Banks play many different roles in local and global economy. Retail banking is that part of banking which deals with individual customers and small businesses. In contrast, commercial banks deal with big businesses and corporations. Retail banking, compared to other kinds of retail businesses, lags behind as far as coming up with innovative products. This is partly due to the nature of the banking business as a whole.Retail banking in many, if not most, countries adheres to the conservative banking philosophy. Such message was echoed by Tang Shuangning, vice chairman of the China Banking Regulatory Commission, when he challenged the Chinese banks to come up with innovative products to stay competitive.
Services offered by Retail banks
Retail banks offer a variety of important services to their customers. The retail banking sector is often described as a typical mass-market banking, offering services such as savings and checking accounts and all kinds of personal loans, including auto loans and student loans. Retail banks also offer mortgage services, debit and credit card services and ATM services--all of which have become essential to today's consumers.
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What roles do retail banks play within economies?
Retail banks play a critical role in their home economies, and their activities have implications for the global economy as well. They offer critical credit functions, which largely fuel the engine of economic growth in their economies. When problems hit the retail banking sector the result is often dire economic circumstances for the economy as a whole. When retail banks are failing, little or no credit is available for credit seekers, and economic activity becomes depressed.
Retail Banks and the Sub-prime crisis
A major challenge to retail banking surfaced in late 2008. Retail banks as well as commercial banks had provided sub-prime mortgages to consumers who were not qualified for the size of the loans they received. Although this process generated much of the housing boom of the early 21st century, eventually the loans became too cumbersome for borrowers to pay back. This problem led to loan defaults across the United States and led to many bank failures, not only in the United States but around the world. It produced serious deterioration in the global economy and led to the economic and financial crisis that dominated the political landscape in early 2009.
Retail Banking and Consolidation issues
Some banks turned to consolidation as a way of cutting expenses in order to survive difficult economic conditions. Often consolidation works as intended, but it also has its limitations. Federal law prohibits any single bank in the United States from holding more than 10 percent of the U.S. customer market. When banks merge, they also make gains in their customer base. Several banks in the United States are approaching the 10-percent mark, so for those banks, further consolidation may not be a way to solve their problems.
What is the future for Retail Banking?
While retail banks have their share of problems, it is anticipated that with the massive infusion of capital into the banking and financial services sector by the federal government's economic stimulus program, most retail banks will survive, and the smaller retail banks may seek to merge with other banks. The retail banks to survive would be the ones that take fewer risks while putting their customers first. Such point was stressed by a financial banking analyst Rick Spitler, when he made his point that "leading institutions will be ones that do the best job of investigating salient differences in customer preferences and tailoring their responses accordingly." (See the enclosed link on "New Survival Skills). So, it is vital for banks to improve their customer services and cut off predatory lending strategies, particularly in the area of interest on credit cards.