The Business Of
Banking | Barclays | What Do They Do?
Morning All!
Hope you had a great weekend. Last time, in the first part of our The Business Of Banking series, we explored the business model of Goldman Sachs. We saw that whilst the US bank has been incredibly dominant in investment banking and market making for years…
… Goldman has struggled to achieve success in retail banking! So, this week, we’re going to switch gears and look at a company that has achieved considerable success in retail banking. It’s one of the UK’s largest banks. And we mentioned them a few times during the Goldman series. Yup, it’s Barclays!
Now, Barclays isn’t just a retail bank. They do plenty of other stuff - like plenty! The bank is split into 3 main divisions;
Barclays UK,
Barclays International: Corporate and Investment Bank,
Barclays International: Consumer, Cards and Payments
Now, don’t worry if that looks complicated! Today, we’re going to go through each of these divisions and simply explain what Barclays actually does in each of them. And then tomorrow, we’ll dive into the divisions that really matter and that make them the most money. Alrighty, let’s dive in and start with Barclays UK!
Mortgages, Advice, and Credit Cards!
Okay, so within Barclays UK, the first sub-division we’ll look at is Personal Banking. And as we discussed last week, personal banking is basically to do with 2 things – deposits and loans. You’ll hopefully remember this graphic below…
Banks like Barclays allow individuals like me and you to create bank accounts and keep our money with them. And they then use these deposits, to provide a second service – loans. Now, the most popular type of loan used by individuals is a mortgage.
Why are mortgages so popular? Well, the average house price in the UK is ~£300k and most people wanting to buy a house don’t have £300k in their bank accounts! Therefore, Barclays will give them mortgage loans to help them purchase their property.
We’ll go into this in more detail tomorrow, but the UK mortgage market is pretty massive. In 2022, Barclays gave out a whopping £30 billion worth of mortgage loans, but this was still only ~10% of the total mortgage loans provided in the UK. As the chart below shows, 4 other banks gave out more mortgage loans, with Lloyd’s leading the way with ~17% market share!
Okay, so that’s Personal Banking. Let’s move onto UK Business Banking. And this division is pretty similar to what we’ve just seen, but instead of individuals depositing their money and taking out loans… it’s businesses! Now, one thing to mention here is the size of businesses that this division deals with. Last week in The Business Of Goldman Sachs, we saw Goldman helping huge companies take out billions in debt. And you may be wondering, is that what this division does?
Well, the answer is no. This Business Banking division will be much more tailored towards smaller businesses. The dry cleaner down your road, the Indian restaurant nearby, all these businesses that need banking services can use Barclays for (i) depositing their money, (ii) taking out loans and (iii) general financial advice.
The last part of the Barclays UK division is what Barclays call Barclaycard Consumer UK. And this is Barclays’ credit card division. In 2018, there were a whopping ~10 million customers in the UK who used a Barclays credit card, which I’m pretty sure makes Barclays the largest credit card issuer in the UK - although I couldn’t find data to confirm this!
Now do all of these ~10 million customers all use the same Barclays credit card? Well, the answer is no! As the graphic below illustrates, Barclays currently have 5 different types of credit cards on offer…
I won’t go into too much detail about this credit card division because we did a real deep dive into credit cards last time around, and looked at why people use a credit card, the benefits, the risks, etc. For anyone interested, you can check out the newsletter here. And for anyone interested in understanding what the difference is between Rewards cards vs Credit Building cards, I recommend giving this article a read. Alrighty, let’s move on!
A Pretty Large Investment Banking Player Too!
So, we’ve looked at Barclay’s UK focused division. Now, let’s look at their global divisions (which also includes the UK by the way). And the first one we’ll look at is Investment Banking. Now, similar to credit cards, I’m not going to go into too much detail here because The Business Of Goldman Sachs was all about investment banking!
But like Goldman, Barclays will offer services for M&A (mergers and acquisitions), ECM (equity capital markets) and DCM (debt capital markets). So for example, when Elon Musk needed advice on how to acquire Twitter, who did he go to? A couple of banks, including Barclays’ M&A team. And when Arm needed help IPOing earlier this year, who did they go to? A couple of banks, including Barclays’ ECM team!
Now, whilst investment banking isn’t Barclays’ number one priority, the company is still pretty darn good at it! According to this Financial Times link, Barclays was 7th in the world in terms of the highest amount of investment banking fees generated in 2022! Which is pretty impressive, right? 5th in the UK for mortgages, a leading UK credit card provider and 7th in the world for investment banking!
Okay, the next division to look at is Global Markets. And that is basically Barclays’ market making division. Again, not going to go into too much detail because we covered market making extensively last time. Hopefully you remember this graphic below which shows us how market makers operate.
Market makers, like Goldman and Barclays, will sit between a buyer and seller and take a spread between the transactions. Tomorrow, we’ll see just how much this division makes for Barclays!
Alrighty, the final part of Barclay’s Corporate and Investment Bank division is Corporate Banking. And this is very similar to what we saw earlier in the UK Business Banking division. Barclays will help businesses by (i) providing accounts so they can deposit their money, (ii) offer loans, and (ii) offer financial advice. The slight difference with earlier is that this is for businesses worldwide (not just the UK)…
… and it’s usually for slightly bigger players. Not just the dry cleaner or Indian restaurant down your road! Okay, let’s move on!
We’ll Manage Your Money… But Only If You Have £5m!
So, just before we wrap up. Let’s briefly go through the final division. And the first place we’ll start is the International Cards and Consumer Bank segment. Now, there’s two parts to this. The first part is like what we saw earlier in the UK credit card division - Barclays offering their own credit cards to consumers worldwide. But the second part, is Barclays also offer co-branded credit cards.
What do I mean by co-branded credit cards? Well, in the US, Barclays actually partners with brands, like Gap and American Airlines, and offer credit cards on their behalf. By partnering with these brands, Barclays can get increased access to US consumers. And as we saw last week, more consumers using your credit cards = increased revenues through fees!
Final section for today - and that’s the Private Bank! And I think the best way to explain this is by using the comparison of a private tutor. You know how you can get a private one-to-one tutor to help you learn the piano or with sports coaching. Well, this Private Bank division is where Barclays basically give wealthy individuals their own private tutor/banker. And this private banker helps them with investment advice, pension advice, and pretty much all sorts of money advice! The only catch here is that you need at least £5 million to get access to these services!
6th Nov 2023
And that’s a wrap! A lot to look forward to this week. Tomorrow, we’ll look at how exactly Barclays makes its money, with a particular focus on retail banking!
Have a fabulous day!
The Business Of Team