What is retail banking?
Retail banking, also called consumer banking or personal banking, is banking that provides financial services to individual consumers rather than to businesses. Retail banking is a way for individual consumers to manage their money, access credit and deposit their money securely.
Services offered by retail banks include checking and savings accounts,mortgage loan, personal loans, credit cards andcertificates of deposit (CDs).
Key learning points
- Retail banks provide financial services to individual consumers rather than large institutions.
- The services offered include savings and checking accounts, mortgages, personal loans, debit or credit cards, certificates of deposit (CDs) and more.
- Retail banks can be local community banks or branches of large commercial banks.
- Nowadays there are manyfintechcompanies can offer the same services as retail banks via internet platforms and smartphone apps.
- While retail banking services are aimed at individuals in the general public, business banking services are only offered to small or large companies and legal entities.
How does retail banking work?
Many financial services companies strive to be the one-stop-shop retail banking destination for their individual consumers. Consumers expect a variety of basic services from retail banks, such as checking accounts, savings accounts, personal loans, lines of credit, mortgages,Debit Card, credit cards and CDs.
Most consumers use local banking services, which provide on-site customer service for all banking needs of a retail customer. Financial representatives provide customer service and financial advice through local branches. Financial representatives are also the primary contact for subscription requests regarding credit-approved products.
While a consumer may not use all of these retail banking services, the primary service is onecontrolInsavingsaccount to deposit money into. This is a common, secure way for individuals to store their money.
Moreover, this allows them to earn interest on their money. Most savings accounts offer rates based onFed Funds-tarief. Checking and savings accounts also come with a debit card, so you can easily withdraw money and pay for goods and services.
Retail banks are also a major source ofcreditfor individuals. They offer consumers credit to purchase major items such as homes and cars. This credit extension can take the form of a mortgage loan,car loan, or credit card, and is an important facet of the economy it providesliquidityfor ordinary consumers, allowing the economy to grow.
One of the biggest trends in retail banking today is the shift to mobile andonline banking. Specifically, banks are adding more tools and features, such as the ability to temporarily hold cards, view recurring charges or scan a fingerprint to log into an account, to retain their existing customers and attract new ones.
How a retail bank generates revenue
A retail bank holds the cash deposits of its retail customers. It then uses these deposits to make loans to other customers. The Federal Reserve previously required all banks to hold 10% of their demand and monitor deposits internally overnight – this was changed to 0% in March 2020.
This is known asreserve requirementand is seen as a security and liquidity measure. This means that the remaining deposit can be lent out. Banks charge a higher interest rate on these loans than on customer deposits, which is how banks generate revenue.
In the banking industry, consumers also rely on the Federal Deposit Insurance Corp. (FDIC) to insure their bankborg. As of March 31, 2023, the FDIC insured 4,672 institutions, commercial banks, and thrifts. The total amount of FDIC-insured assets was $23.72 trillion, and the total amount of insured loans and leases was $12.212 trillion.
Types of retail banks
Retail banks come in all shapes and sizes, from local community banks, which are small and locally managed, to the retail banking services of large, global investment banks such as JPMorgan Chase and Citibank.
As of March 31, 2023, the five largest U.S. commercial banks by assets were:
- JPMorgan Chase
- Bank of America
- Citibank
- Wells Fargo
- American bank
All these banks offer retail banking services, which make up a large portion of their revenues.Credit unionsis another type of retail bank that operates as a nonprofit cooperative in which members pool their assets to provide loans and other financial services to other members.
Credit unions typically offer better interest rates to their members because they are not profit-seeking business entities, and they do not have to pay corporate taxes on any profits.income.
Extensive services in retail banking
Banks are expanding their product offering to offer a greater variety of services to their retail customers. In addition to basic retail banking accounts and customer service from financial representatives from local branches, banks are beginning to offer teams of financial advisors with an extensive product offering, investment services such as wealth management, brokerage accounts,private banking, Inretirement planning.
In the 21st century, a shift to internet banking has also broadly expanded the offering for retail banking customers. Several banks now offer online services to their customers exclusively through the Internet and mobile applications, reducing the number of times a customer has to go to a local branch to transact business.
In addition to traditional banks that offer online services, many new onesfintechbusinesses have flourished, offering similar services more easily and often at better prices because they don't have to incur the costs associated with traditional brick-and-mortar bank branches. Examples of these banks are N26, Monzo andCarillon.
Remark
A Chase survey published in early 2023 found that consumers overwhelmingly want to manage their banking activities in one place and prefer to use their mobile apps to do so. 87 percent of respondents said they use their banking app at least once a month or more. They monitor account balances and deposit checks via their smartphones and can even apply for a mortgage.
Retail banking versus business banking
While retail banking services are offered to individuals in the general public,business bankservices are only offered to companies and businesses. The range of products and services is also different: Retail banking is customer-oriented and corporate banking is business-oriented.
The financial value of transactions is comparably higher at corporate banks than at private banks. The source of profit is also different: the difference between the interest margin of borrowers and lenders is the main source of profit in retail banking, while the source of profit in corporate banking consists of interest and fees on the services provided.
Corporate banks offer companies the following services:
- Loans and other credit products
- Cash management and cash management services
- Equipment lending
- Commercial properties
- Trade finance
- Employer service
Some commercial banks have that tooInvestment bankbranches that offer related services to their corporate clients, such as asset management and securities insurers.
What are some characteristics of retail banking?
Retail banking aims to help consumers manage their money by giving them access to basic banking services, a source of credit and financial advice. The general public can access a variety of services through a retail bank, including checking and savings accounts, mortgages, credit cards, foreign currency and money transfer services, and car financing.
What is an example of a retail bank?
US. Bank and Bank of America are two examples of retail banks because they offer consumer banking products such as checking and savings accounts.mortgage loan, personal loans, credit cards andcertificates of deposit (CDs).
What is the difference between commercial banking and retail banking?
Retail banks provide deposit, access and lending services to individuals. Commercial banking is another name for corporate banking, which offers banking services to companies, governments and other institutions. While retail banking offers its services to people for personal use, commercial banking serves institutions.
In short
Retail banks offer a range of products and services to private customers. When people think of a bank, they usually think of a retail bank. There are bank branches in every city across the country that make banking services available to the public.
The most common services offered by retail banks are checking and savings accounts, mortgages, personal loans, credit cards and certificates of deposit (CDs).
