What is Retail Bank?
In retail banks provide financial services to the consumers as individuals, not businesses. Their financial services are focused and safe. This banking system allows consumers to have secured access to their deposit and credit. Retail banks cover banking facilities like personal loans, cards, mortgages, checking and savings accounts, certificate of deposit (CDs). This type of bank is community/ division based so this type of bank is well-known among local people. One of the finest examples of retail banking is fintech companies. They try to serve their consumers as individuals and the industry is growing at a rapid pace which has made modern banking easier.
Retail Banks – Definition, Types, Features, Products, and Income
Understanding Retail Banking
Retail banks are more of a one-stop show for consumers where they’ll be able to find all the banking services that they need. It makes it easier for the consumer to keep their savings safe Within the bank’s wall. The core product for retail banks is the savings account, checking account, and the loans they pay. the consumer can pick any of the accounts and deposit their money to the bank and bank provides them interests so the depositors are making money without even doing anything.
Retail banks are widely popular for their simplicity and efficiency. They have a small number of consumers. Since they serve their consumers individually not business-wise, the experience is more appealing to the general public. It covers all the banking services that are needed. Even though one customer might not use all of the services, they still get treated equally as the big ones. It provides loans to new entrepreneurs and small businesses with the depositors’ money. The small business and entrepreneurs take the loan and expand their business and pay off the back with interest rates.
Banks utilize the branch banking system and online banking system the most these days. Understanding this type of system seems tough from the outside but can be understood properly by any consumer. They provide services like ATM, mortgage, and credit cards which allows the consumers to have the flexibility to do what they want. Home loans and automobile loans are one of the finest products that retail banks provide. This makes the retail banking system seem like the system is about the consumers’ well-being only. But let’s be real here, every banking system wants their share of the profit business at the end of the day, it’s a business; not a charity organization. The interest rates on these types of loans are quite expensive and the consumers sometimes have to face some harsh rules implied by the banks.
Types of Retail Bank
There are three types of retail banks.
- Commercial Banks provide different services to consumers. This type of banks’ main way of earning profit is the interest rate which varies from their different services.
- Credit Union act and serve just like commercial banks. But the biggest difference is that a credit union provides services on a narrow scale. It is a non-profit organization and the depositors of this type of bank are the shareholders of it.
- Certain Investment Funds serve all the services just like commercial banks. This type of institution allows its consumers to get loans. They also help investors to fund their money to small businesses.
Common Features of Retail Bank
Even though the banking sector is extremely saturated, this banking system has some defined features. They are a bit different than others for the services they provide. The loans they provide are for various purposes and they help the consumers to a greater extent. People who want a loan to build a house can take home loans. The ones who want a loan buy a car can go for an auto loan. The safe deposit boxes keep valuable properties of the owner within the bank’s wall. Unsecured personal loans give consumers the flexibility to use the money in any sort of legal task.
How Retail Banking Generates Income?
Retail banks are solely designed to generate income. The drill here is simple. Banks conduct their business with their customers’ money. They take depositors’ money and then use it to gain profit. Banks can never make a profit if there’s no deposit. This type of bank is making more than everything that is given as an interest in the savings accounts holders. The money goes to different investments and loans. The banks play the role of one’s financial manager here where they take your money and invest it in a profitable place. Retail banks are quite easy to understand because the only path they aren’t generating a big amount of money is from interest rates.
Apart from that, there are fees that one has to pay for the services they are getting. ATM fees, online banking fees, application fees, commissions, and whatnot. Even though the fees are little from one consumer, think about how big it’ll get if we bring more hundred people in? It’ll be massive and the impact is going to huge on the income statement. These fees make sure that business generates regular revenue. They also charge penalty charges for some mishaps or mistakes of the consumer.
Products and Services of Retail Banks
Retail bank products and services are the basic ones that are provided by the other banks. But what makes this type of banking different, is the way it conducts its business. provides its consumers the checking and savings accounts. Mortgages and loans are one of the prime products of private banks. They provide automobile loans, unsecured personal loans, and home loans which show the variety of services they provide. Each of the loans serves different purposes. Automobile loans are for car loans, home loans for building houses, and personal loans are usually made to entrepreneurs. Since personal loans are unsecured, they don’t have any strict guidelines. Some of the retail banks provide insurance services to consumers and private banking services. Remittance collection and converting foreign currency is one of the key products of this type of banking. It has certificates of deposit and credit cards for its consumers. All of the processes are easy and understandable to consumers.
Bottom Line
Retail banks provide small loans to grow opportunities for entrepreneurs and small businesses. This type of banking process is getting extremely popular these days for their online services. It is easy to understand. It makes this banking process more preferable to the consumers’ point of view. For all the reasons retail banks as an industry itself, are growing rapidly.
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Resources
- https://www.investopedia.com/terms/r/retailbanking.asp
- https://www.bms.co.in/what-are-the-characteristics-of-retail-banking/
- https://corporatefinanceinstitute.com/resources/knowledge/finance/retail-bank-types/
- https://www.moneyunder30.com/how-banks-make-money
Ratul is one of the contributors to The strategy watch. As a business insights analyst, most of his writings concern business insights and business strategies for a better understanding of the business world.