Retail banking is a dominant component of the financial sector, focusing on delivering essential banking services to retail consumers. It encompasses a wide range of services designed to manage personal finances, facilitate transactions, and provide credit facilities. This division represents the bank’s most visible presence, operating through a widespread network of branches that many people are familiar with. Retail banking is centered around high customer volume, aiming to reach as many clients as possible to drive its business.

How do the retail banks operate?

Retail banking provides essential services for consumers to manage their daily financial needs, such as money deposit facilities, loans and mortgages. This segment of banking does not extend dedicated services to corporations and large institutions. Customers typically access these services through bank branches or online portals, ensuring they receive the desired support. The rise of digital banking has significantly increased the demand for retail banking jobs, which now encompass roles such as product managers and fund advisors.

Retail banks also generate revenue through various fees. These include monthly maintenance charges, overdraft fees, fees for wire transfers, demand drafts, file processing charges, and many other service related fees. Operating similarly to other businesses, retail banks manage their resources through customer deposits, securities, and capital from financial markets. Core retail banking services include current and savings accounts, which allow customers to securely deposit funds and earn interest. Additionally, retail banks provide credit services to individuals and small businesses for significant purchases such as homes, cars, and equipment. Retail banks earn interest income on these credit facilities which is the source of revenue generation. This credit not only supports personal and business growth but also contributes to overall economic development.

What are the products and services offered by retail banks?

Retail banking offers a range of essential financial products and services, including:

• Savings account
• Current account
• Term deposits
• Loans
• Bank cards (credit card and debit card)

Here’s a brief overview of each of the products:

Savings account – A savings bank account allows you to deposit money into a bank branch or ATM and earn interest on your balance. It is designed for personal use, enabling you to manage expenses like transfers and bill payments. Access to your savings account is available through online and mobile banking platforms.

Current account – Primarily for business owners, a current account facilitates frequent transactions. It supports unlimited deposits and withdrawals, provides pay orders and cheques, and often includes overdraft facilities. This account type is ideal for managing daily business operations.

Term deposits – Term deposits include fixed deposits and recurring deposits with competitive interest rates. These accounts are straightforward to open and may also offer tax-saving benefits by reducing your taxable income.

Loans – Retail banks offer various loan types, such as personal, home, and auto loans. The loan amount and repayment terms vary depending on the type of loan facility. Interest is charged on the borrowed principal, and banks typically provide between 70% to 100% financing based on the loan and eligibility of the customer.

Cards – Retail banks issue debit cards for easy access to funds, enabling transactions, bill payments, and ATM withdrawals. Additionally, many banks offer credit cards, which allow for flexible spending and borrowing.

How the retail banks important to a country’s economy

Retail banking performs several key functions that support both individual customers and the broader economy:

1. Facilitates financial inclusion

Financial inclusion refers to the delivery of banking services to masses including privileged and disadvantaged people at affordable terms and conditions. It is an important priority of the country in terms of economic growth and advancement of society. This enables to reduce the gap between rich and poor population. Retail banking is instrumental in bringing a variety of banking services to the general public encompassing the urban and rural areas of the country. It ensures that irrespective of financial status, an individual must have access to basic financial products and services including deposits, loans, and other payment services.

2. Securing deposits and providing credit

Retail banks provide a safe environment for depositing money and valuable financial assets. By offering competitive interest rates and ensuring the security of deposits, banks encourage individuals to store their money in these institutions rather than keeping it at home. Retail banks also extend credit to customers based on their creditworthiness. This includes various types of secured and unsecured loans, such as mortgages, auto loans, gold loans and personal loans. Access to these credit facilities allows consumers to make purchases and investments now while paying over time, which helps stimulate economic activity by increasing liquidity.

3. Promote financial management

Retail banks encourage customers to manage their finances efficiently.

• Retail banks help customers budget their income and expenses in a proactive manner through tailored budgeting messages and service suggestions based on transaction history and customer profiling.

• It also enhances the understanding of basic investing principles. By helping customers understand their possibilities to invest and indeed, how basic investing works, it then opens the door for banks to offer the means to invest, by introducing their own investment options and/or offering personalized lending options to fund investment.

• It plays an important role by assisting the customers with financial planning. It ensures that consumers are being offered financial guidance regarding their investments and insurance needs.

4. Enhancing monetary flow

Retail banking facilitates the flow of money within the economy. Loans from one bank become deposits at another, which are then used to extend further credit. This continuous cycle of lending and depositing helps maintain a healthy level of money supply in the economy.

5. Supporting economic revitalization

Retail banks are pivotal to economic recovery by offering affordable loans, which enable individuals and businesses to engage in productive activities such as manufacturing. This access to credit fuels economic growth and revitalizes markets. Additionally, retail banks help implement government schemes, extending financial services and benefits to even the most remote areas.

Final thoughts

Retail banking is paramount for the economic stability and growth of individuals and communities. It provides essential financial services, including savings accounts, loans, and payment methods, to the general public. By offering access to credit, retail banks support personal spending, business investments, and economic activities, which in turn drive economic development.