentation, young entrepreneurs will learn the business model behind banks. In addition, Mike Kao will share his insights of what young entrepreneurs need to pay attention to when they are in business relationship with banks.
Mike Kao is the Investment Fund Advisor for Portfolio Strategies Corporation. He worked in many top banks, this includes Financial Services Manager for Bank of Montreal Financial Group (BMO), Premium Banker for Hong Kong and Shanghai Banking Corporation (HSBC), and Financial Services Manager for Canadian Imperial Bank of Commerce (CIBC). His expertise helped many young entrepreneurs with mortgage and financial planning. Moreover, he volunteers in Tzu Chi Foundation Canada as Audio/Video Coordinator for over 17 years.
As technology improves in the banking industry, bankers are looking for ways to change their services that integrates with new technology. This overwhelms many people with additional banking information. The problem young entrepreneurs are facing is that they do not know how to integrate with new banking information. Young entrepreneurs are living in the “reverse pyramid” society. Kao states the life expectancy for women is 81 years old and men is 79 years old. When there is money crisis, people look for bankers; in fact, they are relying on them for financial solutions.
Banker’s expectation not always equivalent with everyone’s expectation. Kao refers to this as “asymmetric information”. This leads to dissatisfaction for people. People feels overwhelmed because they believe there is no other options available.
“When you understand, there is hope”
How does bank make money? First of all, people need to understand that the expectation for bankers from outside world is not the same as the reality. The image of the bankers is not as glory as what market says in the outside world. In fact, they are overwhelming with paperwork and sales.
The business model for bank is very simple. When people deposit money to the bank, the bank will lend out money to others and charge interest. The bank will charge additional fees for the services they provide to customers. Bank only put a small portion of money for reserves and the rest are lending out for borrowing. The more people borrow, the more interests and fees generate. Kao believes their mentality is to find ways to charge as much as they can.
On the bank’s statement of income, 44% or more of the total revenue comes from interest and fees.
For most banks, the account monthly fee comes from the number of transactions occur in the bank account. When there is money out of the bank account, it generates a certain fee. The more transactions create, the more fees generate. Kao states typically account fee is between $3.95 to $30 per month, bank draft is $7.50 per draft, statement fee is $2.00 per statement and other transaction is between $1.25 to $5.00 per transaction. There are many unexpected charges and these are the bread and butter for bank’s operation. Nevertheless, it is legal for bank to increase charges and many people refer those as “hidden fees”.
Kao wants young entrepreneurs to know that without these fees, bank cannot operate. Moreover, customers will always be the last to know. To counteract bank fees, young entrepreneurs should change their spending habits. Kao suggests young entrepreneurs to use credit card instead of debit card to eliminate the number of transactions. By minimizing the number of debit transactions and cash withdraw from ATM, bankers will reduce the transaction fees. Young entrepreneurs should use online banking or online statement regularly. Also, they should use electronic fund transfer instead of cheques to reduce fees. When young entrepreneurs use other bank’s ATM to withdraw cash, they will get charged with a fee for using other bank’s ATM and another transaction fee from their own bank for the transaction. It is important to keep the bank balance over the hold fund limit. Young entrepreneurs can ask their bank for their hold fund limit. If their bank balance is under the limit for just one day, the bank can charge them additional fee. This is critical when young entrepreneurs use preauthorized payments. Kao suggests young entrepreneurs to ask for overdraft protection. NSF fees is compound interest, which can be very heavy.
Bankers will never sell “one” account; they will sell packaged product. This includes the chequing, saving, foreign exchange, and overdraft. This is a way for bankers to increase their sales unit counts and product penetration. Their target on consumers is to sell premium plan with highest fee. Each bank has its revenue projection on customers; moreover, bankers are forced to sell people premium plans to meet their quotas. To counteract selling, young entrepreneurs should always state clearly what they really need. Kao explains there is no such thing as the best bank plan. Each plan depends on spending habit, personal preference, emotional tide, rates, and promotional offer.
How cheque deposit? Kao explains when payer writes a cheque to Bank A and payee deposits the cheque to Bank B, Bank B will send the cheque to the processing center. The processing center notify Bank A to withdraw and Bank A will withdraw from payer’s account to the processing center. Lastly, Bank B receive the fund from the processing center and deposit the fund to payee’s account. Depends on bank, young entrepreneurs can hold cheques for 5 days if it is a new account. 4 days if they go through person and it takes up to 30 days for foreign currency cheque. There is no hold for government cheque. Bank can hold after $1,500 if it is a payroll cheque. For ATM deposit, bank can hold after the first $100. To counteract cheque hold, young entrepreneurs should give themselves time with cheque deposits. They can ask for preauthorized deposit, internet wire transfer, or bank draft, but these will have fees. They can also ask for certified cheque and cash instead. Young entrepreneurs can ask their banks to increase hold limit.
There are two types of bank lending: installment loan and revolving loan. The major difference is the amount, terms, rates, usage, amortization, and payment schedule. The rate is what bank uses to generate interest. It can be variable or fixed. The term is the contracted time frame and the amortization is how long will it be fully repaid. These all determine the payment amount.
To process the bank lending, bankers will ask for these items:
Presenter: Mike Kao
Bank is business and most young entrepreneurs tend to forget about that. Moreover, it is important for young entrepreneurs to know the other side of the equation. Mike Kao, the Investment Fund Advisor at Portfolio Strategies Corporation, invites entrepreneurs to discuss about the things bank would never tell young entrepreneurs. In this presentation, young entrepreneurs will learn the business model behind banks. In addition, Mike Kao will share his insights of what young entrepreneurs need to pay attention to when they are in business relationship with banks.
Mike Kao is the Investment Fund Advisor for Portfolio Strategies Corporation. He worked in many top banks, this includes Financial Services Manager for Bank of Montreal Financial Group (BMO), Premium Banker for Hong Kong and Shanghai Banking Corporation (HSBC), and Financial Services Manager for Canadian Imperial Bank of Commerce (CIBC). His expertise helped many young entrepreneurs with mortgage and financial planning. Moreover, he volunteers in Tzu Chi Foundation Canada as Audio/Video Coordinator for over 17 years.
As technology improves in the banking industry, bankers are looking for ways to change their services that integrates with new technology. This overwhelms many people with additional banking information. The problem young entrepreneurs are facing is that they do not know how to integrate with new banking information. Young entrepreneurs are living in the “reverse pyramid” society. Kao states the life expectancy for women is 81 years old and men is 79 years old. When there is money crisis, people look for bankers; in fact, they are relying on them for financial solutions.
Banker’s expectation not always equivalent with everyone’s expectation. Kao refers to this as “asymmetric information”. This leads to dissatisfaction for people. People feels overwhelmed because they believe there is no other options available.
“When you understand, there is hope”
How does bank make money? First of all, people need to understand that the expectation for bankers from outside world is not the same as the reality. The image of the bankers is not as glory as what market says in the outside world. In fact, they are overwhelming with paperwork and sales.
The business model for bank is very simple. When people deposit money to the bank, the bank will lend out money to others and charge interest. The bank will charge additional fees for the services they provide to customers. Bank only put a small portion of money for reserves and the rest are lending out for borrowing. The more people borrow, the more interests and fees generate. Kao believes their mentality is to find ways to charge as much as they can.
On the bank’s statement of income, 44% or more of the total revenue comes from interest and fees.
For most banks, the account monthly fee comes from the number of transactions occur in the bank account. When there is money out of the bank account, it generates a certain fee. The more transactions create, the more fees generate. Kao states typically account fee is between $3.95 to $30 per month, bank draft is $7.50 per draft, statement fee is $2.00 per statement and other transaction is between $1.25 to $5.00 per transaction. There are many unexpected charges and these are the bread and butter for bank’s operation. Nevertheless, it is legal for bank to increase charges and many people refer those as “hidden fees”.
Kao wants young entrepreneurs to know that without these fees, bank cannot operate. Moreover, customers will always be the last to know. To counteract bank fees, young entrepreneurs should change their spending habits. Kao suggests young entrepreneurs to use credit card instead of debit card to eliminate the number of transactions. By minimizing the number of debit transactions and cash withdraw from ATM, bankers will reduce the transaction fees. Young entrepreneurs should use online banking or online statement regularly. Also, they should use electronic fund transfer instead of cheques to reduce fees. When young entrepreneurs use other bank’s ATM to withdraw cash, they will get charged with a fee for using other bank’s ATM and another transaction fee from their own bank for the transaction. It is important to keep the bank balance over the hold fund limit. Young entrepreneurs can ask their bank for their hold fund limit. If their bank balance is under the limit for just one day, the bank can charge them additional fee. This is critical when young entrepreneurs use preauthorized payments. Kao suggests young entrepreneurs to ask for overdraft protection. NSF fees is compound interest, which can be very heavy.
Bankers will never sell “one” account; they will sell packaged product. This includes the chequing, saving, foreign exchange, and overdraft. This is a way for bankers to increase their sales unit counts and product penetration. Their target on consumers is to sell premium plan with highest fee. Each bank has its revenue projection on customers; moreover, bankers are forced to sell people premium plans to meet their quotas. To counteract selling, young entrepreneurs should always state clearly what they really need. Kao explains there is no such thing as the best bank plan. Each plan depends on spending habit, personal preference, emotional tide, rates, and promotional offer.
How cheque deposit? Kao explains when payer writes a cheque to Bank A and payee deposits the cheque to Bank B, Bank B will send the cheque to the processing center. The processing center notify Bank A to withdraw and Bank A will withdraw from payer’s account to the processing center. Lastly, Bank B receive the fund from the processing center and deposit the fund to payee’s account. Depends on bank, young entrepreneurs can hold cheques for 5 days if it is a new account. 4 days if they go through person and it takes up to 30 days for foreign currency cheque. There is no hold for government cheque. Bank can hold after $1,500 if it is a payroll cheque. For ATM deposit, bank can hold after the first $100. To counteract cheque hold, young entrepreneurs should give themselves time with cheque deposits. They can ask for preauthorized deposit, internet wire transfer, or bank draft, but these will have fees. They can also ask for certified cheque and cash instead. Young entrepreneurs can ask their banks to increase hold limit.
There are two types of bank lending: installment loan and revolving loan. The major difference is the amount, terms, rates, usage, amortization, and payment schedule. The rate is what bank uses to generate interest. It can be variable or fixed. The term is the contracted time frame and the amortization is how long will it be fully repaid. These all determine the payment amount.
To process the bank lending, bankers will ask for these items:
- Payroll statement
- 2 years of T1 general and Notice of Assessment
- Saving and investment statement
- Loan statements
- Signed credit release statement
- Other relevant documentation