Development phases of retail banking

  • The initial phase is savings, credit and payments
  • The intermediate phase occurs to complement a shift from manufacturing-led to consumption-led economies
  • The advance phase extends into sophisticated services and private banking for individuals

Banking has evolved over the years in the developed markets through three distinct stages.

These three stages generally coincide in the corresponding jurisdictions with the rate of growth in the real economy.  

Initial Phase

During this phase, banks were mainly involved in providing the fundamental intermediation service, i.e. providing savings facilities and credit for productive reasons, as well as facilitating payment services, including remittances.

Intermediate Phase

In addition to offering the services that were provided in the initial phase, banks also shifted into consumer lending. Banks also began to offer some para-banking services, such as insurance. Demand for such services occurred mainly because of the economy’s shift from an investment (manufacturing) stage of development to a growth-led stage of consumption. Retail banking becomes important at this point of economic and social development.

Advanced Phase

In addition to offering the services provided in the intermediate phase, banks have also begun to provide people and corporations with high-end savings & investment products, property management products and structured products. We can also say that, in this phase, the banking system additionally starts supporting the speculative activities over and above for the production and consumption activities. At this point, private banking, a sophisticated extension of retail banking, becomes meaningful.