If you believe that banks only work to provide a space to keep your money safe or offer loans to individuals, there’s a lot more to that. The banking sector is divided into two types; corporate and retail banking. While corporate banks work with companies to provide them with money management solutions on a mass scale like checking accounts, retail banks cater to the need of individual customers by providing savings accounts, credit cards, debit cards, certificates, mortgages, car loans, etc. Banks operate both ways, but if you visit a bank to deposit a check in an individual capacity, you interact with a retail banking service.
What is Retail Banking?
In simple words, retail banking is the face of banking for the general public. When someone visits a bank to deposit money or withdraw, they benefit from retail banking services. There are three main objectives of retail banking:
Objectives of Retail Banking
Deposit
Banks are most commonly used to deposit money and keep it safe. People prefer saving their money in bank accounts to keeping it safe at home because of the increment in that amount over time. While your money will not multiply in your home safe, most banks offer a good annual profit on the money you deposit. Deposits are made in accounts, by certificates, and other financial products.
Credit
Another typical utilization of retail banking is credit. Do you need to buy a new car but do not have enough money? Get a loan from the bank. If you are looking to get a house but are low on finances, your bank will get you one mortgage. Besides providing money solutions to items, you can also take money from the bank through credit cards and pay later. The card limit usually depends on your usual transactions and credit history.
Managing Transactions
With everything becoming digital, you wouldn’t want to carry coins and bills everywhere. Most transactions worldwide are made online nowadays, and banks facilitate them. You can also get cash by swiping your card at an ATM anywhere in the world. Retail banking offers you all merits of selling and buying at the comfort of your home through online transactions.
How is Retail Banking different from Commercial Banking?
Now you might be wondering that all banks give loans and deposit money, so what makes retail banks different from commercial banks?
Retail banking provides individual-level loans to their customers, usually to get a house or a car, but commercial banking gives loans to companies and allows them to grow and hire more people. They commonly cater to small to medium-sized businesses with revenue in millions. However, do not confuse commercial banking with investment banking as they are two different categories.
Functions of Retail Banking
Provide a safe Deposit Space
One of the core retail banking functions is keeping your money at home is susceptible to robberies and loss, and you can avoid this risk by depositing the money in the bank. Banks take your money, keep it safe, and offer you yearly profits. Many people choose savings accounts because of the high return value on the money.
Online Banking
Retail banking services allow you to make online transactions which are the core need in today’s time. You can send money to anyone across the globe if you have a bank account. Many banks do not charge their customers to use the online banking facility, making their lives easy without a cost. Most banks operate worldwide, providing the ease of buying from any part of the world and not worrying about the payment.
Reduces the Chances of Default Loans
Banks are financial institutions that keep enough money for the clients to provide them when they need a loan. These loans are in federally-mandated reserve ratios that ensure that the bank always has a minimum cash amount. This amount is calculated depending on the total deposits to make sure the customer does not suffer in any way.
Offering Competitive Interest Rates
It is common in retail banking to offer competitive interest rates to keep the economy in good health. During economic blooms, retail banks increase the profits by elevating the interest on loans. However, they are again adjusted if needed to accelerate spending by the customer and stimulate economic growth.
Provide more Credit
The loan offered by a bank to a consumer becomes a deposit in some other bank. It provides more loans and credit value to the customers and provides more credit to the shopper, and facilitates the cycle of cash. It also helps increase the number of cash providers in a community.
Better Customer Relationships
When banks interact with the customers directly, they can understand their problems and look for solutions. It builds better customer relationships and enables the banking sector to grow by offering modern solutions to existing issues. While it is not among the fundamental functions of retail banking, it helps banking grow indirectly.
The Bottom Line
Retail and corporate banking are both important sectors, yet retail banking is the most convenient for the commoner. If you make any transaction with a bank individually, you interact with retail banking. Retail banking helps improve money flow and increase customer spending by providing loans and credit considering their history. Retail banking in the face of banking for the public helps people enjoy the perks without having enough money to buy a car or mortgage a house. They allow you to keep your money safe, increase the return and get credit from the bank when needed.
Matthew is a Co-Founder at BusinessFinanceArticles.org. Matthew was a floor manager at a local restaurant in Wales. He lost his job after the pandemic and took initiative to make a team and start the project.
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