Advantages and Disadvantages of Retail Banking
Retail banking is a
significant branch of the banking sector that focuses more on serving
individual customers rather than business clients. In this division of banking,
the banks approach customers in order to sell them their products which are
consumer-focused, including car loans, home loans, financial aid for buying
consumer durables, etc. This post details the numerous advantages of
retail banking, its benefits, and the few disadvantages of retail banking.
Defining Retail Banking
and the benefits of Retail banking through its operations
Retail banking, in a
nutshell, is when commercial banks work with specific clients, regardless of
which side of the balance sheet they are on. In terms of obligations, this
entails fixed, current, and savings accounts as well as mortgages and loans as
assets. A bank has several rural, semi-urban, and metropolitan branches that
offer retail banking services.
The facility is specifically made to
meet the needs of retail clients, who are simply members of the general public
for everyday purchases. Therefore, we may argue that the main face of banking
that the general public interacts with is retail banking. It is a method
of handling money that allows users to both deposit money securely and access
credit. This is one of the major benefits of retail banking.
It is the area of the bank that is
open to the public. Physical brick-and-mortar branches and widely dispersed
ATMs are used to deliver goods and services. Another significant benefit of
retail banking is its presence across locations. The retail banking
distribution strategy is not limited to conventional branches and ATMs but also
includes the internet and mobiles as well.
Retail
banking has a sizable customer base and
a sizable volume of transactions with little value. Therefore, in a setting of
intense competition, it might not be cost-effective. In reality, the majority
of bank branches in rural and semi-urban areas offer retail banking. Retail
banking may minimize market risk in the current environment when lending
to corporate clients results in credit risk and market risk.
Advantages of Retail Banking
Let us identify the numerous advantages
of retail banking below:
The following are the
numerous advantages of retail banking:
- Deposits with a retail bank are secure
and stable and the deposits constitute core deposits.
- They are less willing to compromise
for higher interest rates and are interest insensitive.
- They provide the banks with low-cost
funding.
- Retail banking facilitates strong
foundations for consumers through efficient customer relationship
management.
- Retail banking expands the banks'
subsidiary business.
- A bank's bottom line and yield are both
boosted by retail banking.
- The retail banking division is a good
avenue for funds development.
- It is presumed that consumer loans have
lower risk and NPA conception.
- Retail banking aids in the revival
and restoration of the nation's economy through amplified production
activity.
- Retail banking enhanced the quality of
living and helps people accomplish aspirations by offering affordable
credit services.
- Innovative product development credit.
- Retail banking only requires minimum
efforts in an economy driven by demand.
Disadvantages of Retail Banking
The following are a few of
the disadvantages of retail banking:
- It is quite expensive and time-consuming
for the bank to design its own innovative financial solutions.
- Nowadays, customers favor online banking
over branch banking. The retention of clients who want to use net banking
is tough for banks that take their time delivering technology-based
products.
- Customers are drawn to other financial
products like mutual funds and other similar ones.
- Banks are making significant
investments in technology, yet they are unable to fully utilize it.
- Monitoring and following up on a large
volume of loan accounts is a significant drawback that forces banks to
spend a lot on their human resources division.
- Due to their lengthy payback terms,
long-term loans like house loans, if not properly followed up, can
possibly turn into NPAs.
- Another critical disadvantage of
retail banking is the occurrence of cybercrime. Card skimming and
other fraudulent account activity are on the rise, costing customers money
as banks make every effort to make up for it.
- Retail banking walks the line with a
high chance of the banking system failing when banks have very high
NPAs.
Since ordinary consumers have smaller
value transactions and different financial demands than corporations or
institutions, retail banking is said to be the type of banking for them. One of
the most popular banking services is retail banking because there are so many
more customers in this market.