Retail Banking Activities & Their Correlation
Retail Banking is the set of products and services that banks supply through branches, the internet and other channels to consumers and small companies. The definition suggests that banks organise their retail operations in three complementary dimensions: business clients, products and services, and the channels of distribution connected with products and services.
Organisationally, many large banking companies have a separate retail banking business unit with its own management and financial reporting structure. This overview focuses on the common elements of these segments of retail banking. The organisation and management of retail operations of banks may vary a lot. Usually the main retail banking customers are consumers and small businesses.
At the other end of the spectrum, services typically used by high-net worth individuals and families, such as trust and brokerage services, are almost always offered by business units specialising in these activities and providing them to all bank customers (for example, retail brokerage services are distributed through a broader brokerage or asset management segment).
Deposit taking is the main retail banking operation on the liability side in terms of products and services. Deposit taking includes transaction deposits, such as checking accounts, and non-transaction deposits, such as savings accounts and time deposits/fixed deposits. Several institutions cite the critical importance of deposits in generating and maintaining a strong retail franchise, especially consumer current or checking account deposits. Retail deposits provide a low-cost, steady source of funds and are a large part of the overall relationship. Current accounts are also viewed as critical because they serve as the anchor tying customers to the bank and allow cross-selling opportunities.
On the balance-sheet side, consumer credit and small business loans are the major retail banking services. Consumer credit includes credit cards, mortgages, home equity lending, auto loans, education loans, and other personal loans.
Although the primary products are loans and deposits, retail banking units provide a range of other financial services to consumers and small businesses.
For individual consumers, these services include:
For small businesses, they include:
The three dimensions of retail banking – customers, products and services, and the delivery channels linking customers with products – are interrelated.
Consumers and small businesses are a coherent group of customers, largely due to commonalities in the financial products and services they use. These products and services have similar risk characteristics (both generate large pools of small, diversifiable loans where the primary risk is exposure to the business cycle), generating economies of scope in risk management. In some cases, consumers and small businesses use exactly the same products (credit cards are an important source of credit to both consumers and small businesses).