# Understanding Retail Banking: Services, Types, and How It Works

![Retail Banking: Bank services catering to individual consumers rather than large institutions.](https://www.investopedia.com/thmb/0ZVWzQIOmKo3Hf1FYR7mo4A5aoY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/retailbanking.asp-final-3474e513dbcb47919f81e440ffde237d.png)

*— Investopedia / Ryan Oakley*

> **Definition**
>
> Retail banking refers to banking services provided to individual consumers.

## What Is Retail Banking?

Retail banking, also known as consumer banking or personal banking, offers services to individual consumers, not large institutions. Retail banking enhances financial security and ease via local branches and fintech platforms.

Services include savings, checking accounts, [mortgages](https://www.investopedia.com/terms/m/mortgage.asp), personal loans, credit cards, and [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp). Many fintech companies now provide the same services as retail banks online and via apps.

### Key Takeaways

*   Retail banking, also known as consumer or personal banking, is focused on providing financial services to individual consumers, such as checking and savings accounts, mortgages, and personal loans.
*   Advances in technology have enabled the shift towards online and mobile banking, with many consumers now utilizing smartphone apps to manage their financial activities, reducing the need to visit physical bank branches.
*   Retail banks generate income primarily through the interest differential, borrowing deposits from consumers at lower rates and lending them out at higher rates, while also offering supplementary services like credit card issuance and wealth management.
*   Distinct from retail banking, corporate banking services are designed for businesses and involve larger financial transactions and a different profit structure, primarily driven by interest and fees on services provided.
*   Credit unions represent an alternative to traditional retail banks, offering similar services but typically with better interest rates for members due to non-profit status and tax exemptions.

## Understanding the Functions of Retail Banking

Many financial services companies aim to be the one-stop-shop retail banking destination to their individual consumers. Consumers expect a range of basic services from retail banks, such as checking accounts, savings accounts, personal loans, lines of credit, mortgages, [debit cards](https://www.investopedia.com/terms/d/debitcard.asp), credit cards, and CDs.

Most consumers use local branch banking services, which provide on-site customer service for all of a retail customer's banking needs. Through local branch locations, financial representatives provide customer service and financial advice. Financial representatives are also the lead contact for underwriting applications related to credit-approved products.

Most consumers primarily use [checking](https://www.investopedia.com/terms/c/checkingaccount.asp) and [savings](https://www.investopedia.com/terms/s/savingsaccount.asp) accounts to deposit money. This is a common, secure way for individuals to store their cash.

This also allows them to earn interest on their money. Most savings accounts offer rates based on the [fed funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp). Checking and savings accounts come with a debit card for easy withdrawals and payments.  

Retail banks are also an important source of [credit](https://www.investopedia.com/terms/c/credit.asp) for individuals. They offer consumers credit to purchase big-ticket items such as homes and cars. This extension of credit can take the form of mortgages, auto loans, or credit cards and is an important facet of the economy as it provides [liquidity](https://www.investopedia.com/articles/basics/07/liquidity.asp) to ordinary consumers, which helps the economy grow.

> **Important**
>
> One of the biggest trends in retail banking today is the shift to mobile and online banking. Specifically, banks are adding more tools and features, such as the ability to put temporary holds on cards, view recurring charges, or scan a fingerprint to log into an account, to retain their existing customers and attract new ones.

## How Retail Banks Earn Revenue

A retail bank holds its clients' cash deposits. It then uses these deposits to make loans to other clients. The Federal Reserve formerly required that all banks keep 10% of their demand and checking deposits in-house overnight—this was changed to 0% in March 2020.

This is known as the [reserve requirement](https://www.investopedia.com/terms/r/requiredreserves.asp) and is seen as a safety and liquidity measure. This means that the remainder of the deposit on hand is allowed to be lent out. Banks earn income by charging higher interest on loans than they pay on deposits.

In the banking industry, consumers also rely on the Federal Deposit Insurance Corp. (FDIC) to insure their bank [deposits](https://www.investopedia.com/terms/d/deposit.asp). As of March 31, 2023, the FDIC insured 4,672 institutions, commercial banks and savings banks. The total amount of assets the FDIC insured was $23.72 trillion and the total amount of loans and leases insured was $12.212 trillion.

## Different Types of Retail Banks Explained

Retail banks range from small local community banks to global banks like JPMorgan Chase and Citibank.  

As of March 31, 2023, the top five largest U.S. commercial banks by assets were:

*   JPMorgan Chase
*   Bank of America
*   Citibank
*   Wells Fargo
*   U.S. Bank

All these banks offer retail banking services, which form a large portion of their revenue. [Credit unions](https://www.investopedia.com/terms/c/creditunion.asp) are another type of retail bank that works as a non-profit cooperative where members pool their assets to be able to provide loans and other financial services to other members.

Credit unions typically provide better interest rates for their members because they aren't corporate entities seeking profits and they don't have to pay corporate taxes on any [earnings](https://www.investopedia.com/terms/e/earnings.asp).

## Expanded Offerings: Retail Banking Services Evolve

Banks are expanding their services for retail clients. In addition to basic retail banking accounts and customer service from local branch financial representatives, banks have started offering teams of financial advisors with broadened product offerings, investment services such as wealth management, brokerage accounts, [private banking](https://www.investopedia.com/terms/p/privatebanking.asp), and [retirement planning](https://www.investopedia.com/terms/r/retirement-planning.asp).

The shift to internet banking has expanded offerings for retail customers. Many banks now offer services online and through apps, reducing branch visits.

In addition to traditional banks offering online services, many new [fintech](https://www.investopedia.com/the-future-of-fintech-4770491) companies have blossomed, offering similar services with more ease, and often at better prices, as they don't incur the expense of needing traditional brick-and-mortar bank branches. Examples of these banks include N26, Monzo, and [Chime](https://www.investopedia.com/chime-bank-review-8707727).

### Note

A Chase survey released in early 2023 found that consumers overwhelmingly want to manage their banking activities in one place and prefer using their mobile apps to do this. Eighty-seven percent of respondents use their banking app at least once a month. They monitor account balances and deposit checks through their smartphone, and may even apply for a mortgage that way.

## Comparing Retail and Corporate Banking

While retail banking services are provided to individuals in the general public, [corporate banking](https://www.investopedia.com/articles/general/071213/retail-banking-vs-commercial-banking.asp) services are only offered to companies and corporate bodies. The scope of the products and services available is also different: Retail banking is customer-oriented, and corporate banking is business-oriented.

The financial worth of transactions is comparably higher in corporate banking than in retail banking. The source of profit is also different: the difference between the margin of interest of borrowers and lenders is the main source of profit in retail banking, while corporate banking's source of profit is the interest and fees charged on the services provided.

Corporate banks provide businesses with the following services:

*   Loans and other credit products
*   Treasury and cash management services
*   Equipment lending
*   Commercial real estate
*   Trade finance
*   Employer services

Some corporate banks also have [investment banking](https://www.investopedia.com/ask/answers/060115/what-difference-between-investment-and-retail-bank.asp) arms that offer related services to their corporate clients, such as asset management and securities underwriting.

## What Are Some Features of Retail Banking?

Retail banking is intended to help consumers manage their money by giving them access to basic banking services, a source of credit, and financial advice. The general public can access a variety of services through a retail bank, including checking and savings accounts, mortgages, credit cards, foreign currency and remittance services, and automobile financing.

## What Is an Example of a Retail Bank?

U.S. Bank and Bank of America are two examples of retail banks because they provide consumer banking products like checking and savings accounts, [mortgages](https://www.investopedia.com/terms/m/mortgage.asp), personal loans, credit cards, and [certificates of deposit (CDs)](https://www.investopedia.com/terms/c/certificateofdeposit.asp).

## What Is the Difference Between Commercial Banking and Retail Banking?

Retail banking offers deposit, access, and lending services to individuals. Commercial banking is another name for corporate banking, which offers banking services to businesses, governments, and other institutions. While retail banking offers its services to people for personal use, commercial banking serves institutions.

## The Bottom Line

Retail banks provide a variety of products and services. Common services include checking and savings accounts, mortgages, loans, credit cards, and CDs.

Retail banking provides essential financial services tailored to individual consumers, distinct from corporate banking, which is aimed at businesses. Retail banks play a significant role in offering credit to consumers for big-ticket items like homes and cars. There is a growing trend towards online and mobile banking, driving convenience and expanding service offerings.

Retail banks offer certain safety features like FDIC insurance, which protects consumer deposits and fosters confidence in the banking system. While fintech companies offer similar services with improved online capabilities, they are not insured by the FDIC.  

> **Article Sources**
>
> 1.  First Bank. "[Four Different Types of Services | Banking](https://localfirstbank.com/article/four-different-types-of-services-banking/)."
>     
> 2.  Board of Governors of the Federal Reserve System. "[Reserve Requirements](https://www.federalreserve.gov/monetarypolicy/reservereq.htm)."
>     
> 3.  Federal Deposit Insurance Corp. "[How Banks Work](https://www.fdic.gov/about/learn/learning/banks.html)."
>     
> 4.  Federal Deposit Insurance Corp. "[Quarterly Banking Profile First Quarter 2023](https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2023mar/qbp.pdf)."
>     
> 5.  Federal Reserve. "[Large Commercial Banks.](https://www.federalreserve.gov/releases/lbr/current/)"
>     
> 6.  Chase. "[Consumers Rely More and More on Mobile Banking, New Chase Study Finds](https://media.chase.com/news/consumers-rely-more-and-more-on-mobile-banking)."
>     
> 7.  Cleartax. "[Cost of Funds](https://cleartax.in/g/terms/cost-of-funds)."