What is Retail Banking: Types, Services and Benefits (2024)

Retail banking is the services a financial institution provides to its consumers who are not financial organisations. Businesses, entrepreneurs,corporations or other banks are excluded from retail banking. Let’s take a closer look at retail banking regarding what it is, how it operates, its purpose and services. Read on!

Retail banking offers a host of personal finance products and services to individual customers

What is Retail Banking?

Retail banking, also known as consumer banking or personal banking, offers financial services to individual consumers rather than enterprises. Customers can manage their money, get credit, and deposit money safely and securely when via retail banking services.

In the United States of America, commercial banks are also called retail banks, and investment banks can only invest money in market operations.

Since this demarcation was done away with in the 1990s, commercial banks now handle deposits and loans from corporations and other large businesses. In contrast, retail banks handle deposits and loans for regular consumers.

How does Retail Banking Work?

Retail banks offer a wide range of services to the general public, such as bank accounts,fixed deposits, credit and debit cards, loans, etc. These services help people efficiently manage their finances. Retail banking services, like deposits and withdrawals, can be done both online and at the bank branch.

Online retail banking has made it easier for individual consumers to avail of home loans, personal loans, car loans, open fixed and recurring deposits, transfer money, etc. However, the range of services and products offered could vary from bank to bank.

Example of Retail Banking

Let’s say you are going to a bank with the sole intention to deposit money. In the bank, you come across a bank representative. The representative tells you some of the lucrative investment schemes available. You get impressed and you invest a certain sum in the scheme. Simultaneously, the representative tells you about a senior citizen FD scheme. Since, FD interest rates are higher than that of normal FD schemes, you open an FD account for your parent or any relative.

All these facilities or services fall under retail banking.

Types of Retail Banks

The following types of retail banks can be categorised under them:

1. Large Bank

These are well-established banks having a national presence. Retail consumers trust these banks because of their prominence and the variety of services.

2. Community Bank

Community banks offer loans and depository services and mostly operate in a smaller geographical area.

3. Online Bank

Online banks offer digital-only products and services. You can access their products via computer or mobile device.

4. Regional Rural Bank

These banks were set up in rural areas to serve the needs of people living in rural areas. Such banks are mostly present in Tier 2 , Tier 3 and Tier 4 cities.

5. Post Office

Post office offers depository and other savings schemes. People living in the rural area prefer post office services due the age-old trust built by the institution.

Types of Retail Bank Services and Products

Some of the services and products offered by retail banks include:

1. Bank Account Opening

Checking accounts, savings accounts, and retirement accounts are just a few of the different types of bank accounts that you can have via retail banking services. Certain banks let you open a zero-balance savings account where there’s no cap on minimum account balance.

2. Deposits

You can open a fixed deposit (FD) or recurring deposit (RD) account via retail banking. FDs are a preferred choice for risk-averse investors due to assured returns and interest rates that are higher than savings accounts. NRIs also have the option to open NRE, NRO or FCNR accounts.

3. Loans

You can get home loans, personal loans, two-wheeler loans, auto loans, etc., via retail banking.In case you were looking for a home loan or an instant personal loan in a 100% paperless way, download the Navi app.

4. Cards

Debit cards and credit cards are the two most popular cards offered by most retail banks in India. Other than these, there are Prepaid cards, No-cost-EMI cards, etc.

5. Investment and Insurance

Retail banks also offer other investment avenues like mutual funds, NPS, etc. Similarly, some retail banks also have an insurance arm through which you can buy a general health insurance policy.

6. Other Services

Other services include money transfer, account balance check, issuing cheque books, setting up auto debit or standing instruction to pay EMIs, card upgrade request, utility bill payment, bancassurance, safe deposit lockers, demat account, demand draft, etc.

How do Retail Banks Generate Income?

Retail banks receive money from their customers’ deposits. These banks use the deposited funds from clients to lend money to clients who want a loan at a higher interest rate on the principal amount compared to the interest rate it offers to depositors. This difference in interest rate spread is how retail banks make profits.

Retail banks also generate income from fees on various services, including account opening charges, brokerage fees, loan processing fees, credit card charges, etc.as well as from their investments and services in the capital markets.

In India, the Reserve Bank of India (RBI), regulates the functioning of all retail banks. It has the power to regulate the funds that retail banks are required to hold as deposits with them, which ensures that anyone can make withdrawals. In addition, it provides funds for banks for their daily functioning.

Retail Banking vs. Corporate Banking

Retail banks are customer oriented whereas corporate banks cater to businesses. The various products these two banks offer their consumers are also very different. The retail bank provides services to individuals and small businesses but not to large enterprises.

In retail banks, financial transactions are much smaller than in corporate banks and they make most of their profits by creating a margin between the interest it receives from borrowers and the interest it pays to depositors.

On the other hand, corporate banks make profits primarily by charging interest and fees for the services they provide to large businesses. These banks also provide investment banking services to the general public, as well as asset management services.

Benefits of Retail Banking

Here are some of the benefits of retail banking:

1. Offers individual customer services with the help of a relationship manager
2. Multiple products and services under one roof – from deposits to loans
3. Deposits like FD offers guaranteed returns
4. Innovative products that can be accessed easily via netbanking
5. Home to thousands of banks and NBFCs
6. Access personal finance products from anywhere, anytime

Final word

Retail banking gives access to a host of products and services to regular customers. You can use such services if you need a loan, want to open an account, get a credit card, set up auto debit for various purchases or invest to reach your financial goal. Every retail bank has its App, which you can download and get all banking services and products at your fingertips.

In case you need a cash loan to meet a financial urgency or invest in mutual funds or get health insurance at low premiums, do it in just a few steps with minimal documentation. Just download the Navi App and apply now!

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

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This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.