Advantages of Retail Banking

Retail banking is a concept which is relatively new and all banks are giving thrust to retail banking, it refers to providing banking services to individual customers and focus is on small ticket transactions rather than big ticket transactions. Retail banking has many advantages, let’s look at some of them –

  1. The first and foremost advantage of retail banking is that it increases the overall business of the banks and also helps in improving the brand image because a customer is more likely to remember a brand when he or she uses it himself or herself rather than just seeing it in newspapers or television advertisements. So for example in banking if you ask a normal individual about name of bank which has retail operations then he or she will quickly recognize it but if you ask the same individual about some big investment bank dealing with corporate clients having operations in many countries chances are individual would not have even heard the name of that bank because he or she has never dealt with them.
  2. Since in retail banking the ticket size of loan is smaller and if borrower or group of borrowers becomes insolvent then it does not put that much strain on the bank balance sheet as opposed to some big corporate going bankrupt because the ticket size of loan is quite high in case of corporate loans. In simple words one can say that retail banking gives the advantage of diversification to the bank.
  3. Cost of deposit of funds in case of retail banking is much lower as compared to wholesale banking because retail customers unlike corporate customers do not bargain for rate of interest on their fixed deposits as they do not have large sums of money and hence they are price takers rather than price makers.
  4. Brand loyalty in case of retail customers is higher as compared to large companies or high net worth individuals because normal individuals want better customer service and safety of their funds and if bank is able to provide them both then chances are that they will not switch the bank and will continue be loyal customers of bank for many years.
  5. It is easy to sell third party products like insurance, mutual fund and provide other non fund based services to retail customers and therefore improve the bottom line of the banks without any credit risks which is there if bank depends only on loans as their income and that is the reason why many banks today are focusing more on non fund based portfolio rather than fund based portfolio.

As one can see that there are many advantages of retail banking and that is the reason why in spite of it being a new concept it has gained tremendous attention among all major banks all over the world.

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