Retail banking encompasses financial services that banks provide to individual customers or small businesses. It has various products and services such as savings and current accounts, fixed deposits, loans, credit cards, debit cards, insurance, and investment products.
The primary objective of retail banking is to provide financial solutions to the customers’ individual needs. Here’s all you need to know about retail banking.
What does Retail Banking Entail?
Retail banking offers a wide range of financial services to individuals. Let’s take a look at what one can do with retail banking.
Open a bank account
Opening a bank account is the first requirement for using retail banking services. Savings accounts, which give standard banking services like deposits, withdrawals, and Internet banking, are available from the majority of Indian banks.
Digital banking services
These are the services that allow consumers to access their accounts, transfer funds, pay bills, transfer money and perform other banking transactions from their mobile devices or computers without having to visit the branch.
Debit or Credit Cards
Banks issue debit cum ATM cards when an account is opened. These two-in-one cards can be used to withdraw cash or to shop at stores.
Customers also have the option to apply for credit cards. It can be used to finance a range of expenses and can be paid back over time.
Consumers can pay their bills using retail banking services in India. This can include phone bills, credit card bills, and other types of bills.
Mutual funds, recurring deposits, and fixed deposits are just a few of the many financial products offered by retail banks. Because they have different levels of returns and risk, these products can be used to accomplish a variety of financial goals.
Retail banks provide a range of loans, including personal loans, auto loans, and mortgages. These loans have different interest rates and repayment terms, depending on the borrower’s creditworthiness and the purpose of the loan. Loans can come in many different forms, including secured and unsecured loans. Different types of loans have different terms and conditions, and interest rates can vary widely depending on factors such as the borrower’s credit score, income, and the purpose of the loan.
Seek financial advice
To assist customers in making wise financial choices, retail banks in India also provide financial advisory services. These services may include tax planning, retirement planning, investment guidance, and other types of financial planning.
Why is Retail Banking important?
Retail banking equips customers with the resources and tools they need to handle their money wisely, accumulate wealth over time, and meet their financial objectives. Let’s look at some of the factors that make retail banking crucial.
Monitoring Financial Health
Retail banking can be helpful for monitoring financial health by providing customers with a range of banking services that can help them manage their accounts, track their expenses, monitor their credit scores, plan for their financial goals, and manage their loans.
Ease of Use and Security
Retail banking provides a convenient and secure way to manage customers’ finances. It allows them to save, borrow and invest money in a safe and regulated environment. By opening a savings account or a fixed deposit, they can earn interest on their savings, and also protect their money from theft or loss.
Access to Credit
Customers can establish and build their credit history with the help of retail banking. With credit cards and loans, they can demonstrate their ability to borrow and repay the money, which can help them qualify for larger loans in the future. Banks also offer credit cards against Fixed Deposits (FDs) to bring new credit customers into formal credit by mitigating the risk associated with lending to customers who do not have a credit history or a low credit score. It helps customers build a credit history, and also provides banks with a low-risk option.
Retail banks offer financial education and guidance to help customers understand how to manage their money, make smart financial decisions, and achieve their financial goals.
How has Digitalization changed Retail Banking?
In recent years, digitalization has significantly influenced the retail banking sector, changing how customers engage with their banks and the services they provide. We’re going to talk about some of the ways in which digitalization has impacted retail banking.
Online and Mobile Banking
Customers can now reach their bank accounts and services through web and mobile apps thanks to digitalization. This has improved accessibility and convenience for banking by enabling users to verify their account balances, send money to another person, pay bills, and apply for loans at any time and from any location.
Digital Payment Solutions
The rise of digitalization has also prompted the creation of peer-to-peer payment systems (transfer of funds from an individual’s bank account to another person’s account via the digital medium), smartphone wallets, and virtual currencies (Bitcoin, etc). Customers now find it simpler to make payments both in-person and online thanks to these options.
AI and chatbots
Retail banks are also utilizing AI (Artificial Intelligence) and chatbots to automate repetitive tasks and offer individualized customer service. While AI can analyze customer data to spot patterns and offer individualized financial guidance, chatbots can quickly respond to customer questions and resolve issues.
Retail banks are also utilizing digital marketing strategies to contact customers and advertise their goods and services, including social media, email marketing, and search engine optimization. This has made it easier for banks to target particular customer segments and improve their marketing ROI.
Banks and NBFCs are providing a seamless and convenient experience to customers with end-to-end digital journeys. Customers can manage their finances and perform transactions online without visiting bank branches. Digitalization has also enabled banks and NBFCs to offer instant loans with faster turnaround time (TAT), including online loan applications and instant approvals with direct fund transfers.
Digital identity verification
As a result of digitalization, services that use biometrics and other technologies to confirm customers’ IDs have also been developed. As a result, the risk of fraud has decreased and security has increased.
In India, the retail banking sector has witnessed a remarkable shift towards digitalization in recent years. According to a report by the Reserve Bank of India, the number of digital transactions in India increased from 8.8 billion in 2016-17 to 34.3 billion in 2020-21. This trend is expected to continue as more and more Indians become tech-savvy and embrace digital financial services.
To give you an outline, digitalization has revolutionized retail banking, allowing banks to offer their clients more easy, individualized, and effective services.
How is Retail Banking different from Corporate Banking?
Retail banking is primarily concerned with offering financial goods and services to private individuals and small companies. These services usually consist of checking and savings accounts, credit cards, mortgages, personal loans, and investment goods. Retail banks offer customer support to help with banking requirements through a network of branches, online platforms, and mobile apps.
Contrarily, corporate banking is focused on offering big companies and corporations financial goods and services. Corporate loans, cash administration, trade finance, foreign exchange, and other treasury services are a few examples of these services. Corporate banks provide tailored solutions to meet the unique requirements of each client through a network of specialized departments.
Additionally, the regulatory framework for retail banking and corporate banking is different. Retail banking is subject to regulations that are designed to protect consumers, while corporate banking is subject to regulations that are designed to ensure the stability of financial markets.
How has Retail Banking affected Rural India?
The greater accessibility of the Internet and smartphones has led to an increase in retail banking services in rural India. The government, NBFCs, and banks have launched numerous financial inclusion efforts to handle low-value transactions in rural India. This has led to the development of affordable, effective financial products and methods, such as the Kisan Credit Card or self-help organizations.
Retail banking has also played a crucial role in improving the accessibility of money in rural India by increasing ATM penetration, such as Indicash ATMs, which support a range of banking transactions, including cash withdrawals, balance inquiries, mini statements, and fund transfers. These ATMs are not linked to any specific bank and are primarily located in rural and semi-urban areas of India, where access to banking services can be limited.
What is the future of Retail Banking?
It is anticipated that technology and shifting customer preferences will have a significant impact on retail banking in the future. Let’s talk about some trends that are likely to shape the future of retail banking.
Banks will seek to distinguish themselves by providing more individualized services as industry competition intensifies. This might entail more specialized marketing and communication tactics, as well as goods and services that are tailored to the needs of the consumer.
Integration of AI and Machine Learning
Banks will use AI (Artificial Intelligence) and ML (Machine Learning) more and more to automate processes, increase productivity, and improve the customer experience. Predictive analytics (using data, statistical algorithms, and machine learning techniques to determine the probability of future outcomes based on historical data) for risk management, fraud detection, and chatbots for customer support could all fall under this category.
With the rise of mobile payments and digital wallets, it’s expected that cashless payments will become even more prevalent in the future. Banks will need to adapt to these changes by offering new payment options and ensuring their systems are secure and reliable.
Use of Meta, VR and AR
VR (Virtual Reality) in retail banking uses immersive, simulated environments created by technology to enhance the banking experience for customers. AR (Augmented Reality) uses technology to superimpose digital elements onto the real world, creating an enhanced experience for customers. Meta in retail banking uses metadata, or data that describes other data, to improve the accuracy and relevance of the information for customers.
In the near future, Meta, VR and AR technologies can transform the way retail banking operates by enhancing customer experience, improving sales and marketing, providing better training and education, and improving risk management.
Platforms for account aggregation have the ability to assist clients and financial institutions in retail banking significantly. They can simplify financial data sharing, streamline lending processes, facilitate personalized offerings, and improve financial inclusion.
The future of account aggregators in retail banking looks bright, with benefits for both customers and banks. With the increasing adoption of digital technologies and the growing demand for personalized financial services, account aggregators are expected to play a significant role in the future of retail banking.
The pandemic has shifted Indian customers to digital banking. Retail banking offers convenient services that can benefit a customer’s financial well-being by providing easy and secure access to manage finances. Digitalization has transformed retail banking, enabling the development of payment systems, virtual currencies, and AI-powered chatbots. Retail banking helps customers make smart financial decisions, build a credit history, and improve loan eligibility.
Retail Banking: An Overview
Retail banking refers to the financial services that banks provide to individual customers or small businesses. It includes a wide range of products and services such as savings and current accounts, fixed deposits, loans, credit cards, debit cards, insurance, and investment products. The primary objective of retail banking is to provide financial solutions to customers' individual needs [].
Products and Services in Retail Banking
- Bank Accounts: Opening a bank account is the first requirement for using retail banking services. Savings accounts, which offer standard banking services like deposits, withdrawals, and internet banking, are available from the majority of Indian banks [].
- Digital Banking Services: These services allow customers to access their accounts, transfer funds, pay bills, and perform other banking transactions from their mobile devices or computers without visiting a branch [].
- Debit or Credit Cards: Banks issue debit cum ATM cards when an account is opened. These cards can be used to withdraw cash or make purchases. Customers also have the option to apply for credit cards, which can be used to finance expenses and paid back over time [].
- Bill Payments: Retail banking services in India allow consumers to pay various bills, including phone bills, credit card bills, and other types of bills [].
- Investment Opportunities: Retail banks offer a range of investment products such as mutual funds, recurring deposits, and fixed deposits. These products can be used to achieve different financial goals based on their returns and risk levels [].
- Loans: Retail banks provide different types of loans, including personal loans, auto loans, and mortgages. The terms and conditions, as well as interest rates, vary based on factors such as the borrower's creditworthiness and the purpose of the loan [].
- Financial Advice: Retail banks in India also provide financial advisory services to assist customers in making wise financial choices. These services may include tax planning, retirement planning, investment guidance, and other types of financial planning [].
Importance of Retail Banking
Retail banking plays a crucial role in helping customers manage their finances effectively and achieve their financial goals. Some key factors that make retail banking important include:
- Monitoring Financial Health: Retail banking services help customers manage their accounts, track expenses, monitor credit scores, plan for financial goals, and manage loans, thereby assisting in monitoring their financial health [].
- Ease of Use and Security: Retail banking provides a convenient and secure way to save, borrow, and invest money in a regulated environment. It offers interest-earning savings accounts and protects money from theft or loss [].
- Access to Credit: Retail banking helps customers establish and build their credit history through credit cards and loans. This enables them to qualify for larger loans in the future and provides banks with a low-risk option [].
- Financial Literacy: Retail banks offer financial education and guidance to help customers understand how to manage their money, make smart financial decisions, and achieve their financial goals [].
Digitalization and Retail Banking
Digitalization has significantly impacted the retail banking sector, transforming how customers engage with their banks and the services provided. Some ways in which digitalization has influenced retail banking include:
- Online and Mobile Banking: Customers can access their bank accounts and services through web and mobile apps, allowing them to perform various banking transactions anytime and from anywhere [].
- Digital Payment Solutions: The rise of digitalization has led to the development of peer-to-peer payment systems, smartphone wallets, and virtual currencies, making payments easier both in-person and online [].
- AI and Chatbots: Retail banks are utilizing AI and chatbots to automate tasks, offer personalized customer service, analyze customer data for financial guidance, and quickly respond to customer inquiries [].
- Digital Marketing: Banks are using digital marketing strategies such as social media, email marketing, and search engine optimization to reach customers and promote their products and services [].
- Digital Identity Verification: Digitalization has also led to the development of services that use biometrics and other technologies to verify customers' identities, reducing the risk of fraud and increasing security [].
Retail Banking vs. Corporate Banking
Retail banking and corporate banking differ in terms of the target customers, services offered, and regulatory framework:
- Target Customers: Retail banking primarily serves individual customers and small businesses, offering services such as checking and savings accounts, credit cards, mortgages, and personal loans. Corporate banking focuses on providing financial products and services to large companies and corporations, including corporate loans, cash management, trade finance, and treasury services [].
- Services Offered: Retail banks provide customer support through a network of branches, online platforms, and mobile apps, while corporate banks offer tailored solutions to meet the unique requirements of each client through specialized departments [].
- Regulatory Framework: Retail banking is subject to regulations designed to protect consumers, while corporate banking is subject to regulations aimed at ensuring the stability of financial markets [].
Retail Banking and Rural India
The accessibility of the internet and smartphones has increased the availability of retail banking services in rural India. The government, non-banking financial companies (NBFCs), and banks have launched financial inclusion efforts to handle low-value transactions in rural areas. This has led to the development of affordable financial products and methods, such as the Kisan Credit Card and self-help organizations. ATM penetration has also increased in rural and semi-urban areas, providing access to banking services [].
Future Trends in Retail Banking
The future of retail banking is expected to be shaped by technology and changing customer preferences. Some trends that are likely to emerge include:
- Personalization: Banks will focus on providing more individualized services tailored to the needs of customers [].
- Integration of AI and Machine Learning: AI and ML will be used to automate processes, enhance risk management, detect fraud, and provide personalized financial guidance [].
- Cashless Payments: Cashless payments will become more prevalent with the rise of mobile payments and digital wallets, requiring banks to adapt and ensure secure and reliable systems [].
- Use of Meta, VR, and AR: Meta, VR, and AR technologies can enhance the banking experience for customers, improve sales and marketing, provide better training and education, and enhance risk management [].
- Account Aggregation: Platforms for account aggregation can simplify financial data sharing, streamline lending processes, facilitate personalized offerings, and improve financial inclusion [].
Retail banking plays a crucial role in providing financial solutions to individual customers and small businesses. It offers a wide range of products and services, helps customers manage their finances effectively, and promotes financial literacy. Digitalization has transformed retail banking, enabling convenient access to banking services, digital payment solutions, AI-powered automation, and personalized customer experiences. The future of retail banking is expected to be driven by personalization, technology integration, cashless payments, and innovative technologies like Meta, VR, and AR.