What is Retail Banking & Its Functions?

5 mins read
by Angel One

In retail banking, customers interact directly with the bank. It entails a person accessing their savings account, checking their balance, managing their money, and depositing money safely and securely. This sort of banking has a lot to offer its consumers, especially students who want to study or live in another country. This article aims to help you get a better picture of what retail banking means.

Retail banks cater to the general population and have a clear banking exterior. They usually have many branches spread throughout cities to make banking services more accessible to their consumers. By providing credit facilities to consumers, retail banking impacts the rate of liquidity, resulting in economic growth. Retail Banks usually provide credit to customers in the form of house and automobile loans, credit cards, auto loans, and mortgages, among other things. The deposits give all credit that these banks collect from their customers.

Types of Retail Banks

The following are the several types of retail banks:

Large Banks:

These are the banks whose names you’ve probably heard and are familiar with at home. Branches of major banks may be found all across the city.

Small banks:

Sometimes known as community banks, have a lesser market share than major banks. They have several locations and are quick to offer loans.

Online banks:

As the name implies, do not have physical locations. The idea of online banks, though, is to keep fees to a minimum.

Regional Rural Banks:

These are banks that have been created in rural regions to meet the needs of low-income individuals. These banks offer retail banking services and loans to these organisations.

Private Banks:

Typically, these are banks that operate in urban areas and cater to the needs of high-income individuals.

Post Offices:

In certain areas, residents may not have access to traditional banks. The National Postal System provides basic banking services like account opening, savings, recurring deposits, and more in these areas.

Objectives of Retail Banking

The following are some of the aims of retail banking.

Provide consumers with a one-stop-shop experience:

Retail banking attempts to provide a full range of financial services to a wide range of customers in one convenient location. It’s a one-stop-shop for clients who don’t want to switch banks. Accept depositing, credit card disposal, cash management, online banking, debit card, MasterCard, and a variety of other services are among them. The integration of these services in one location provides added convenience to the client.

One of the essential tasks that retail banking plays are to stimulate the economy.

It stimulates the economy by boosting the movement of money between people, resulting in the country’s overall growth and development. The availability of greater monetary services has an impact on voters’ capacity to find work, acquire skills, and get access to educational opportunities.

Provide Consumers with Tailored Services:

Retail banking provides maximum happiness to customers by providing services that are tailored to their needs. It tailors monetary services to people’s abilities and preferences. Customers are happier when they get access to personalised services from their personal bankers.

Improve Market Liquidity:

Another important goal of retail banking is to increase market liquidity. It gives credit facilities to people, allowing them to acquire expensive items with ease. By increasing cash flow, the market’s liquidity situation improves, resulting in more job chances.

Provide Credit at a Reasonable Rate:

People can get credit at a lower cost through retail banking than they can through other financial institutions. It modifies the rate of borrowing in accordance with economic considerations. Interest rates are increased during periods of inflation and then reduced whenever the economy enters a period of depression.

Functions of Retail Banking

The following will help you understand the many functions of retail banking: –

Providing a secure location for cash deposits

Customers can deposit money and other important financial items at a retail bank, which is a secure location. They entice customers to deposit money by promising a higher rate of return and ensuring the safety of their investment. People are therefore encouraged to put their ideal laying cash in financial institutions in order to receive interest.

Providing credits for Spending

These financial institutions provide credit to their consumers based on their credit scores. Consumer spending is facilitated by retail banks’ provision of various sorts of loans, including house loans, vehicle loans, mortgages, and a variety of other products. The availability of credit allows consumers to spend their future profits now, increasing the economy’s liquidity rate.

Finance Management

Customers may manage their money utilising a variety of bank cards and online utility services through retail banking. They may quickly use their money to do transactions utilising online payment systems at any moment. Customers do not need to physically visit their branch and may access their accounts from the comfort of their own homes.

Increases monetary flow in the economy

It contributes to the efficient generation of money in the economy. A customer’s loan from one bank becomes a deposit at another bank. This deposit is now being utilised to extend more credit to a new group of clients. In this way, the loan and depositing cycle continues, resulting in a sufficient amount of money in an economy.

Assists With Economic Revitalization

The retail bank plays an important part in the nation’s economic recovery. It enables a better flow of money in the market by providing individuals with loans at a minimal rate of interest. When individuals have enough money, they can easily carry out manufacturing activities, which results in economic growth.