Industry primer
Financial Services: A Case Interview Primer
Most financial firms earn a spread or a fee, and lose money when risk goes wrong: revenue and risk sit side by side.
What's new here: how financial services make money.
- List price
- Discounts and promotions
- Mix across tiers or sizes
- Price against competitors
- What customers are willing to pay
- Number of customers: market size x your share
- Purchases per customer: how often they buy
- Units per purchase
- Customers kept versus lost
- Capacity: how many you can actually serve
- Share of revenue from each
- Finance and legal
- Marketing, sales and brand
- People
- Technology and capacity
- Timeline
- 1Market
- 3Existing business: cost
- 4New business
Most financial firms earn a spread or a fee, and lose money when risk goes wrong: revenue and risk sit side by side.
How the business makes money: who pays, for what, and the main costs.
The question
In financial services
Who pays
In financial services
- Borrowers pay a bank interest
- Policyholders pay an insurer premiums
- Investors pay an asset manager fees
- Shops pay a small cut on each card payment
For what
In financial services
Money now, cover against a loss, someone to invest for you, or a way to pay
How revenue is earned
In financial services
- Bank: the gap between loan and deposit rates, plus fees
- Insurer: premiums, invested until claims are paid
- Asset manager: money managed × fee rate
- Payments: a cut of every transaction
The main costs
In financial services
- Interest paid to savers
- Claims
- Branches, staff and technology
- Loans that go bad
What decides profit
In financial services
- Pricing each risk well
- Keeping running costs low against revenue
Revenue arrives today; the cost of a bad risk arrives later, so read the two side by side.
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