Retail banking, main features and common services

Oluwatosin Jegede

10 March 2023

Retail banking is a term that we often come across when discussing banking services. Retail banking is a crucial aspect of the banking industry as it involves serving individuals and small businesses. Banks provide various financial services to their retail customers, including loans, deposits, and other financial products.

We will dive into retail banking and discuss its features, common services, and types of retail banks. Additionally, we will explore how retail banks generate income and the difference between retail banking and corporate banking.

Table of Contents

What is retail banking

Retail banking, also known as personal banking, is a type of banking that involves serving individual customers and small businesses. Retail banks offer various financial products and services, including savings accounts, checking accounts, loans, credit cards, mortgages, and investment products.

These banks operate through a network of branches, ATMs, and online banking platforms, making it convenient for customers to access their services.

The main objective of retail banking is to provide personalized and convenient financial solutions to its customers. Retail banks also focus on building long-term relationships with their customers by providing them with excellent customer service and addressing their financial needs.

How does a retail bank generates income

Retail banks generate income through a variety of methods. One of the main sources of income is the interest charged on loans. When customers borrow money from the bank, they must pay interest on the amount borrowed. The interest rate charged on loans is typically higher than the rate paid on deposits, allowing banks to earn a profit.

Another way retail banks generate income is by charging fees and commissions for various services. For example, banks may charge fees for overdrafts, ATM usage, and wire transfers. They may also earn commissions on the sale of financial products such as insurance and mutual funds.

Retail banks also invest in various securities to earn a return on their investments. For example, they may invest in stocks, bonds, and other financial instruments. The returns earned on these investments contribute to the bank’s income.

Credit card transactions are another source of income for retail banks. They earn fees from merchants every time a customer uses their credit card to make a purchase.

Finally, retail banks earn income from foreign exchange transactions. When customers exchange currency, banks may charge a fee or earn a profit from the exchange rate.

By generating income through these various sources, retail banks are able to cover their expenses and generate profits for their shareholders.

Types of retail banks

There are several types of retail banks, each with its unique features and services. Here are some of the most common types of retail banks:

commercial banks: Commercial banks are the most common type of retail bank. They provide a wide range of financial products and services to individuals and businesses, including savings accounts, checking accounts, loans, and credit cards;
community banks: Community banks are small retail banks that typically serve a specific geographic area. They often specialize in providing personalized service to their customers and may offer niche products such as agricultural loans;
credit unions: Credit unions are not-for-profit financial institutions that are owned and operated by their members. They typically offer lower fees and higher interest rates on deposits than traditional commercial banks;
online banks: Online banks operate entirely online and have no physical branches. They offer a wide range of financial products and services, and their low overhead costs often allow them to offer competitive interest rates and fees;
private banks: Private banks cater to high-net-worth individuals and families. They offer specialized financial services like wealth management, investment advice, and estate planning.

Each type of retail bank has its own advantages and disadvantages. Customers should carefully consider their financial needs and preferences before choosing a bank.

Retail banking vs. corporate banking

Retail banking and corporate banking are two distinct branches of the banking industry.

Retail banking involves serving individual customers and small businesses. On the other hand, corporate banking involves serving large businesses and corporations. It focuses on providing financial solutions such as corporate loans, trade financing, and cash management services. Corporate banks also offer specialized services such as investment banking, mergers and acquisitions, and capital market transactions.

One key difference between retail and corporate banking is the transactions’ size. Retail banking transactions are typically smaller and more frequent than those in corporate banking. Retail banks deal with a large number of small transactions, while corporate banks handle fewer but much larger transactions.

Another difference is the level of risk involved. Corporate banking involves dealing with larger and more complex transactions, which may involve greater risk. Retail banking transactions are generally considered to be lower risk.

In terms of revenue, corporate banking generates higher revenue than retail banking, but it also requires a greater level of expertise and resources to manage the complex transactions involved.

Retail banking plays a crucial role in the banking industry

Retail banks offer a wide range of financial products and services, including savings accounts, checking accounts, loans, credit cards, and mortgages. These banks generate income through various sources such as interest on loans, fees and commissions, investments, credit card transactions, and foreign exchange.

There are several retail banks, each with unique features and services, including commercial banks, community banks, credit unions, online banks, and private banks. Retail banking differs from corporate banking in terms of the focus, size of transactions, and level of risk involved.

By providing personalized financial solutions and excellent customer service, retail banks help promote economic growth and development and build long-term relationships with their customers.