The history of the banking system dates back to the 15th century. The bank was initially an organization that helped people save their money which was earned in a trade.
With time, the banking system revolutionized to such an extent that it plays a vital role in the economy of a country. The functionalities of the bank started improving from time to time for the benefit of the people.
There are a variety of banks available in the world, and together they are known as Financial Institutions. The functionality of a financial institution in simple words is any public or a private organization that collects, invests, and distributes funds.
In further simpler terms, banks are the bridge between people who save money and people who want to borrow money. The interest is paid to the people who keep is a part of the attention that the bank receives from the people whom they have lent.
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 thereby the country.
The retail banks play a significant role in the lives of people, while the branch banking services have made the bank have a secure connection with the people.
Branch Banking vs Retail Banking
The main difference between branch banking and the retail banking is the bank’s functionality and set up; branch banking is the extension of the service offered by the parent financial institution by setting up a storefront office elsewhere while Retail banking is the service provided to the individuals with essential banking services like creating checking and savings account and the like.
Comparison Table Between Branch Banking and Retail Banking (in Tabular Form)
| Parameter of Comparison | Branch Banking | Retail Banking |
|---|---|---|
| Meaning/Definition | Branch Banking is the extension of service offered by the parent financial institution in some other place to connect with the customers closely. | Retail banking is a financial institution that offers essential banking services to individuals. |
| Functionality | Branch Banking offers the services which the parent company used to perform in the headquarters. If the parent company is an investment bank, then the branch banking of them will offer the same service. | Retail banking catering to the individuals’ needs helps to create checking, savings account. It can help provide loans for individuals. Credit cards, Debit cards are few features retail banks can offer. |
| Decision Making Authority | Branch Banking has limited rights to take decisions, and most of the time rely on the head office to confirm its conclusions. | Retail Banking, if it is the parent bank, can take decisions on its own. |
| Competition | As there may be many branches for the parent company, there is a huge competition among them to show results and turn over. | Retail banks will have their competition with other retail banks in terms of acquiring customers for their various products. |
| Benefits offered | Benefits offered by the branch banking facility solely depends on the parent bank’s decision. | Retail Banks can offer benefits under their discretion. |
What is Branch Banking?
Branch Banking is the service offered by a financial institution 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 or an investment bank or a credit union too.
Branch Banking has limited powers to take decisions on critical issues about banking services. 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 becomes inevitable.
Branch Banks cannot operate independently in all aspects. However, there are targets set for the branch banks to check their performance too.
This makes them highly competitive among themselves. The branch banking system improves financial resources and operates on a large scale.
The significant advantage of the branch banking system is the reduction of risk factors. As there are many branches available, the risk for the parent bank becomes very remote.
There may be a loss incurred by one branch while profit in another branch can balance it. This also helps the head office to face any crisis.
What is Retail Banking?
Retail banking is a service offered by the financial institutions to the general public. It helps individuals with essential banking services, like creating checking or savings accounts.
Retail banks function in a systematic way that offers attractive benefits to the customers too. It helps customers to save funds; the saved funds are utilized by the bank to provide loans to other customers. The interest levied from the borrowers is utilized for operational cost, 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.
Checking account is used for day-to-day activities with less or no interest while the savings account is like a long term investment which yields more interest.
Retail Banks have the power to offer credit cards to the customers if they clear the credit status. At the same time, retail banks also offer loans like home loans, auto loans, and even personal loans.
The retail banks also provide safety deposit lockers to their customers. This is used to store their valuables where the banks guarantee high security for their valuables.
Main Differences Between Branch Banking and Retail Banking
- The main difference between Branch Banking and Retail Banking is, branch banking is the extension of the parent bank’s services offered at another location which is away from the head office. In contrast, retail banking is the essential banking services provided 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 account to the customers along with essential banking services to the individuals.
- Branch Banking has limited decision-making authority, while retail banks can take their own decisions 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 are offered by the branch banks are after the confirmation of the parent bank. In contrast, retail banks have their right to provide benefits to the customers without anyone’s consent.
Conclusion
Banks functioning in the streamlined fashion offers many benefits to the economy of a country. It is good to observe that branch banking has limited power to take decisions. When there are many branches developed, it is always wise to have a hold at one end to monitor proceedings.
The critical responsibility indicator of every employee in a branch bank shows the performance of the staff. This generates competition, and this competition builds growth. Invariably growth in the banking sector means, the benefit to the people and the country.
Retail banking, on the other hand, which acts as a bridge among the people who save money and the people who need money. This sets the balance in the living standards of the people too.
References
- 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