Where the World’s Banks Make the Most Money
Profits in banking have been steadily on the rise since the financial crisis.
Just last year, the global banking industry cashed in an impressive $1.36 trillion in after-tax profits — the highest total in the sector seen in the last 20 years.
What are the drivers behind revenue and profits in the financial services sector, and where do the biggest opportunities exist in the future?
Following the Money
Today’s infographic comes to us from McKinsey & Company, and it leverages proprietary insights from their Panorama database.
Using data stemming from more than 60 countries, we’ve broken down historical banking profits by region, while also visualizing key ratios that help demonstrate why specific countries are more profitable for the industry.
Finally, we’ve also looked at the particular geographic regions that may present the biggest opportunities in the future, and why they are relevant today.
Banking Profits, by Region
Before we look at what’s driving banking profits, let’s start with a breakdown of annual after-tax profits by region over time.
Banking Profit by Year and Region ($B)
|Rest of World||$196||$243||$265||$285||$309||$327||$348||$361||$387||$421|
In 2018, the United States accounted for $403 billion of after-tax profits in the banking sector — however, China sits in a very close second place, raking in $333 billion.
What’s Under the Hood?
While there’s no doubt that financial services can be profitable in almost any corner of the globe, what is less obvious is where this profit actually comes from.
The truth is that banking can vary greatly depending on location — and what drives value for banks in one country may be completely different from what drives value in another.
Let’s look at data and ratios from four very different places to get a sense of how financial services markets can vary.
|Country||RARC/GDP||Loans Penetration/GDP||Margins (RBRC/Total Loans)||Risk Cost Margin|
1. RARC / GDP (Revenues After Risk Costs / GDP)
This ratio shows compares a country’s banking revenues to overall economic production, giving a sense of how important banking is to the economy. Using this, you can see that banking is far more important to Singapore’s economy than others in the table.
2. Loans Penetration / GDP
Loans penetration can be further broken up into retail loans and wholesale loans. The difference can be immediately seen when looking at data on China and the United States:
|Country||Retail Loans||Wholesale Loans||Loan Penetration (Total)|
In America, banks make loans primarily to the retail sector. In China, there’s a higher penetration on a wholesale basis — usually loans being made to corporations or other such entities.
3. Margins (Revenues Before Risk Costs / Total Loans)
Margins made on lending is one way for bankers to gauge the potential of a market, and as you can see above, margins in the United States and China are both at (or above) the global average. Meanwhile, for comparison, Finland has margins that are closer to half of the global average.
4. Risk Cost Margin (Risk Cost / Total Loans)
Not surprisingly, China still holds higher risk cost margins than the global average. On the flipside, established markets like Singapore, Finland, and the U.S. all have risk margins below the global average.
Future Opportunities in Banking
While this data is useful at breaking down existing markets, it can also help to give us a sense of future opportunities as well.
Here are some of the geographic markets that have the potential to grow into key financial services markets in the future:
- Sub-Saharan Africa
Despite having 16x the population of South Africa, the rest of Sub-Saharan Africa still generates fewer banking profits. With lower loan penetration rates and RARC/GDP ratios, there is significant potential to be found throughout the continent.
- India and Indonesia
Compared to similar economies in Asia, both India and Indonesia present an interesting banking opportunity because of their high margins and low loan penetration rates.
While China has a high overall loan penetration rate, the retail loan category still holds much potential given the country’s population and growing middle class.
A Changing Landscape in Banking
As banks shift focus to face new market challenges, the next chapter of banking may be even more interesting than the last.
Add in the high stakes around digital transformation, aging populations, and new service opportunities, and the distance between winners and losers could lengthen even more.
Where will the money in banking be in the future?
How Big Tech Makes Their Billions
The big five tech companies generate almost $900 billion in revenues combined, more than the GDP of four of the G20 nations. Here’s how they earn it all.
How Big Tech Makes Their Billions
The world’s largest companies are all in technology, and four out of five of those “Big Tech” companies have grown to trillion-dollar market capitalizations.
Despite their similarities, each of the five technology companies (Amazon, Apple, Facebook, Microsoft, and Alphabet) have very different cashflow breakdowns and growth trajectories. Some have a diversified mix of applications and cloud services, products, and data accumulation, while others have a more singular focus.
But through growth in almost all segments, Big Tech has eclipsed Big Oil and other major industry groups to comprise the most valuable publicly-traded companies in the world. By continuing to grow, these companies have strengthened the financial position of their billionaire founders and led the tech-heavy NASDAQ to new record highs.
Unfortunately, with growth comes difficulty. Data-use, diversity, and treatment of workers have all become hot-button issues on a global scale, putting Big Tech on the defensive with advertisers and governments alike.
Still, even this hasn’t stopped the tech giants from (almost) all posting massive revenue growth.
Revenues for Big Tech Keep Increasing
Across the board, greater technological adoption is the biggest driver of increased revenues.
Amazon earned the most in total revenue compared with last year’s figures, with leaps in almost all of the company’s operations. Revenue from online sales and third-party seller services increased by almost $30 billion, while Amazon Web Services and Amazon Prime saw increased revenues of $15 billion combined.
The only chunk of the Amazon pie that didn’t increase were physical store sales, which have stagnated after previously being the fastest growing segment.
Big Tech Revenues (2019 vs. 2018)
|Company||Revenue (2018)||Revenue (2019)||Growth (YoY)|
|Apple||$265.6 billion||$260.2 billion||-2.03%|
|Amazon||$232.9 billion||$280.5 billion||20.44%|
|Alphabet||$136.8 billion||$161.9 billion||18.35%|
|Microsoft||$110.4 billion||$125.8 billion||13.95%|
|$55.8 billion||$70.8 billion||26.88%|
|Combined||$801.5 billion||$899.2 billion||12.19%|
Services and ads drove increased revenues for the rest of Big Tech as well. Alphabet’s ad revenue from Google properties and networks increased by $20 billion. Meanwhile, Google Cloud has seen continued adoption and grown into its own $8.9 billion segment.
For Microsoft, growth in cloud computing and services led to stronger revenue in almost all segments. Most interestingly, growth for Azure services outpaced that of Office and Windows to become the company’s largest share of revenue.
And greater adoption of services and ad integration were a big boost for ad-driven Facebook. Largely due to continued increases in average revenue per user, Facebook generated an additional $20 billion in revenue.
Comparing the Tech Giants
The one company that didn’t post massive revenue increases was Apple, though it did see gains in some revenue segments.
iPhone revenue, still the cornerstone of the business, dropped by almost $25 billion. That offset an almost $10 billion increase in revenue from services and about $3 billion from iPad sales.
However, with net income of $55.2 billion, Apple leads Big Tech in both net income and market capitalization.
Big Tech: The Full Picture
|Company||Revenue (2019)||Net Income (2019)||Market Cap (July 2020)|
|Apple||$260.2 billion||$55.2 billion||$1.58 trillion|
|Amazon||$280.5 billion||$11.6 billion||$1.44 trillion|
|Alphabet||$161.9 billion||$34.3 billion||$1.02 trillion|
|Microsoft||$125.8 billion||$39.2 billion||$1.56 trillion|
|$70.8 billion||$18.5 billion||$665.04 billion|
|Combined||$899.2 billion||$158.8 billion||$6.24 trillion|
Bigger Than Countries
They might have different revenue streams and margins, but together the tech giants have grown from Silicon Valley upstarts to global forces.
The tech giants combined for almost $900 billion in revenues in 2019, greater than the GDP of four of the G20 nations. By comparison, Big Tech’s earnings would make it the #18 largest country by GDP, ahead of Saudi Arabia and just behind the Netherlands.
Big Tech earns billions by capitalizing on their platforms and growing user databases. Through increased growth and adoption of software, cloud computing, and ad proliferation, those billions should continue to increase.
As technology use has increased in 2020, and is only forecast to continue growing, how much more will Big Tech be able to earn in the future?
Visualizing the Size of Amazon, the World’s Most Valuable Retailer
Amazon’s valuation has grown by 2,830% over the last decade, and the tech giant is now worth more than the other 9 largest U.S. retailers, combined.
Visualizing the Size of the World’s Most Valuable Retailer
As brick-and-mortar chains teeter in the face of the pandemic, Amazon continues to gain ground.
The retail juggernaut is valued at no less than $1.4 trillion—roughly four times what it was in late 2016 when its market cap hovered around $350 billion. Last year, the Jeff Bezos-led company shipped 2 billion packages around the world.
Today’s infographic shows how Amazon’s market cap alone is bigger than the nine biggest U.S. retailers put together, highlighting the palpable presence of the once modest online bookstore.
The New Normal
COVID-19’s sudden shift has rendered many retail outfits obsolete.
Neiman Marcus, JCPenney, and J.Crew have all filed for bankruptcy as consumer spending has migrated online. This, coupled with heavy debt loads across many retail chains, is only compounding the demise of brick-and-mortar. In fact, one estimate projects that at least 25,000 U.S. stores will fold over the next year.
Still, as safety and supply chain challenges mount—with COVID-19 related costs in the billions—Amazon remains at the top. It surpasses its next closest competitor, Walmart, by $1 trillion in market valuation.
How does Amazon compare to the largest retailers in the U.S.?
|10 Largest Public US Retailers*||Market Value July 1, 2020||Market Value July 1, 2010||Normalized % Change 2010-2020||Retail Revenue|
|The Kroger Co.||$26B||$13B||107%||$118Be|
|Walgreens Boots Alliance||$36B||$26B||38%||$111B|
|The Home Depot||$267B||$47B||466%||$108B|
|Combined value of retailers (without Amazon)||$1,071B|
Source: Deloitte, YCharts
*Largest public US retailers based on their retail revenue as of fiscal years ending through June 30, 2019, e=estimated
With nearly a 39% share of U.S. e-commerce retail sales, Amazon’s market cap has grown 2,830% over the last decade. Its business model, which aggressively pursues market dominance instead of focusing on short-term profits, is one factor behinds the rise.
By the same token, one recent estimate by The Economist pegged Amazon’s retail operating margins at -1% last year. Another analyst has suggested that the company purposefully sells retail goods at a loss.
How Amazon makes up for this operating shortfall is through its cash-generating cloud service, Amazon Web Services (AWS), and through a collection of diversified enterprise-focused services. AWS, with estimated operating margins of 26%, brought in $9.2 billion in profits in 2019—more than half of Amazon’s total.
Amazon’s Basket of Eggs
Unlike many of its retail competitors, Amazon has rapidly diversified its acquisitions since it originated in 1994.
Take the $1.2 billion acquisition of Zoox. Amazon plans to operate self-driving taxi fleets, all of which are designed without steering wheels. It is the company’s third largest since the $13.7 billion acquisition of organic grocer Whole Foods, followed by Zappos.
Accounting for the lion’s share of Amazon-owned physical stores, Whole Foods has 508 stores across the U.S., UK, and Canada. While Amazon doesn’t outline revenues across its physical retail segments—which include Amazon Books stores, Amazon Go stores, and others—physical store sales tipped over $17 billion in 2019.
Meanwhile, Amazon also owns gaming streaming platform Twitch, which it acquired for $970 million in 2017. Currently, Twitch makes up 73% of the streaming market and brought in an estimated $300 million in ad revenues in 2019.
Despite the flood of online orders due to quarantines and social distancing requirements, Amazon’s bottom line has suffered. In the second quarter of 2020 alone, it is expected to rack up $4 billion in pandemic-related costs.
Yet, at the same time, its customer-obsessed business model appears to thrive under current market conditions. As of July 1, its stock price has spiked over 51% year-to-date. On an annualized basis, that’s roughly 100% in returns.
As margins get squeezed and expenses grow, is Amazon’s growth sustainable in the long-term? Or, are the company’s strategic acquisitions and revenue streams providing the catalysts (and cash) for only more short-term success?
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