Banks act as payment agents by conducting current accounts for customers, paying cheques drawn by customers in the bank, and collecting cheques deposited to customers' current accounts.
Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds.
Banks lend money by making advances to customers on current accounts, by making instalment loans, and by investing in marketable debt securities and other forms of money lending. A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice.
Traditionally, the most significant method is via charging interest on the capital it lends out to customers. The bank profits from the difference between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities.