The modern banking system is a key element of the financial market, which ensures the regulation of money flows. However, the functions of banking that we are familiar with today were not formed immediately. The stages of development of this industry are closely related to economic growth, trade and social needs. Below we will consider how the evolution of banking took place: from the first primitive operations to the creation of a full-fledged system that we know now.
How did the banking profession begin?
History of the banking system indicates that the first financial transactions were carried out as early as 2300 BC. At that time, the function of banks was performed by organizations that owned significant reserves of valuables - furs, precious stones, coins and bullion of precious metals. The main subjects of such activity were temples and trade associations, and the main operation was usury - loans at interest.
Moneylenders lent their wealth, usually with collateral in the form of the borrower's property. Land, livestock, or crops could serve as collateral. Another common practice was to conduct exchange transactions, which were considered an important component of trade relations. The lack of a single currency and limited production encouraged merchants to exchange goods. For example, furs purchased in one country could be exchanged for leather in another, and later for barrels of wine.
The characteristic features of banking at that time were:
- lack of centralization - each moneylender acted according to his own rules;
- unregulated set of financial transactions;
- the use of various types of "currency";
- high interest rates—sometimes as high as 300%.
Moneylenders performed other financial functions: storing valuables (analogous to modern deposits), providing financial advice, or conducting transactions on behalf of clients.
The first banking houses worked with government agencies, accounting for taxes or revenues and distributing them to the needs of the country. They could also act as creditors on behalf of the state or manage debts.
How the first banks appeared?
Until the Middle Ages, banking remained only a set of individual transactions. However, in the 13th and 14th centuries, a more systematic approach began to take shape. It was then that the term "bank" appeared, which comes from the Italian word banco, meaning "bench" or "office".
Italy became the center origin of banks, since its geographical location ensured active international trade relations between Europe, Asia and Africa. The rise of the economy contributed to the emergence of banks as institutions that began to perform new functions:
- Interest-based lending. Under pressure from the church, which condemned usury, interest rates were lowered. Usurers justified their income by insurance risks and currency fluctuations.
- Currency exchange. Shopping malls housed money changers who converted coins of different denominations and weights.
- Storage of valuables. Due to the risks of robberies, merchants began to actively use deposits for the safe storage of their funds.
- Trust management of property. Representatives of the nobility transferred their assets to banks in order to receive additional income.
- Management of public finances. Banking institutions exercised control over the treasury and cash flows.
Despite prohibitions and persecution by the church, banking continued to develop, acquiring the features of the modern financial system. History shows that the key to the emergence of banks was the demand of society for the preservation of capital, the exchange of currencies, and the convenience of making payments.
Who created the first bank?: history of origin and development
The history of the emergence of formal banking institutions dates back to the 12th century. It was then that a group of moneylenders united in an organization called the Society of St. George, which became the prototype the oldest bank in the world. They provided the Genoese Republic with a significant loan, effectively financing military campaigns in Algeria and Tunisia. In return, the society received the privilege of collecting taxes from the population, as well as the right to accept the property of private individuals for safekeeping in the form of deposits.
Official regulation of banking was established later, in 1318, when the first “Banking Law” was passed in Venice. This document granted financial institutions the right to make monetary payments and provide other services to customers. Thanks to this, banks began to provide loans not only to private individuals, but also to the aristocracy and government structures.
However, the banking system of the time had numerous shortcomings. In particular, financial institutions lacked mechanisms for enforcing debt repayment. Many banks in Venice collapsed precisely because they were unable to repay the borrowed funds. Where did the first bank appear? state-owned? In 1584, the first state bank was established - Banco della Piaza de Rialto, the decision to open which was made by the Venetian Senate.
History and development of banking in Ukraine
Ukraine is a state that, unfortunately, did not inherit wealth or a developed infrastructure from previous state-political entities. We do not depend on income from resource rents or bank interest. Instead, our country inherited a difficult economic legacy that it had to overcome from the first years of independence.
The first bank in Ukraine appeared on October 20, 1868 in Kyiv. It was called Kyiv Private Commercial Bank. But only in 1991 did Ukraine begin its difficult path to financial independence. The independence of the hryvnia, as well as the formation of the financial system, became the basis of the sovereignty of the state.
1991: Creation of the National Bank of Ukraine and the beginning of an independent banking system
After the adoption of the Declaration on State Sovereignty of Ukraine on July 16, 1990, the need arose to create its own financial system. On March 20, 1991, the Verkhovna Rada adopted the Law "On Banks and Banking Activities", according to which the National Bank of Ukraine became the central issuing body of the state, replacing the Ukrainian Republican Office of the State Bank of the USSR. This day is considered the date of its foundation First National Bank NBU and the official start of the country's independent banking system.
1993: Introduction of the Electronic Payment System (EPS)
On January 5, 1993, the first electronic payment system (EPS) was launched in Ukraine, which revolutionized interbank payments. Already on January 1, 1994, the state completely abandoned paper and telegraphic advice notes, introducing exclusively electronic payments. Despite numerous challenges, including a full-scale war in 2022, the EPS continued to operate stably. In just one year, it provided 363 million transactions for a total amount of 133 trillion hryvnias.
1996: Introduction of the hryvnia into circulation
The monetary reform carried out in September 1996 established the emergence of a new national currency, the hryvnia. The first 1 hryvnia banknote depicted Prince Volodymyr the Great, emphasizing the ancient history of the Ukrainian currency. The logo of the National Bank of Ukraine also echoes the ancient hryvnia, which in the 10th century was a unit of weight in the shape of a rhombus with truncated corners.
2014: Founding of Fondy
Ukrainian fintech company Fondy, founded on November 10, 2014, has quickly become one of the leading international players in the field of electronic payments. The provider currently serves subscribers in 40 countries around the world.
2015: Transition to a floating exchange rate
On February 5, 2015, the NBU took a decisive step by abandoning the fixed exchange rate that had been in effect since the introduction of the hryvnia. Exchange rates began to be formed exclusively according to the rules of a market economy. However, with the outbreak of war in 2022, the central bank temporarily returned to a fixed exchange rate to stabilize the economy.
2017–2018: Introduction of Google Pay and Apple Pay
On November 2, 2017, the Android Pay payment system (later renamed Google Pay) was launched in Ukraine. Less than a year later, on May 17, 2018, Ukrainians gained access to the Apple Pay service, making Ukraine the 28th country where this innovative service was launched. Two years later, Ukraine entered the top ten countries with the most popular Apple Pay, and today it can even be used to pay for public transport.
2019: The Split Law
On September 12, 2019, a law was adopted that divided the functions of financial market regulation between the National Bank of Ukraine and the National Securities and Stock Market Commission. This law significantly strengthened the NBU's ability to ensure the stability of the financial system, adapting it to international standards.
2021: Conditions for open banking
On June 30, 2021, the Law “On Payment Services” came into force in Ukraine, harmonizing Ukrainian financial legislation with the European PSD2 and EMD directives. This paved the way for the introduction of the concept of Open Banking, which increased competition in the financial sector and facilitated the introduction of innovations.
2023: New electronic payment system based on ISO 20022
On April 1, 2023, the NBU launched a new generation of SEP using the international standard ISO 20022, which allowed for payments to be made around the clock. By moving to a new level of technological standards, Ukraine is preparing to integrate with the Single Euro Payments Area (SEPA) and introduce an instant payment service.
Ukraine in the global financial ecosystem
Although Ukrainian statehood cannot boast the oldest banks in the world, Ukraine's modern banking system has become a powerful part of the global financial market, offering innovations and cutting-edge technologies. From the launch of the hryvnia to the introduction of open banking, each stage demonstrates our readiness for development based on European values and standards.
The modern financial landscape
According to a list compiled by S&P Global Market Intelligence in 2021, Chinese banks hold the leading positions in terms of asset size. The top ten largest banks in the world include:
| Name | Country | Asset size ($ trillion) |
| ICBC | China | 5,5 |
| China Construction Bank | China | 4,7 |
| Agricultural Bank of China | China | 4,5 |
| Bank of China | China | 4,2 |
| JPMorgan Chase & Co. | USA | 3,7 |
| Mitsubishi UFJ Financial Group | Japan | 3,2 |
| Bank of America | USA | 3,2 |
| HSBC | Hong Kong | 2,9 |
| BNP Paribas | France | 2,9 |
| Credit Agricole Group | France | 2,6 |
It is interesting that Ukrainian banks did not make it to this top ten, which reflects the current financial distribution of power in the global market.
Banking Innovation and the Future
The banking sector is developing dynamically. Loans are becoming more accessible thanks to a more transparent fee policy. The emergence of new financial products and services, in particular digital platforms for online banking, is changing the usual ideas about banking. Given these trends, it can be predicted that the role of banks in society will only increase, as they are the main tool for managing finances for individual citizens and for states as a whole.
