Introduction
Retail banks have traditionally provided intermediation and payments services to
individuals and small businesses with all the components of those services
supplied by the bank. However it is becoming increasingly difficult to identify the
nature of a retail bank. Firstly because many banks now combine both retail and
wholesale activities. Secondly because technological developments have enabled
banks to supply a wide range of retail financial services to its customers but not
supply all the sub-components of those services.
In this chapter we begin by examining the nature of traditional retail banking. In
particular we investigate the provision of intermediation services and how banks
manage the risks involved in that provision. We also examine the nature of
payments services provided by retail banks and discuss why banks have
traditionally combined provision of intermediation and payments services. Finally
we investigate recent developments in retail banking and discuss the impact of
these on the future organization of retail banks. We focus in particular on how it is
now possible to separate the components of a financial service/product and the
trend towards outsourcing or sub-contracting the supply of components of a
financial service/product.
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