Banking started out in Britain with the medieval goldsmiths: wealthy people needed a safe place to put the gold. So they stored it with goldsmiths who had safe vaults. Banking comes into place when the goldsmiths realised they could make loans to people who wanted to trade or get involved in big construction projects. The goldsmith worked safely on the basis of one key point - not everyone would need to get their gold back once. Which is what banks of the modern era rely heavily on. The idea of banking was really popular in Northern Italy's. By the late 1600s the idea of banking had been developed in Britain. Many were set up by quakers, who were ought to be trustworthy due to the high reputation in society. After a gradual process banks began to grow and acquired similar names we see today - Barclays,Lloyds etc. All these banks offer very similar services being distinguished only by offering different interest rates
Modern day banking has very slight change to what the goldsmiths did. Banks take deposits from people and businesses that wish to save and lend to people, businesses and lend to people, businesses and governments that wish to borrow. They operate on a large scale and rely on the fact that not all of their customers will want to withdraw their deposits at once. This process encourages economic growth and helps to raise standard of living.
There are three mains ways banks make money: by charging interest on money that they lend, by charging fees for services they provide and by trading financial instruments in the financial markets. To encourage people to keep their money in a bank, the bank will pay the deposited interest. The banks lend money to customers at a higher rate than they pay to depositors. This is where banks make most of their money. ‘Lending’ can take form in forms of overdraft, bank loans and mortgages. Interest rates can be fixed or variable depending on the terms on the agreement, a variable rate depend on financial crisis. Loans and mortgages aren't given out to everyone, credit checks and various other methods are used to check if the borrower is able to pay the money back. After the financial crisis in 2008, banks were warned to be more careful about lending that they used to be and to avoid lending to too many risky borrowers.
Banks also create an efficient payment system. The uses of cash has declined in recent years as the popularity of cards and cheques increased - to top off the use of ‘contactless’ really starting to change the way we pay for our purchases. With ATM’s, debit cards and online bank transfer, the situation changed completely from what it was. Many high street banks are starting to close due to an increase in people using online banking and telephone banking. Even though companies such as Apple and Google are changing the way we purchase things, the use of traditional cards will be continue to be widely used and the concept of ‘paper money’ will not disappear for some time.