When a bank representative approaches us to open an account, they usually inform us that their bank provides core banking facilities. Similarly, when we log in for net banking, we’re asked if we’d like to use a retail or corporate login. Even though retail and core banking are critical components of today’s banking system, they remain distinct. Their history, mode of functioning, and benefits are all different. Today’s article focuses on core banking vs retail banking and highlights their differences.
What is Core banking?
CORE banking stands for Centralised Online Real-time Exchange. The back-end process connects all bank branches to a central server in core banking.
CORE banking gives customers additional flexibility to do any bank transaction from anywhere. For example, you do not need to go to a specific branch to deposit or withdraw money with core banking enabled. In addition, because most banks offer CORE banking, all retail customers are considered Core customers.
What is Retail banking?
Going to the bank with our parents as children was a dull affair. It meant waiting in long, serpentine queues that moved at a slow pace. Our parents would update their bank accounts, make deposits and withdrawals, and open fixed deposits. These activities are referred to as retail banking or personal banking.
Individual clients, not businesses, are served through retail banking. A person goes to a bank’s local branch to open a savings account, deposit or withdraw money, apply for a loan, open fixed deposit accounts, and apply for credit or debit cards, among other things.
Core banking vs. Retail banking – History
Now that we’ve seen what core and retail banking are, let’s see how they emerged in the first place:
Core banking’s history
Before 1970, the banking system operated at a snail’s pace, with any transaction taking a day to reflect in a person’s or company’s bank account. However, as computers and telecommunications technology became more integrated into our daily lives, the banking industry became more efficient.
The result was that the internet allowed all of a bank’s transactions to be shared throughout its branches. Core banking was born in the 1970s, and most banks implemented it during the next 30 years.
Retail banking’s history
Retail banks catered to the general population and used public funds to invest in the stock market until 1929. However, the Great Depression of 1930 changed everything when they lost retail depositors’ money in a stock market crash.
Since then, retail banks have been barred from investing in the stock market with public funds. The restriction was removed in the 1990s. And a bank or its branch which dealt with public funds was dubbed a “retail bank.”
Retail Banking vs Core Banking: Benefits
While core and retail banking are inextricably linked, each has its advantages. It’s challenging to make a comparison between them. Still, let’s take a look at each of their advantages individually:
Advantages of core banking
- It provides people, corporations, and companies with online/net banking services.
- It allows you to do financial transactions from anywhere in the world.
- People save time by not going to a bank branch to withdraw or deposit money.
- You can conduct all of your financial transactions in real-time.
- It gives you the convenience to open/close accounts, service loans, and process cash online, among other things.
- It’s all about technology, innovation, and adapting to changing circumstances.
Advantages of retail banking
- It helps you manage your finances through savings/current accounts, withdrawals, and deposits.
- It also offers you investment advice and options such as mutual funds, insurance, and other financial products.
- It also gives you credit in personal loans and mortgages, allowing you to live a better life.
- It provides stability in the form of physical branch offices.
- It provides you with personalised service in the form of dependable bank staff to help you with any financial issues with your bank account.
- By offering consumer loans, it contributes to the expansion of the economy.
Retail vs. Core banking: Types
Let’s get a clear understanding of the types of retail and core banking:
Types of core banking
The core banking system, which is about software processes, has two types.
The first is the traditional/legacy core banking system, which most banks use today. The next-generation cloud-based core system is the second type.
The legacy core system is far more dependable and has a lower failure rate. This is because it’s built to handle large numbers of real-time transactions, compute interest rates, and process currency, among other things. As a result, it is faster and has fewer outages due to regulatory repercussions.
The cloud computing solution for banks is extremely adaptable and is gaining steam in the financial industry. It is cost-effective and allows a bank to scale up or down its cloud services as market demand dictates.
Though it is still in its infancy, it is gaining traction in the financial services industry. According to a global survey conducted by Accenture in 2018, 31% of retail banks planned to implement cloud computing in their systems.
Types of retail banking
Local community banks, cooperative banks, small finance banks, and significant global banks are examples of retail banks. Community banks are small and operate locally, whereas cooperative banks have locations across the country. Small financing banks, too, provide retail banking services.
While comparing core banking vs. retail banking is challenging, each has its advantages. While retail banking serves to maintain a healthy economy, core banking enables all types of banks to stay abreast with the times. In addition, it allows clients to have access to money and investments at any time.
Contact Finezza if you represent a financial institution looking to scale up the software system to provide the best service to your consumers. We provide simple and effective lending lifecycle management solutions to help you boost your business growth.