Retail banking is the process of providing individuals with basic accounts and services such as checking and savings accounts. Retail banks provide these services to consumers via locations within the community.
Retail banks are sometimes called commercial, corporate or private banking because they tend to cater more to corporations and business accounts rather than individuals.
The retail banking sector comprises financial institutions such as commercial banks, savings and loan associations, and credit unions that provide financial products and services to consumers and small businesses.
Retail banks aim to attract customers, not just by having a bank location nearby, but also by offering services and competitive rates. The retail banking sector comprises financial institutions that provide products and services to individuals as well as small businesses.
Types of Retail Banks
There are several types of retail banks, which include: commercial banks, savings and loan associations, and credit unions. Learn about Multichannel Retail.
Commercial Banks. Commercial banking, also known as business banking, involves accepting checks and savings accounts from customers who are both private individuals and companies. These banks offer a variety of financial services, including money market accounts, certificates of deposit (CDs), foreign currency exchange, and loans. Commercial banking is generally divided into relationship banking and transaction banking. Relationship banking is long-term banking with a customer, while transaction banking deals with the actual transactions, such as checks and bill payments.
Savings and loan associations. A savings and loan association (S&L) is a company that accepts savings deposits from customers, such as checking and savings accounts, which are insured by the Federal Deposit Insurance Corporation (FDIC). S&Ls offer several banking services, such as CDs, checking accounts, and certificates of deposit (CDs). The primary difference between commercial banking and savings banking is that the latter only deals with individuals, while the former caters to both businesses and individuals.
Credit Unions. Credit unions are banking institutions that aim to provide banking services at a reduced rate. Credit unions are not-for-profit organizations that are owned by their members, who must be customers in the banking industry. Customers must pay a membership fee to join a credit union. Credit unions provide banking services such as checking and savings accounts, loans, and CDs.
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How Does Retail Banking Work?
As with any bank, retail banks offer their customers checking accounts. However, they also offer other services such as savings accounts, money market accounts, and CDs.
Bank account. The majority of retail banks offer the same types of bank accounts, usually with fees attached to them. However, many bank accounts are offered by certain bank chains. How bank accounts work usually depends on the bank and type of account, but there are some universal rules.
Credit card. Credit cards are issued by credit card issuers, which are usually the same companies that offer credit cards to retail banks. Banks do not charge credit cardholders interest on credit card balances, but credit card issuers do. In turn, credit card issuers get their money from credit card fees, and some credit card companies recoup credit card fees by charging merchants a credit card fee for each credit card transaction.
Certificates of deposit. A certificate of deposit (CD) is a term for an investment that guarantees the return of the original investment after a predetermined amount of time. Banks offer these investments to entice customers and give them a reason to open an account with that particular bank. For example, if the term is three years, the bank may offer a three percent annual interest rate.
Savings account. A savings account is a term for an investment that allows money to be put away for a savings goal. The savings account holder can add, remove, or change the investment without penalty until the term is up. Like CDs, savings accounts can be offered with different interest rates and terms.
Bank savings. Banks offer savings accounts as a way of encouraging customers to open new accounts. They offer the lowest interest rates on savings accounts, but they also charge bank fees on some of these accounts.
Checking account. Banks offer checking accounts to customers for daily use of their money. With a checking account, customers can write checks to pay for products at a merchant. Checking accounts usually have a limit as to how much money the account holder can withdraw from an ATM on a daily or weekly basis, which is helpful for those who go over their limits.
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The Costs of Retail Banking
Personal retail banks and retail banking chains charge fees for all of the services they provide. Some bank accounts, such as basic checking accounts, might not have any fees for the account holder to worry about. Customers will, however, be charged bank fees if their accounts are overdrawn, they use non-network ATMs, or they overdraw their credit cards.
Business retail banking services are more expensive than retail banking services. Business retail banks typically offer more expensive services such as audits and loans. Business retail banks also provide lending services to small businesses, which can be a large money-sink for retail banks. Learn about Omnichannel Retail.
Customers of retail banking will pay around $35 per month for a basic checking account, but those who use the retail bank’s ATM network will pay around $5 per transaction. Customers who want to use retail bank services at other banks usually have to pay a retail fee, which is usually around $2.50.
Customer retail banking fees are regulated by the Consumer Financial Protection Bureau, or CFPB.
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Challenges for Retail Banking
The retail banking industry is a challenge for retail banks because of the competition from other retail banks, retail bank online services, and retail banking chains. This has resulted in retail banks trying to innovate new services and provide better retail bank accounts, which increases retail banking costs.
To counter high retail banking costs, retail bankers sometimes provide retail bank services for free or charge retail banking fees that are lower than retail banks in other retail banking industries.
Consumer protection. Consumer retail banking protection is a challenge for retail bank customers who want to avoid retail bank fees. The CFPB has made it more difficult for retail banks to increase retail banking fees, but retail bank customers still have to be aware of retail bank rules and regulations so they don’t get charged retail bank fees.
Retail Bank Innovations. Retail banking services are usually not innovative enough to attract retail banking customers, which is a challenge for retail banks. To counter this retail banking challenge, retail banks are starting to look into improving retail bank services and increasing retail banking fees for these retail bank services.
The rise of retail bank online services. The retail banking industry is also challenged by retail bank online retail banking services, which are retail banks that only offer retail banking services over the internet. Retail bank online retail banking services have a retail advantage because they don’t have retail bank costs from retail banking services.
KYC. The retail banking industry is a challenge for retail banks because of the Know Your Customer requirements. The CFPB requires retail banks to follow KYC retail bank retail banking rules, which retail banks see as a challenge because retail bank retail banking data is not safe from hackers and retail bank retail banking data has retail bank retail banking costs.
Technology costs. The retail banking industry is a challenge for retail bankers because of technology-retail banking services for retail banks, such as retail bank retail banking research and retail bank retail banking software. Retail banks have to pay for this retail banking service, which leads to retail challenges for retail banks.