Typically a loan with a term of 15–30 years made for the purchase of a specific property. The borrower gives the bank a “lien” on the property. This is a legal term that entitles the bank to the title of the property in the event of the borrower failing to make payments as scheduled. Mortgages may be fixed rate, floating rate or some combination of the two forms, for example fixed for the first three years and then reverting to a floating rate based on some prespecified benchmark.
Many banks subdivide the retail segment further in terms of their own organization into personal banking (mortgages, credit cards, overdrafts and other services) and consumer finance (auto loans and other loans to finance consumer purchases). In recent years there has been a move to base the retail banking organization more on the delivery method used, for example branch-based banking and products delivered electronically. This trend is likely to persist as more people use the Internet to search for the best terms available and to apply for loans.
Most retail loans are highly commoditized. Credit approval procedures are highly automated and pricing and approval decisions result from bank policy decisions rather than being made individually. Key success factors in this segment include access to customers, ease of application, speed of credit approval and pricing. For specialist lending services, such as loans to individuals with a poor credit record, collateral requirements may be lowered in return for a higher price.