Difference Between Retail Banking and Universal Banking

Edited by Diffzy | Updated on: September 15, 2022

       

Difference Between Retail Banking and Universal Banking Difference Between Retail Banking and Universal Banking

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Introduction

Before the advent of banks, people stored their money in storage chambers, underground, or with grains. As a result, their capital was occasionally taken or eaten by rats. Everyday banking, in either event, contributed to resolving this problem.

A bank is a kind of economic establishment permitted to accept deposits and provide loans. In addition, financial services such as wealth management, currency exchange, and safe deposit boxes may be offered by banks. Retail banks, commercial or corporate banks, and investment banks are among the several types of banks. The national government or central bank governs banks in most nations.

Banks lend money and help the economy flourish by lending money. Credits help to fund loans to agriculture, education, small enterprises, and professional groups, resulting in the development of jobs and increased purchasing power. Various types of banks include cooperative banks, savings banks, retail banks, universal banks, utility banks, public sector banks, etc. These banks each have their unique set of capabilities.

Universal Banking vs Retail Banking

The primary distinction between Universal and Retail Banking is that Universal banking is a structure in which banks provide a broad range of comprehensive money-related services, including those specifically designed for retail, business, and adventure organisations. In contrast, Retail banking is traditional monetary that occurs between customers and their banks. A retail bank provides customers with essential financial services such as financial records, venture records, and credits.

A retail bank is a bank that delivers money-related services to the general public, such as managing their money by granting them access to profitable monetary organisations such as credit, financial direction, and so on.

Universal Banking is a financial system that allows employees to work in more than one type of bank. For example, it provides all of the business banking and adventure banking offices and certain additional services such as security. As a result, it is under such banking that various types of banking workplaces are provided.

Difference Between Retail and Universal Banking in Tabular Form

Table: Universal Banking vs Retail Banking
Comparative Parameters
Universal Banking
Retail Banking
Role
A Universal Bank is a commercial and investment bank that participates in financial transactions.
A retail bank manages customers rather than firms or different banks.
Advantage
Universal banks offer a variety of advantages, such as easy service marketing, profitable diversions, resource utilisation, and so on.
Retail banking contributes to the country's monetary recovery by increasing creation activity and establishing easy assets for banks.
Disadvantage
Universal banks have a lot of disadvantages, including a lack of long-term lending competence, the danger of failure, and the problem of non-performing assets, to name a few.
A big disadvantage is keeping track of and following up on the massive amount of credit accounts that has prompted banks to invest heavily in the human asset division.
Services
It performs functions such as money saving, credit lending, contribution, and protection, among others.
"Retail Banking" provides monetary support to individuals and families. The three most important elements are credit, deposit, and money management.
Definition
Universal banking is a system in which banks provide a wide range of comprehensive monetary services, including those tailored to retail, commercial, and venture administrations.
A retail bank is a financial institution that provides monetary services to the general public, such as managing their money and giving them access to useful financial services such as credit, financial advice, and so on.

What is Retail Banking?

Retail banking refers to a bank division that focuses on retail clients rather than corporate ones. The focus of retail banking is on managing clients located in a local city. This type of banking is an up-close-and-personal transaction that is transparent and visible to the customer, ensuring complete transparency. This type of banking is called mass-market banking since it caters to a wide range of clients and transactions.

The Retail Bank does not rely on physical retail locations. Instead, the term "retail" refers to the chosen plan of action. A "retail" business operates on small or medium-sized numbers, or provides items and ventures for use, instead of one that uses products and experiences from other companies.

The degree of administration at a retail bank is mainly determined by wage level, shop location, and its relationship with them. Customer banking and private banking are other terms for retail banking. Savings accounts, current accounts, various types of advances, house loans, charge and Visa, store authentication, retirement planning, and so on are all services provided by retail banking. The critical retail banking hotspot is the client shop. The retail bank benefits from the loan specialist's premium advantage and receives exchange.

Credit, deposits, and money management are the core functions of retail banking. Retail banks provide finance for purchasing a home, automobiles, and furnishings, among other things. In addition, banks provide a safe place for individuals to invest their money through the deposit function, and in exchange, the consumer receives the specified interest. Finally, retail banks use checking accounts, debit cards, and other methods to manage their customers' cash under the money management role.

Individuals can benefit from various services provided by the bank, including a variety of products.

Retail Banking Components

Retail banking is the most common type of commercial banking, and it offers a variety of services primarily to retail customers rather than corporate clients. Retail banks offer a variety of products and services, all of which are tailored to a significant portion of the population.

Checking accounts, savings accounts, debit cards, credit cards, money orders, wire transfers, mortgages and home loans, vehicle loans, and other products and services are available from retail banks. Retail banking has a large customer base due to its wide range of services. As a result, they have a massive volume of small-value transactions.

As a result, the bank's low-cost funds may provide a higher yield and increase the bank's bottom line. It also boosts the bank's subsidiary operations.

Lending to business clients currently raises credit risk and market risk. In the case of retail banking, market risk may be eliminated simultaneously. However, because of the large number of loan accounts in retail banking, banks must monitor them frequently.

What is Universal Banking, and how does it work?

All Universal Banking is a style of banking that combines the features of several different types of banks. It provides Commercial Banking and Investment Banking services and other sorts of help such as protection. Similarly, its core rationale isn't advantageous procurement. It continues to work even if it isn't generating any profit.

What is the Mechanism behind Universal Banking?

A universal banking system does not obligate participating banks to provide all of the services mentioned earlier; instead, it allows them to choose and select from a wide range of options. The banks who participate in this system can always pick and choose which services they want based on their comfort, confidence, and specialisation.

It allows universal banks to offer an incredible variety of services, all under one roof. But, on the other hand, Participating banks must adhere to all criteria for the efficient management of financial assets and transactions. As a result, the services provided by participating banks vary from one to the next, and the laws that apply to each bank will also vary.

Functions of Universal Banking

This system's two primary purposes might be to act as a commercial and investment bank. These two functions will be detailed further down.

  • Commercial Banking

Commercial banking is central to understanding and meeting a typical customer's basic financial needs and expectations. To address the basic needs of ordinary consumers, these banks provide standard services such as a savings account, a current account, and credit. The credit rating of a customer will determine whether or not commercial banks are interested in meeting their financial demands and expectations. Commercial banks such as Halifax, Santander, and HSBC are excellent examples.

  • Investment Banking

These banks work with companies or individuals with large sums of money to invest. Customers deposit money with investment banks, which they then invest in a variety of fields. These banks provide a wide range of investment portfolios with varying levels of risk. Customers provide their hard-earned savings to banks so that the latter can invest in them and profit from them. These banks' professionals seek to get the most out of the investment possibilities available. On the other hand, investment banking must be approached with prudence because there is an equal opportunity of making enormous profits and huge losses.

Universal Banking Components

  1. Investing Banking: Universal banks also provide services for storing public funds.
  2. Commercial Banking: Universal Banks provide features of a business bank, such as keeping public funds and lending credits to them and a variety of other services.
  3. Insurance: Universal Banks also provide services such as insurance.

Benefits 

  • The main advantage of universal banking is that it allows anyone to establish offices for multiple types of banks under one roof. It assists consumers in placing and proposing the ideal arrangement in investments and ensuring that funds are appropriately spent.
  • Inconveniences: despite the numerous advantages, there are a few drawbacks to ubiquitous banking, including rigidity and work deferral, among others.
  • Universal banking, on the other hand, is a hybrid of the two, bringing together multiple forms of administration under one roof.
  • Investment banking, retail banking, and wholesale banking are all examples of universal banking. It provides an incredible range of services that neither traditional banking nor its competitors can match. The two main functions are commercial banking and investment banking.
  • Asset management, auto loans, insurance, deposits, investment counselling, underwriting, mutual funds, credit cards, securities transactions, financial analysis, merchant banking, payment processing, factoring, home finance, retail loans, and many other services are available through the system.
  • Universal banks are sophisticated commercial banks that provide various services under one roof. Commercial banks have been updated, but not all commercial banks are universal

Difference Between Retail Banking and Universal Banking in Points

  • "Retail Banking" provides monetary support to individuals and families. The three most essential elements are credit, deposit, and money management. On the other hand, "Universal Banking" includes functions such as cash savings, credit lending, contribution and protection, etc.
  • A retail bank manages clients rather than firms or distinct banks, whereas a universal bank engages in the financial transactions of a commercial and investment bank.
  • A retail bank is a financial institution that helps people manage their money by giving them access to valuable financial services such as credit, financial advice, and so on, in general society. In contrast, universal banking is a framework in which banks provide a wide range of comprehensive financial services, including those tailored to retail, business, and venture administrations.
  • Retail banking contributes to the country's monetary recovery by increasing creation activity and establishing accessible assets for banks. On the other hand, Universal Banks have several advantages, such as easy service marketing, good diversions, resource use, and so on.
  • In general society, a retail bank is a financial institution that assists people in managing their money by providing valuable financial services such as credit, financial advice, and so on. In contrast, universal banking is a framework in which banks provide a wide range of comprehensive financial services, including those tailored to retail, business, and venture administrations.
  • Retail banking helps the country's monetary recovery by boosting creative activity and providing banks with accessible assets. On the other hand, Universal Banks have a variety of benefits, including simple service marketing, good diversions, resource utilisation, and so on.

Conclusion

The term "banking system" refers to a group of financial institutions known as banks that provide monetary services. Dealing with economic exchanges, managing money and credit, and providing advances, retailers, and initiatives are only a few of the financial advantages. Banking frameworks based on hierarchical architecture come in various shapes and sizes. Two of these monetary arrangements are retail banking and universal banking.

Purchasers make use of local offices that can provide these services to retail customers.


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"Difference Between Retail Banking and Universal Banking." Diffzy.com, 2022. Sun. 02 Oct. 2022. <https://www.diffzy.com/article/difference-between-retail-banking-and-universal-banking-151>.



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