Investment Bank vs. Commercial Bank: Differences Explained
Types of services for retail banking
Retail banks provide a range of goods and services to aid customers in managing their finances. The level of services a retail bank provides to a customer is influenced by their income and the depth of their relationship with the bank. Numerous distribution channels are available in retail banking, including bank branches, websites, and mobile applications. Some products and services that retail banks offer include:
Deposit accounts
Checking, savings, and other types of accounts that allow you to deposit, store, and manage your money safely are referred to as deposit accounts. Customers may withdraw their deposits in accordance with the terms of their account agreements. These accounts frequently enable withdrawals using debit or credit cards, checks, or over-the-counter withdrawal slips.
Secured individual lending
Individual loans that are secured by a sizable asset that the borrower wishes to purchase are referred to as secured individual loans. The mortgage or home loan on a primary residence or investment property is an illustration of secured personal lending. Mortgages significantly boost a retail bank’s revenue and customer base. Another example of secured personal lending is automobile financing, which offers loans for both new and used cars as well as refinancing for existing auto loans.
Unsecured individual lending
Personal loans, student loans, and credit cards given to individuals for their own use are all considered unsecured individual lending. Without using assets as collateral, unsecured loans are approved. The terms of unsecured personal loans frequently depend on the credit rating of the borrower. For unsecured loans, you typically need a high credit score, and interest rates can be high depending on your credit standing.
Certificates of deposit
A type of savings account with a set term length, interest rate, and withdrawal date is known as a certificate of deposit (CD). These accounts frequently pay more interest than a typical savings account. Customers can lock up money in a CD for a predetermined period of time, usually between three months and five years. Although most banks impose an early withdrawal penalty, CDs typically don’t have monthly fees.
Cash access
The means by which banks permit you to access your money are referred to as cash access. Cash access services include things like checks and automated teller machines (ATMs). Customers can access their money from a smartphone or computer thanks to the websites and mobile apps of many banks.
What is retail banking?
Instead of offering financial services to large institutions or businesses, retail banking, also referred to as consumer banking or personal banking, offers financial services to individual consumers for their own use. Retail banking is mass-market banking made for the general public. A retail bank offers a variety of services, such as checking accounts, savings accounts, and loans, to assist customers in managing their money. They also provide sources of credit and financial advice.
Different types of retail banks exist, including regional community banks and sizable corporate banks that provide services internationally. Technology advancements have also increased the popularity of online and mobile banks, which provide the same services digitally.
What is commercial banking?
Corporate banking, also known as commercial banking, provides financial products and services to organizations, businesses, institutions, and occasionally governments. Commercial banks also provide other business-focused products like commercial loans, global trade and treasury services, and other products for businesses in addition to deposit products like checking and savings accounts. Instead of maximizing their clientele, commercial banks are designed to maximize revenue. Despite having significantly fewer customers than retail banks, commercial banks are typically more profitable due to their wealthy clientele.
Types of services for commercial banking
The services and products offered by commercial banks are specifically created to satisfy the financial and commercial requirements of businesses and institutions. Commercial banks provide the following products and services:
Merchant services
Loans and other credit lines, as well as credit card processing, mobile payment options, and electronic check services, are all considered merchant services. For businesses to make and accept payments, a merchant account is necessary, especially for online businesses. These accounts provide efficient processing and settlement of transactions.
Global trade services
Foreign exchange, financing, letters of credit, and international payments are examples of global trade services, such as trade finance. By adding a third party to eliminate payment and supply risks, these services can facilitate global trade and commerce. Importers and exporters can conduct business through trade thanks to trade finance.
Treasury management services
Treasury management services manage financial resources like cash and investments to simplify business finances. This service includes fund collection, disbursements, and fraud prevention. Treasury management services help a company’s liquidity be optimized while also lowering risks.
Lending services
Additionally, commercial banks provide businesses with financing options and loan programs. Working capital for businesses, commercial real estate lending, and equipment financing are all examples of lending services. All industries, including manufacturing and information technology, can receive loans from commercial banks that are specifically tailored for various types of equipment. They additionally offer mortgage loans and other forms of financing that enable businesses to purchase or lease real estate for commercial purposes. Lending services assist businesses in securing their short-term cash flow and addressing their long-term capital requirements.
Employee services
Commercial banks offer assistance to businesses in creating benefit programs for their employees. Examples of employee services include:
Retail vs. commercial banking
Products and services are provided by retail and commercial banking to two different customer bases. Although the services they provide are somewhat similar, their service scopes are tailored to the unique requirements of their clients.
Here are some similarities between retail and commercial banking:
Here are some differences between the two:
FAQ
Is retail banking part of commercial banking?
Corporate banking, also known as commercial banking, provides banking services to organizations such as businesses, governments, and other entities. While commercial banking provides services to institutions for institutional and corporate use, retail banking provides its services to individuals for personal use.
What is considered commercial banking?
A financial institution is referred to as a “commercial bank” if it accepts deposits, provides checking account services, makes various loans, and provides consumers and small businesses with basic financial products like certificates of deposit (CDs) and savings accounts.
What is the difference between business banking and commercial banking?
Small and medium-sized businesses (SMEs), or businesses with fewer than 5,000 employees and average levels of revenue and turnover, are more frequently referred to by the term “business banking.” Larger businesses are frequently referred to when discussing commercial banking.
