Retail Lender

What Is a Retail Lender?

A retail lender is a lender who lends money to individuals or retail customers. Banks, credit unions, savings and loan institutions, and mortgage bankers are popular examples of retail lenders. Other retail lenders may include third-party lenders partnering with retail businesses to offer credit to customers.

How a Retail Lender Works

Retail lenders offer credit products for retail customers. These customers may be looking for loan products from a bank or other lending institution. Some retail customers may also be seeking retail store credit cards.

Special Considerations

Co-branded retail credit cards are a popular type of credit for retail consumers that can be obtained from a retailer. To issue this type of credit to a retail customer, retailers usually must partner with a retail lending institution. Retail lending partners are generally third-party credit providers. However, in some cases, retailers may also partner with their merchant acquiring bank to issue credit cards.

Issuing retail cards has a broad range of advantages. Retailers can issue closed-loop cards that are focused on use only with the retailer, such as Macy's (M) credit card. They can also issue open-loop cards that allow a cardholder to use the card anywhere the brand processor is accepted. Both types of cards offer numerous rewards that can help to attract customers and also be used for marketing retail store promotions.

Retail Lender vs. Traditional Lender

Traditional retail lenders can include banks, credit unions, savings and loan institutions, and mortgage-focused businesses. These lenders may offer products for both retail and business customers or they may focus just on retail.

U.S. traditional lenders are highly regulated and must follow designated rules in order to provide all types of lending products throughout the nation. As conventional lenders, these institutions must be either federally or state-chartered and are regulated as such. This regulatory oversight brings a great deal of reporting which requires banks to track a broad range of statistics in addition to their standard financial statement reporting, for reporting to the government.

Retail lending is a widely established business across the financial sector and garners a significant amount of profit for the lending institution. Popular retail lending products include personal loans, line of credit accounts, credit cards, home equity lines of credit, and mortgages. Lenders must have well-established origination procedures which allow them to appropriately manage risk across their credit portfolio and also to highly customize the origination underwriting in order to ensure they are taking on appropriate levels of risk.

Retail lending standards have increased significantly since the 2008 financial crisis and subsequent Dodd-Frank Act. Retail lenders must now adhere to higher standards of underwriting and greater lending transparency disclosures. New regulations have broadly helped to improve the quality of loans being issued across the market and also to help consumers from taking on unmanageable debt.