Definition
Retail banking, also known as consumer banking, is a sector of the banking industry that directly deals with consumers or individual customers, as opposed to corporations or other banks. It provides a wide range of services such as savings and checking accounts, mortgages, personal loans, debit/credit cards, and certificates of deposit. Essentially, retail banking is the face of mass-market financing transactions for everyday consumers.
Key Takeaways
- Retail banking, also known as consumer banking, is a sector of the banking industry that directly deals with consumers. It provides services such as checking and savings accounts, mortgages, personal loans, debit/credit cards, and certificates of deposit (CDs).
- Retail banking aims to be the one-stop shop for as many financial services as possible on behalf of individual consumers. This is in contrast to wholesale banking, which deals between entities like corporate entities, other banks and financial institutions.
- Retail banking customer-relationships can be nurtured to cross-sell other more profitable financial products. Banks can collect the high-volume of small value transactions to generate substantial profit. Hence, retail banking also contributes significantly to a bank’s profit.
Importance
Retail banking is important because it serves as the face of banking for most consumers, providing essential financial services to individuals and small businesses.
It encompasses a broad range of services including savings and checking accounts, personal loans, mortgages, credit cards, mobile and online banking, and more.
By offering these services directly to customers, retail banks cultivate long-term relationships, foster customer loyalty, and stimulate economic growth.
They also play a significant role in financial inclusion by providing access to finance for a wide demographic, subsequently contributing to a more balanced and inclusive economy.
Additionally, deposits made by customers in retail banks provide a significant source of funding for banks, enabling them to lend to other sectors such as corporate or investment banking.
Explanation
Retail banking, also known as consumer banking, serves as the visible facet of banking structure to the general public, as it provides services to individual consumers rather than businesses or corporations.
Its primary purpose is to provide a wide range of banking and related financial services to meet the diverse needs of individual customers.
It forms a significant part of the business operations for most banks, underpinning a large portion of their revenue and helping establish long-term client relationships.
The activities carried out under retail banking encompass a slew of services such as savings and checking accounts, mortgages, personal loans, debit/credit cards, and certificates of deposit (CDs). Through retail banking, financial institutions essentially offer a secure location for customers to deposit their money, offering interested-based benefits on some of these holdings, and providing the option to borrow money for an array of different personal reasons, not least among those is home ownership.
Retail banking, therefore, is a significant driver of economic activity, shaping and facilitating personal finance management and large-scale purchases, and thus contributing to wealth distribution and economic progression.
Examples of Retail Banking
Checking and Savings Accounts: One of the most common examples of retail banking is the offering of checking and savings accounts to individual customers. Banks like Bank of America or Wells Fargo have millions of customers who have personal accounts with them. These customers can deposit their earnings, withdraw cash, or save money for the future.
Personal Loans: Banks such as JP Morgan Chase or Citibank also offer personal loans to individuals, which is another prominent example of retail banking. These include mortgages for homes, car loans, or personal loans to fund big-ticket purchases or to consolidate debt.
Credit and Debit Cards: Almost all retail banks, including community banks and credit unions like Navy Federal Credit Union, offer multiple types of credit and debit cards to their customers. These cards allow customers to make purchases, pay bills, or withdraw cash. Banks make money through interest and fees associated with these services.
FAQs on Retail Banking
What is Retail Banking?
Retail banking, also known as consumer banking, is the provision of services by a bank to individual consumers, rather than to companies, corporations or other banks. Services offered include savings and transactional accounts, mortgages, personal loans, debit cards, and credit cards.
What services are offered by Retail Banks?
Retail banks offer a range of services which include checking and savings accounts, debit and credit cards, personal loans, certificate of deposits, and mortgages. They also provide services like online banking, mobile banking, and ATM services.
What is the difference between Retail Banking and Commercial Banking?
The primary difference between retail banking and commercial banking is that retail banking is for individuals or the general public while commercial banking is for businesses and corporations. Retail banks cater to the financial needs of individuals by providing personal financial products like savings accounts, checking accounts, loans, and credit cards.
Is Retail Banking only for individuals?
Yes, retail banking is primarily geared towards individuals. They offer a wide range of services and products to help individuals manage their money. That being said, small businesses may also use retail banking services for their operational requirements.
What are the benefits of Retail Banking?
Retail banking offers several benefits including convenience, a wide range of services, customer service, and local branches that customers can visit. Most importantly, they provide options for managing money like saving accounts and investments, which aid in financial planning.
Related Entrepreneurship Terms
- Savings Account
- Checking Account
- Personal Loans
- Mortgage
- Credit Card
Sources for More Information
- Investopedia: This is a reliable source for information about retail banking and many other finance related topics.
- The Balance: An online resource that offers expert advice on retail banking and other financial terms.
- Bankrate: A leading website that provides deep details on topics like retail banking, including its types and purposes.
- Economics Help: This site could help the user understand retail banking in the context of broader economic theories and principles.
