A variety of banks are available worldwide, and together they are known as Financial Institutions. The functionality of a financial institution, in simple words, is any public or private organization that collects, invests, and distributes funds.
In simpler terms, banks are the bridge between people who save money and those who want to borrow money.
There are central banks, retail banks, commercial banks, shadow banks, investment banks, cooperative banks, and credit unions. They all have their functionalities cut out in a certain way which benefits the people of the society and the country.
Retail banks play a significant role in people’s lives, while branch banking services have enabled the bank to connect personally with people.
Key Takeaways
- Branch banking refers to the physical locations where customers can conduct banking transactions, while retail banking encompasses a wide range of financial products and services offered to individual consumers.
- Branch banking is a component of retail banking, as it is one of the channels through which retail banking services are provided.
- Retail banking services can be accessed through various channels, including branch banking, online banking, mobile banking, and ATMs.
Branch Banking vs Retail Banking
Branch banking refers to services offered through physical bank branches, where customers can interact with bank representatives in person. Retail banking refers to banking services offered to individuals through physical branches and digital channels such as mobile banking. Branch banking provides face-to-face interaction, while retail banking offers more convenience and accessibility through digital channels.
Comparison Table
| Parameter of Comparison | Branch Banking | Retail Banking |
|---|---|---|
| Meaning/Definition | Branch Banking is the extension of service the parent financial institution offers in some other place to connect with customers closely. | Retail banking is a financial institution that offers essential banking services to individuals. |
| Functionality | Branch Banking offers the services the parent company used to perform in the headquarters. If the parent company is an investment bank, then their branch banking will offer the same service. | Retail banking catering to individuals’ needs helps to create checking and savings accounts. It can help provide loans for individuals. Credit cards, Debit cards are a few features retail banks can offer. |
| Decision Making Authority | Branch Banking has limited rights to make decisions and mostly relies on the head office to confirm its conclusions. | If it is the parent bank, retail banking can make decisions independently. |
| Competition | As there may be many branches for the parent company, there is a huge competition among them to show results and turnover. | Retail banks will compete with other retail banks in acquiring customers for their various products. |
| Benefits offered | The branch banking facility’s benefits depend solely on the parent bank’s decision. | Retail Banks can offer benefits at their discretion. |
What is Branch Banking?
Branch Banking is the service a financial institution offers by establishing a storefront office in another location. The storefront office provides the same function as the parent financial institution.
Branch banking can be made available for any bank. It can be a retail bank, investment bank, or credit union.
Branch Banking has limited powers to decide on critical banking service issues. The head office makes most of the arrangements.
The idea of offering essential services through branches is cost-effective. Though technology has developed a lot, and the banks have come down to Apps, the need for branch banks has become inevitable.
Branch Banks cannot operate independently in all aspects. However, there are targets set for the branch banks to check their performance.
This makes them highly competitive among themselves. The branch banking system improves financial resources and operates on a large scale.
The branch banking system’s significant advantage is reducing risk factors. As many branches are available, the risk for the parent bank becomes very remote.
There may be a loss incurred by one branch while profit in another can balance it. This also helps the head office to face any crisis.
What is Retail Banking?
Retail banking is a service offered by financial institutions to the general public. It helps individuals with essential banking services, like creating checking or savings accounts.
Retail banks function systematically, offering attractive benefits to the customers too. It helps customers save; the bank utilizes the saved funds to provide loans to other customers.
The interest levied from the borrowers is utilized for operational costs, and at the same time, a part of it is paid to the customers who save money in the same bank.
There are three types of retail banks available. The large banks, Small institutions or community banks, and online banks. The services offered by retail banks are also varied. They help create bank accounts, checking or savings accounts.
A checking account is used for day-to-day activities with less or no interest, while a savings account is a long-term investment yielding more interest.
Retail Banks have the power to offer credit cards to customers if they clear their credit status. At the same time, retail banks also offer loans like home loans, auto loans, and even personal loans.
Retail banks also provide safety deposit lockers to their customers. This is used to store their valuables where the banks guarantee high security.
Main Differences Between Branch Banking and Retail Banking
- Branch banking extends the parent bank’s services offered at another location away from the head office. In contrast, retail banking is an essential service to the general public.
- Branch banking offers the critical services provided by the parent bank. In contrast, Retail bank offers to create checking and savings accounts for customers and essential banking services.
- Branch Banking has limited decision-making authority, while retail banks can decide on critical issues.
- The level of competition for the branch bank is with the other branches of the parent bank, while the retail bank’s game is with the other retail banks.
- The benefits that the branch banks offer are after the confirmation of the parent bank. In contrast, retail banks can provide customer benefits without anyone’s consent.
- https://www.emerald.com/insight/content/doi/10.1108/02652329410063223/full/html
- https://journals.sagepub.com/doi/abs/10.1177/001979390405700202
- https://www.econstor.eu/bitstream/10419/60551/1/504921347.pdf
- https://www.tandfonline.com/doi/abs/10.1080/02642069900000020
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
