What Is Retail Banking?

What Is Retail Banking?

Let me explain retail banking to you—it's also known as consumer banking or personal banking, and it's all about providing financial services to individual consumers like you, not to businesses. As someone who's looked into this, I can tell you that retail banking lets you manage your money, get access to credit, and deposit your funds securely.

The services you'll find at retail banks include checking and savings accounts, mortgages, personal loans, credit cards, and certificates of deposit (CDs).

Key Takeaways

Retail banking delivers financial services to individual consumers, not large institutions. You'll get services like savings and checking accounts, mortgages, personal loans, debit or credit cards, CDs, and more. These banks can be local community ones or divisions of big commercial banks. Nowadays, many fintech companies offer the same services through internet platforms and smartphone apps. Remember, retail banking targets the general public, while corporate banking is only for companies and corporate bodies.

How Does Retail Banking Work?

Many financial services companies want to be your one-stop shop for retail banking. You can expect basic services like checking accounts, savings accounts, personal loans, lines of credit, mortgages, debit cards, credit cards, and CDs.

Most people use local branch banking for onsite customer service covering all their needs. Through these branches, financial representatives handle customer service and give financial advice. They're also your main contact for underwriting credit applications.

Even if you don't use every service, the core one is a checking and savings account for depositing money—it's a secure way to store your cash. Plus, it lets you earn interest on your money. Most savings accounts base their rates on the fed funds rate. These accounts come with a debit card for easy withdrawals and payments.

Retail banks are a key source of credit for you as an individual. They provide credit for big purchases like homes and cars, through mortgages, auto loans, or credit cards. This credit extension boosts the economy by giving liquidity to everyday consumers, helping growth.

Important Trend in Retail Banking

One major trend you should know about is the shift to mobile and online banking. Banks are adding features like temporary card holds, viewing recurring charges, or fingerprint logins to keep customers and attract new ones.

How a Retail Bank Generates Income

A retail bank holds the cash deposits from clients like you. It then uses those deposits to lend to others. The Federal Reserve used to require banks to keep 10% of demand and checking deposits overnight, but that changed to 0% in March 2020.

This reserve requirement acts as a safety and liquidity measure. So, the rest of the deposits can be lent out. Banks charge higher interest on these loans than they pay on deposits—that's how they make money.

In banking, you can rely on the Federal Deposit Insurance Corp. (FDIC) to insure deposits. As of March 31, 2023, the FDIC insured 4,672 institutions, with total assets of $23.72 trillion and loans and leases of $12.212 trillion.

Types of Retail Banks

Retail banks vary in type and size, from small local community banks to retail services of global giants like JPMorgan Chase and Citibank.

More on Types

All these banks offer retail services, which make up a big part of their revenue. Credit unions are another type—they're non-profit cooperatives where members pool assets to provide loans and services to each other. Credit unions often give better interest rates since they're not profit-seeking and don't pay corporate taxes on earnings.

Expanded Services in Retail Banking

Banks are expanding their offerings to give you more services. Beyond basic accounts and branch service, they now have financial advisor teams for wealth management, brokerage accounts, private banking, and retirement planning.

In the 21st century, internet banking has grown, with banks offering online services via the web and apps, reducing the need for branch visits. Plus, new fintech companies like N26, Monzo, and Chime provide similar services more easily and cheaply, without brick-and-mortar costs.

Note on Consumer Preferences

A Chase survey from early 2023 shows consumers want to manage banking in one place, preferring mobile apps. Eighty-seven percent use their app at least monthly, monitoring balances, depositing checks, and even applying for mortgages via smartphone.

Retail Banking vs. Corporate Banking

Retail banking serves the general public like you, while corporate banking is only for companies. Retail is customer-oriented; corporate is business-oriented. Transactions in corporate banking are larger in value. Profits differ too—retail makes money from interest margins on loans, corporate from interest and fees on services.

More on Corporate Banking

Some corporate banks have investment banking arms for asset management and securities underwriting.

What Are Some Features of Retail Banking?

Retail banking helps you manage money with basic services, credit, and advice. You can access checking and savings accounts, mortgages, credit cards, foreign currency services, remittances, and auto financing.

What Is an Example of a Retail Bank?

U.S. Bank and Bank of America are examples—they offer checking and savings accounts, mortgages, personal loans, credit cards, and CDs.

What Is the Difference Between Commercial Banking and Retail Banking?

Retail banking provides deposit, access, and lending to individuals. Commercial banking, or corporate banking, serves businesses, governments, and institutions. Retail is for personal use; commercial is for institutional needs.

The Bottom Line

Retail banks offer various products and services to customers like you. When you think of a bank, it's usually a retail one, with branches everywhere making services accessible. Common offerings include checking and savings accounts, mortgages, personal loans, credit cards, and CDs.