What Is a Bank and How It Ended Up Fitting in Your Pocket
#WTF_Basics
You walk past one every day without paying attention. A building with a glass front, an app on your phone, a notification telling you your salary has landed. And yet, behind that routine sits one of the oldest institutions in our civilisation. So before we talk about digital banks, apps and neobanks, it is worth answering the basic question: what is a bank, and why does it still exist after thousands of years? The answer is simpler than you imagine, and it has to do with a table.
What a bank is as an institution
Officially, a bank is that licensed institution which accepts deposits from the public and grants credit (loans). Unofficially, it is something more interesting: an organisation, a mechanism, that moves money through time and through space.
Through time, because it takes the money of those who have a surplus today and gives it to those who need it today and will pay it back tomorrow. Through space, because it allows an amount to travel from Athens to Berlin without any physical movement.
Three functions and one promise
Every bank, from antiquity to the present day, essentially performs three functions:
- It safeguards money: It accepts deposits (funds) and takes on the responsibility of returning them intact.
- It lends money: It lends those funds to households and businesses, carrying the risk and cost of them not being returned.
- It pays: It executes transfers and payments, keeping the ledger of who owes what to whom, and where.
All three rest on a single promise: that when you ask for your money, it will be there. That promise is not a technical matter, it is a matter of trust. Which is why banks are among the most strictly supervised organisations that exist.
How a bank makes money
First, the basic question: where does a bank draw its money from? Your deposits are one source. The second is the European Central Bank. Every credit institution in the euro area has access to the ECB’s refinancing operations and can borrow from it against eligible collateral (usually bonds). The reverse also applies: it can place its surplus liquidity in the ECB’s deposit facility and earn interest with no risk whatsoever.
This is where the key lies. The ECB’s rates are the price of money for the entire system. Since 17 June 2026, the ECB pays 2.25% to banks that leave money with it and charges 2.40% to those that borrow from it. So every rate you see, on your deposit or on your loan, is built on top of those two numbers. In case you are wondering whether this is the much-discussed Euribor, it is not. The basic difference is that the ECB sets the official policy rates for steering the economy, whereas Euribor is a floating market rate showing what commercial banks charge one another.
Every bank’s profit comes from the spread: the difference between the rate at which the bank raises funds and the rate at which it puts them to work. Hypothetically: if it pays you 2% on a €10,000 deposit, that comes to €200 a year. If it lends the same €10,000 at 6%, it will collect €600. The €400 difference is its gross profit margin. Out of that it pays operating costs, losses on loans that are not repaid, and at the end, profit.
The second source of revenue: fees, which one can think of as administration charges on various functions, such as for example the running costs of business accounts.
A short history of banking
From temples to the marketplace
The first banks were not banks. They were temples. In Mesopotamia, thousands of years BC, the sanctuaries operated as warehouses for grain and precious metals: the safest thing a society had, because theft from a temple was considered theft from God and cost more (usually after death) than theft from a man.
In ancient Athens the profession acquired a name, and the name came from a piece of furniture. The banker worked on a four-legged table (Greek: trapeza) in the marketplace. (In Greek, trapeza comes from tetra-, four, and peza, meaning foot; it is still the modern Greek word for “bank”). There he exchanged the coinage of different cities, accepted deposits and granted loans. In the 4th century BC, Pasion, a former slave, became one of the wealthiest men in Athens doing exactly this work.
The bench, the bill of exchange, and the broken bench
The story repeats itself in Renaissance Italy, following exactly the same pattern. Florentine financiers worked on a bench – banco, banca – and from there came the word bank in every European language. When one of them went bankrupt, his bench was broken: banca rotta. Hence the word bancarotta, bankruptcy.
That era produced two inventions that are still with us. The first was the bill of exchange: a merchant deposited money in Florence and collected it in Bruges, without transporting a single coin. Money travelled as information. The second was double-entry bookkeeping, codified by Luca Pacioli in 1494, which remains the language of every balance sheet. There, every financial transaction affects at least two accounts, with an equal debit and credit, ensuring that the accounting equation always stays in balance.
In 1472, Banca Monte dei Paschi was founded in Siena, the oldest bank still operating today, 554 years later.
The birth of central banks
The next leap was institutional. The Bank of Amsterdam was founded in 1609 and the Bank of England in 1694, the first to tie banking to the state and to establish the banknote as a written promise to pay. In Greece, the Bank of Greece began its operations on 14 May 1928, taking on the note-issuing privilege and the role of guardian of financial stability.
When the bank walked out of the building
On 27 June 1967, at a Barclays branch in Enfield, London, the world’s first ATM (Automatic Teller Machine) was installed. For the first time you could withdraw money without speaking to a person and without waiting for the branch to open.
It was the start of a road that never stopped: e-banking in the ’90s, the smartphone after 2007, and finally the European PSD2 directive, which established that your banking data belongs to you and opened the market to new players.
What is a neobank
Which brings us to the present day. A neobank is a bank that was born digital: with no branch network, with no decades-old software (legacy system) weighing on it, designed from the outset for the smartphone screen. You know the main European names: Revolut, N26, Monzo, Starling. In Greece, Snappi became the first Greek neobank with a full banking licence from the European Central Bank, on the proposal of the Bank of Greece.
What changes
Cost and speed. With no branches and no legacy systems, operating costs fall, and this allows for lower or zero charges. Opening an account takes minutes, notifications arrive in real time, and the user experience is the interaction with a modern app.
What does not change
The three functions remain exactly the same: it safeguards, it lends, it pays. And the promise remains the same. A neobank with a banking licence is a credit institution, supervised under the same rules and subject to the same capital requirements.
The check you need to run
Not every app is a bank. Some operate as electronic money institutions (EMIs) or on top of a third party’s licence, which is legal but different. Before you trust anyone with your money, ask two questions:
- Does it hold a banking licence, and which authority supervises it?
- Are your deposits covered by a guarantee scheme? In the EU the limit is €100,000 per depositor per credit institution. In Greece that role is held by the HDIGF (Hellenic Deposit and Investment Guarantee Fund).
And one rule that never changes: no legitimate provider will ever ask you for your personal passwords.
What to take away
The bank is not the building. It never was. It was the table in the marketplace, the bench in Florence, the machine on the pavement in Enfield, and now the screen in your pocket. The furniture has changed many times over four millennia. The functions of safekeeping, credit and payment, however, have stayed the same.
For everyone, the practical conclusion is simple: do not choose a bank based on how nice the app looks, nor on how old the logo is. Choose based on the licence, the guarantee, the fees and what you actually need. The technology is the table. Trust is the job.
About the author
George Tsomidis
George Tsomidis is an Assistant Professor of Mathematical Economics at the University of Ioannina and Senior Advisor at Snappi’s FinTech & AI Lab. His research focuses on behavioural finance and computational economics. He is passionate about making complex financial concepts simple and accessible to a wider audience.
Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.
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