Understanding Retail Banking and Its Importance

Retail banking is a vital part of our financial lives, providing everyday banking services to individuals and businesses. It's a trillion-dollar industry that affects people all over the world.

Retail banking offers a range of services, including checking and savings accounts, credit cards, and loans. These services are designed to help customers manage their finances and achieve their financial goals.

At its core, retail banking is about providing accessible and convenient financial services to the general public. It's not just about making money, but about helping people and businesses succeed.

Retail banks offer a wide range of banking products and services to their customers. These products and services include transactional accounts, savings accounts, debit cards, ATM cards, credit cards, and certificates of deposit (CDs).

Some retail banks also offer specialized accounts such as sweep accounts, money market accounts, and Individual Retirement Accounts (IRAs). Additionally, they offer home loans, personal loans, and overdraft facilities to their customers.

Here are some common banking products and services offered by retail banks:

Retail banks offer a wide range of products to meet the financial needs of their customers. These products include transactional accounts, savings accounts, debit cards, ATM cards, credit cards, traveler's cheques, mortgages, home equity loans, personal loans, and certificates of deposit/term deposits.

Transactional accounts are a must-have for anyone who wants to manage their daily finances. Savings accounts, on the other hand, help you save for the future.

Debit cards and ATM cards are convenient ways to access your money, while credit cards offer a line of credit for larger purchases. Traveler's cheques are another option for travelers who want to exchange currency.

In the US, retail banks also offer specialized accounts such as sweep accounts, money market accounts, and Individual Retirement Accounts (IRA's). These accounts can help you manage your finances in a more efficient way.

Here are some common banking products offered by retail banks:

Deposits play a vital role in the banking industry, and retail banks are constantly looking for ways to attract and retain customers. To achieve this, banks need a system for pricing with precision and building deeper visibility into their customer base.

Banks should develop a relationship-based pricing strategy that targets newly acquired and long-standing customers separately. This approach takes into account price sensitivity and empowers the front line to take a personalized approach based on specific customer attributes.

To gain a near-real-time 360-degree customer view, banks should identify the data required to understand and act on critical moments for deepening relationships. This includes transaction flows, demographics, and key churn events.

Leading banks build analytics capabilities that support a fact-based execution of their overall deposit strategy. This includes bespoke deposit models that test price elasticity at the relationship level or balance the trade-off between getting better rates and growing deposit volume.

Banks must ensure they are coordinated across the organization and have a governance model that allows for dynamic deposit management. This unified operating model is crucial for winning the battle for deposits.

To make fact-based decisions, leading banks track the effectiveness of promotion and marketing campaigns on a daily and weekly basis. This rapid decision support capability allows leaders to set strategy accordingly.

Here are the key tools that can help banks achieve best-in-class deposit pricing and retention management:

Lending is a crucial aspect of retail banking, and it's essential to understand the products and services offered in this area. Retail banks offer a range of lending products, including mortgages, home equity loans, and personal loans.

These products are designed to help customers achieve their financial goals, such as buying a home or consolidating debt. However, many retail banks still lack a modern pricing strategy when it comes to consumer lending products.

Instead, they often rely on tactical pricing adjustments based on the competition. This approach can be limiting, as it doesn't take into account the long-term value of customers or their risk profile.

Retail banks can improve their lending margins by using analytics to understand price sensitivity and product economics. This can help them refine their view of the customer and their risk profile.

In the US, retail banks also offer specialized accounts, such as individual retirement accounts (IRAs), which can be used for lending purposes.

Retail banks offer a wide range of products and services to their customers. These services include savings accounts, current accounts, debit cards, credit cards, prepaid cards, and travel cards.

Savings accounts are designed for individuals who want to save their surplus money, and they often come with debit or ATM cards for easy transactions. Current accounts, on the other hand, are typically offered to business individuals who need a high number of transactions and usually don't earn interest.

Retail banks also offer various types of loans, such as home loans for purchasing or reselling a house, and personal loans that are unsecured and based on credit ratings. Overdraft facilities are also available, allowing customers to withdraw money even when they have no balance in their account.

Some retail banks also provide safe deposit lockers, which are secure boxes or lockers where customers can store their valuables. This service is particularly useful for individuals who want to keep their important documents and items safe.

Here are some common products and services offered by retail banks:

Mobile banking is on the rise globally, with 57 percent of consumers actively using mobile for their banking needs, an 18 percentage point increase from 2020. This trend is expected to continue.

The number of annual mobile service touchpoints has grown by 72 percent, reaching 150 annual touchpoints per customer. This is a significant increase that surpasses some leading e-commerce players.

To capitalize on this trend, banks should position the mobile channel as the primary orchestrator of consumers' interactions. This means creating a seamless mobile user experience that adds structure and clarity to their journey.

Banks that lead in mobile are now leading in retail banking overall, outgrowing the competition and delivering superior customer experience. They have lower costs to serve and are more efficient.

In North America, branches still account for 72 percent of newly acquired current accounts in 2023, representing 92 percent of new current account balances. This is a significant revenue impact that banks need to consider when cutting down their physical footprint.

Three out of four consumers report feeling frustrated when the website content of the brands they frequently interact with is not personalized, making personalization a crucial aspect of retail banking.

Banks own more customer data than companies in most other industries, but they are behind many other consumer-facing sectors when it comes to personalization at scale. To unlock the full potential of personalization, banks can focus on five key priorities, including identifying and prioritizing use cases based on value.

These five priorities are: identify and prioritize use cases based on value; rapidly activate and optimize at scale; deploy martech and data enablement; develop an agile operating model for personalization; and build talent and capabilities.

Here are the five key priorities for banks to focus on:

Personalization is key in today's banking industry. The pandemic has accelerated customer digital adoption, and banks must adapt to meet this shift. Banks own more customer data than most other industries, but they're behind in personalization at scale.

According to research, three out of four consumers feel frustrated when website content isn't personalized. Fortunately, tools and services are available to help banks meet these expectations. Banks can focus on five key priorities to unlock personalization: identify and prioritize use cases based on value, rapidly activate and optimize at scale, deploy martech and data enablement, develop an agile operating model for personalization, and build talent and capabilities.

Here are the five key priorities for personalization in banking:

By focusing on these priorities, banks can effectively personalize their offerings and deepen customer relationships.

The retail banking industry is on the cusp of a significant transformation, driven by the need to adapt to changing customer needs and a challenging macroeconomic environment. This transformation is not just about keeping up with the times, but about creating a competitive advantage that will set leading banks ahead of the pack.

Banks have an unexpected opportunity to accelerate retail banking transformation sooner rather than later, as they are seen as a critical enabler of future recovery in the economic downturn caused by the COVID-19 pandemic. By making an authentic shift from product-centric to customer-centric operating models, banks can win big and establish a competitive platform for the 2020s.

The transformation will take many more years, but it's crucial to start now. Digital banking is already well underway, and banks that have taken significant steps to put advice at the center of their customer relationships are ahead of the curve. However, the idea of hyper-personalization to a segment of one at scale remains at the earliest stages of exploration, and this will require continued investment in new infrastructure.

Large banks have an advantage due to their customer data and magnitude of investment in digital experiences, but this advantage may prove to be fleeting as technology companies disrupt the picture, especially if they partner with smaller banks for white-label solutions. Ultimately, banks of all shapes and sizes will need to embrace this transformation or risk disappearing.

Here are the four key domains emerging as initial gen AI focus points for banks:

Retail banks are facing significant cost pressures, making it crucial to manage their margins effectively. Margin compression can be a major issue for banks, but there are ways to mitigate it.

To protect against margin compression, banks need to adopt next-generation analytic capabilities. These capabilities will help banks manage their revenue margins on both deposits and assets sides.

A holistic approach to fraud prevention is also essential. This means balancing fraud prevention with a bank's growth strategy. By doing so, banks can reduce the risk of financial losses due to fraud.

Gen AI tools can also play a significant role in protecting against margin compression. By boosting productivity, these tools can help banks stay ahead of the competition.

In retail banking, fraud prevention and security are top priorities. Most banks still view fraud management as a trade-off between revenue and customer experience, but this approach needs to shift to minimize losses.

A comprehensive, end-to-end approach across prevention, detection, and resolution is key to fighting fraud. This involves a system that guards against losses while setting an appropriate risk appetite and supporting healthy revenue growth.

Retail banks can take a more resilient and proactive approach to fighting fraud by looking beyond fraud losses. By tailoring their fraud prevention systems to limit false positives, banks can enjoy a significant revenue impact.

To set an acceptable risk appetite, banks need to determine a level of fraud losses that they deem acceptable. This enables active target setting and monitoring, allowing banks to measure fraud accurately and consistently.

A key aspect of a successful fraud prevention strategy is taking an end-to-end approach aligned with product strategy. For example, a fintech company might consider a more lenient approach to letting new entrants into their ecosystem but be more stringent in fighting fraud at the transaction level.

To streamline fraud operations, banks can calibrate resources with their overall portfolio risk profile. This involves scaling up their fraud operations team to prepare for a spike in case volume if they decide to loosen controls as part of a customer acquisition campaign.

By implementing these actionable levers, retail banks can take a more resilient and proactive approach to fighting fraud and minimizing losses.

Retail banks are facing a challenging interest rate environment, which is affecting their deposit landscape. They need to take a closer look at their pricing strategies.

To stay competitive, banks will need to elevate their analytical sophistication and agility when it comes to pricing on both the asset and liability sides. This means investing in next-generation analytic capabilities.

Protecting revenue margins is crucial, especially with cost pressures mounting. Banks can focus on three key areas: next-generation analytic capabilities, a holistic approach to fraud, and proactive adoption of gen AI tools.

Finance is the backbone of our economy, and understanding it is crucial for making informed decisions about our money. Finance is a broad term that encompasses various aspects of money management, including banking, investing, and credit.

Retail banking is a type of finance that serves individual consumers rather than large institutions. This is in contrast to corporate banking, which is exclusively available to businesses.

Retail banks provide a range of services, including checking and savings accounts, mortgages, personal loans, credit cards, and certificates of deposit (CDs). These services are available to the general public.

Some examples of retail banks include local community banks and divisions of large commercial banks. With the rise of fintech, many online platforms and smartphone apps can now provide all the same services as retail banks.

Retail banks generate income through various means, such as interest on loans, fees for services, and investment gains.

Retail banks are facing a challenging environment with uncertain interest rates and volatile deposits. To stay ahead, they need to elevate their analytical sophistication and agility.

Dynamic pricing strategies are crucial for deposits, where banks should develop a relationship-based approach that targets newly acquired and long-standing customers separately. This approach empowers the front line to take a personalized approach based on specific customer attributes.

Customer balance sheet visibility is also essential, as banks need to identify the data required to enable a near-real-time 360-degree customer view. This includes transaction flows, demographics, and key churn events to understand and act on critical moments for deepening relationships.

Advanced deposit modeling is key to fact-based execution of the overall deposit strategy. Leading banks build analytics capabilities that support bespoke deposit models, which can test price elasticity at the relationship level or balance the trade-off between getting better rates and growing deposit volume.

Here are the essential tools for best-in-class deposit pricing and retention management:

Improving pricing on the liability side is only half the battle, as many retail banks still lack a modern pricing strategy for consumer lending products. Instead, they revert to tactical pricing adjustments based on the competition.

Retail banks come in different forms, each catering to specific needs. Private Banks offer banking and financial services to medium to high-income individuals in urban areas.

There are two main types of retail banks: Private Banks and Postal Savings Banks (Post Offices). Private Banks provide wealth management services along with basic banking services, while Postal Savings Banks offer basic banking services like savings, deposits, and withdrawals.

Retail banks also offer various products and services, including savings accounts, current accounts, cards, and certificates of deposit (CDs). Savings accounts are designed for saving surplus amounts with limited transactions, while current accounts are for business individuals with a high number of transactions.

Some popular services offered by retail banks include home loans, personal loans, overdrafts, and safe deposit lockers. Home loans are offered to purchase or resale a house, while personal loans are unsecured loans based on credit ratings. Overdrafts provide additional credit to withdraw money even with no balance in the account.

Here's a summary of some common retail bank services:

There are different types of banks, each with its own unique characteristics and services.

Commercial banks are retail banks that offer a wide range of banking needs to individuals, companies, and even celebrities.

People who own shares in a credit union pool their money to run the company and provide services to its users.

Credit unions are smaller compared to business banks and don't make money, but you can still get a loan and use your savings funds and other services like credit and debit cards.

Savings and loan associations handle mortgages, making it their main business, but they also offer simple banking services to their customers.

These types of banks cater to different needs and preferences, so it's essential to understand the differences before choosing one.

There are various types of jobs available in the banking sector, including tellers, loan officers, and financial managers.

Tellers are responsible for handling customer transactions, such as deposits and withdrawals.

Loan officers assess the creditworthiness of borrowers and approve or deny loan applications.

Financial managers oversee the financial activities of a bank, including investments and risk management.

Branch managers are responsible for the day-to-day operations of a bank branch, including supervising staff and managing customer relationships.

Some banks also offer specialized services, such as investment banking, which involves advising clients on investment opportunities.

Investment bankers work with clients to raise capital, advise on mergers and acquisitions, and manage financial transactions.

The COVID-19 crisis has accelerated consumer shifts toward digital in the US retail banking sector. This shift is a result of the depressed macro environment, forcing banks to adapt quickly.

Banks have little choice but to embrace digital transformation. The pandemic has pushed consumers to adopt digital banking services, making it essential for banks to keep up.

The US retail banking sector is transforming at a fast pace, driven by consumer demand for digital services. This transformation is not limited to retail banking, but is a broader trend in consumer financial services.

The future of retail banking is being shaped by 10 key shifts, which banks must pay attention to in order to stay relevant. By embracing digital transformation, banks can better serve their customers and stay competitive in the market.

Addressing retail banking challenges requires resilience. Building resilience in retail banking can be achieved by implementing robust risk management systems.

To effectively manage risks, banks need to have a clear understanding of their current risk exposure. This involves conducting regular risk assessments and stress testing to identify potential vulnerabilities.

A well-designed risk management framework is essential for mitigating risks and ensuring business continuity. This framework should include policies, procedures, and controls that are regularly reviewed and updated.

Banks should also invest in digital transformation to improve their operational efficiency and customer experience. This can include implementing cloud-based technologies and adopting agile development methodologies.

Regular training and upskilling of employees is crucial for building resilience in retail banking. This can help employees stay up-to-date with the latest technologies and regulatory requirements.