Retail banking means that the bank's basic services and products are only available to individual customers. The primary focus of retail banking is to help individuals and their small businesses, rather than large corporations. Retail banking started in the 1920s, but did not succeed because banks were not protected by legislation and regulations during that period. It created a major problem in the stock market, causing investors to lose their money. Investors were unaware that their savings were being used by the bank as an investment and if something went wrong, there was no way to get their money back. The decade of the Great Depression resulted from the stock market crash, the collapse of world trade and the negligent actions of the banks. To solve the problem of the bank's failure, Franklin D. Roosevelt created an insurance company known as the Federal Deposit Insurance Corporation to protect the investors' money in the bank. It gives comfort that their money is well protected by law and has a security guarantee.
Retail banks are important for everyone because they make life easier in terms of money and asset management. A retail bank allows a person to access and store their money without fear of losing it. Paying off debts or other transactions also becomes easier thanks to the credit and debit cards that banks offer. The credit cards offered by these banks are also an important factor when applying for home loans, car loans and personal loans.
Below are the benefits of using a retail bank:
- Safe and Secure Accounts:Banks are under the protection of the Federal Deposit Insurance Corporation (in the US) and the Financial Services Compensation Scheme (in the UK), which guarantees the safety of accounts.
- Loan: Retail banks accept loan applications, whether for personal loans or real estate.
- Card:customers are provided with a debit card and credit card to give customers a smoother transaction and access to their savings without going to the physical bank.
- Good credit scores:By using the credit card, customers can use it to build a good credit score to apply for loans in the future.
- Investment:Certificates of Deposit are available for the account holder to store their money for a specified period of time at higher rates.
- Transparent:Bank accounts can be easily monitored as it is transparent to the customer through online banking or passbooks showing the user's cash deposits and withdrawals.
What is retail banking?
A retail bank is a type of bank that caters to a person's basic banking needs. It does not entertain large companies, corporations or complicated transactions. Their financial assistance is only for individuals or families. These banks are also not limited to physical branches, but also offer online banking via their website and apps. As Mr. Jim Marous has said, “Financial institutions must be able to provide an easy-to-navigate, seamless digital platform that goes far beyond a miniaturized online banking offering.” Now that these platforms are available to users in their own homes, it will be easier to access their savings and enjoy smoother transactions. The main function of retail banks is to provide basic assistance through customers' money and wealth management and to provide loans that help people fulfill their financial choices.
What is the history of Retail Banking?
In the 1920s, retail banking was already a fact. It already offers its services to the public, but what it lacks is security. Retail banks are unregulated these days, which is bad because customers' money is not safe. The banks also used customers' money to invest for their own benefit, without the customer's knowledge. For the same reason, when the stock market caused a problem that the bank lost everyone's money, they couldn't give it back. To solve this problem, the Federal Deposit Insurance Corporation was created to ensure that depositors' money would be secured and protected. It will also help the banks regulate the banking sector.
How does retail banking work?
Retail banking works by offering services and products to their target group, individual members of the public. Their services and products include bank accounts, certificates of deposit, credit cards, safe deposit boxes, personal loans, housing and transportation. When a user decides to purchase an investment such as a certificate of deposit, he pays a higher interest rate than he receives on his normal savings. Retail banks lend money from depositors, borrowers pay it back over time, plus interest. This way the bank can make a profit.
What are the types of retail banking?
There are three main types of retail banks: commercial banks, credit unions, and savings and loan associations. These institutions offer their customers the same retail services, namely opening a savings account and checking, mortgage on their chosen loans and bank cards.
Below are the three forms of retail banking:
- Commercial banks:Commercial banks offer a wide range of banking services to individuals and even to corporations and large corporations. But commercial banks are considered retail banks because they can offer the same services to their individual customers.
- Credit Union:Credit unions are a smaller institution and non-profit compared to commercial banks. It is run by shareholders who pool their money to offer services to their members. Members can access their savings accounts and other services, such as credit and debit cards, and get a loan.
- Savings and credit associations:The only difference between savings and loan associations and commercial banks and credit unions is that they focus on mortgages. It specializes in home and real estate loans to their customers, but still offers basic banking to their customers.
What services does Retail Banking offer?
There are numerous services that a retail bank has to offer. These services will serve as a guide to the services and products a customer needs. Basic banking needs can be found at a retail bank. The three main services they offer are deposits and checks, mortgages and cards. These will offer their customers the benefits of using a bank, a safe fund and the opportunity to improve their living situation.
Below are the three main services and their definitions:
- Savings and checking accounts:Savings and checking accounts mean that when a user decides to open an account with a private bank, they have access to their money. They can also easily access these accounts through online and banking apps. Interest is also earned on the user's savings when the bank lends his money.
- mortgage loan:Mortgages and personal loans are a good service for a bank. They can support their valued customer financially if they ask the bank for help. This is a great advantage because users can use the money to upgrade their homes or buy cars.
- Credit and debit cards:Obtaining a card from a bank will help users immensely. Credit cards allow users to build credit points by purchasing various goods without cash and by borrowing from the bank. When users use credit cards to their advantage, it would definitely help them in applying for loans. On the other hand, debit cards allow customers to withdraw money from their savings accounts through ATMs in their area.
What is the retail bank interest rate?
A retail bank's interest rates differ depending on the type of customer they want to lend the money to. The definition of interest rate is the bank's rate for lending money for loans, the savings earned in the customer's bank account, and the annual percentage rate. Some borrowers are charged higher fees if their credit score is low. A low credit rating indicates that users have many unpaid bills at the bank. High credit scores give the user an advantage in obtaining a loan due to lower interest rates.
What is the best alternative to Retail Banking?
The best alternative to retail banks would be online banks and neobanks. Netbank and neobanker offer the same services without physical branches. Users can open an account by simply registering online. Their online apps fulfill the need of a user's bank. Savings and transactions can be monitored and secured; Currency exchange is also available. And simply through an online app, users can apply for loans without collateral.
What are the benefits of Retail Banking?
Retail banking has many advantages. Retail banks have stable resources to lend to their customers; interest rates are also sensitive and will change over time depending on interest rates; lower costs of funds allowing them to earn higher profits; excellent customer service that helps their bank grow; partly due to the high productivity level of a retail bank, it helps the economy to have liquidity stability; and through retail banking, every customer will have the opportunity to improve their lifestyle at affordable rates and credit. These reasons for using retail banking will not only benefit each individual but also the economy without inflation.
What are the disadvantages of Retail Banking?
Although there are many advantages to retail banking, there are also disadvantages. The disadvantages of retail banking are: Banks may offer lower savings rates and charge higher interest rates than credit unions. Banks are institutions that make a profit and expect to profit from transactions. Finally, the service level of some banks can be poor in some cases, making it important to choose a bank carefully.
What is the difference between Retail Banking and Corporate Banking?
The differences between retail banking and commercial banking are that they serve different purposes and the types of customers they serve. Retail banking focuses on providing services to private individuals. These customers can open their bank accounts, insurance, investments and manage their assets with the help of a bank. Meanwhile, corporate banking focuses not on independent individuals but on corporate institutions. The customers for corporate banking are large companies and firms.
