Retail Banking (Meaning, Examples) | What is the Role of a Retail Bank?

What is Retail Banking?

Retail banking is services which the bank provides to its individual customers rather than corporates and includes facilities of checking account, savings accounts, debit card, credit card, e-banking services, insurance, investment, phone banking, and consumer lending, etc. The main function of the retail banking includes credit, deposits and the management of the money.

These services are offered to the retail customers and not to the institutional customers like companies, financial institutions, etc. So, it is also known as consumer banking. It is the visible face of banking to the general public and it has branches of the bank which are located in huge numbers in most of the major cities.

Example of Retail Banking

Mr. X is having an account in the bank which is situated in his locality. He has spare $ 5,000 with him. He decided to deposit this amount in his checking account with the bank. So he went to the bank for depositing the $ 5,000 into his checking account. However, when he went to the bank, he was told by the concerned representative in the bank that there is a new scheme launched by the bank for the investment in the retirement plans.

Popular Course in this category

Investment Banking Training (117 Courses, 25+ Projects)4.9 (831 ratings) 117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion

View Course

Mr. X found the plan attractive and decided to invest the money in the retirement plan from the next year. Also, X is planning to purchase a new house in the same locality as presently is living in a rented house. So he inquired about the house loan facilities and the other information required for getting the housing loan. So, with the help of the retail banking, Mr. X was able, to deposit his money, understand about the retirement savings plan and get the additional information regarding the other banking products required by him i.e., housing loan.

Advantages of the Retail Banking

There are several different advantages of the Retail Banking providing the opportunity to the consumers and the bank. Some of the advantages are as follows:

With the help of retail banking, various services are offered to the individuals at one place where the clients will be able to get multiple products of the bank. These services include Checking accounts, Savings accounts, Debit/ATM cards, Credit cards, Money orders, Wire transfers, Mortgages and home loans, Auto loans, Personal loans, Safe deposit boxes, etc.
Retail deposits made by the consumers are stable and they constitute core deposits.
They are the low-cost funds of the bank which gives the better yield to the bank with the improved bottom line. It also increases the subsidiary business of banks.
When there is a demand-driven economy, minimum marketing efforts are involved in running retail banking. Also, it is presumed that the consumer loans have lower risk, so there is less chance of loans becoming the NPA.
It provides affordable credit to the individuals, this fulfills their requirements and increases their lifestyle.
It provides the services to the retail customers which increase the production activity in the economy thereby helping in the economic revival of the nation.

Disadvantages of the Retail Banking

Apart from the advantaged, there are some limitations or drawbacks as well of the retail banking which include the following:

There is a huge volume of the loan accounts in the retail banking which requires regular monitoring. This requires huge spending on human resources. Also if there are no proper follow up of these accounts specially the long term loans then there are high chances that these accounts will become the non- performing assets.
In the present world, the preferences of consumers are shifting from branch banking to internet banking or phone banking.
It creates problems for the branches of the banks who find it difficult to introduce the new products that are based on technology. Due to this, retaining customers is becoming difficult. Also, in some of the cases, the huge investment is made by the banks in the technology but they are unable to exploit them fully.

Important Points

The main function of the retail banking includes credit, deposits and the management of the money. Credit is offered by the retail banks to purchase the house, cars, furniture, etc. Under the deposit function, a safe place is provided by the banks to the individuals to invest their money and in return, the consumer will get the prescribed interest. Lastly, under the money management function, retail banks manage the money of the customer with the help of the checking accounts, debit cards, etc.
With the help of retail banking, various services are offered to the individuals at one place where the clients will be able to get multiple products of the bank.

Final Thoughts

Retail Banking is the major form of commercial banking that provides different services mainly targeting retail customers rather than the corporate clients.
There are several products and services that the retail banks provide and these products are the designing keeping in mind the requirement, the large segment of the consumers.
The various products or services offered by the retail banks include Checking accounts, Savings accounts, Debit cards, Credit cards, Money orders, Wire transfers, Mortgages and home loans, auto loans, etc. Due to this variety of services, retail banking has a large base of the customers and hence, they have a large number of transactions with the small values.
It, therefore, may be the low-cost funds of the bank which gives the better yield to the bank with the improved bottom line. It also increases the subsidiary business of banks.
In present time lending to the corporate clients increases the credit risk and the market risk of the banks whereas market risk may get eliminated in case of the retail banking. But at the same time, there is a huge volume of the loan accounts in the retail banking so they require regular monitoring by the banks.