We have a variety of banking choices at our disposal. Banking services differ depending on the individual or organization. The retail banking model caters to the general public, with bank branches strategically placed across a city that works with retail customers on a regular basis. Commercial banking, on the other hand, helps businesses raise funds, extend loans, and offer advice. It offers business clients individualised credit that is tailored to their specific needs. A bank can do things like retail banking, corporate banking, merchant banking, investment banking, wealth management, and credit management, among other things.
What is retail banking, and why is it so important?
Retail banking, often known as consumer banking or personal banking, is a type of banking that caters to individual customers rather than huge organisations or enterprises. The term “retail banking” refers to mass-market banking geared toward the general people.
Local banks and large-scale corporate banks that provide services worldwide are examples of retail banks. Online and mobile banks have become increasingly popular as a result of technological advancements, and they provide the same services in a digital format.
The term “retail banking” refers to a wide range of products and services, including:
- Savings and checking accounts
- Deposit certificates (CDs)
- Finance for vehicles
- Credit cards are accepted.
- Personal credit products such as home equity lines of credit (HELOCs) and other personal credit products
- Currency exchange and remittance services
What is commercial banking, and how does it work?
Commercial banking, often known as corporate banking, provides financial services to businesses, corporations, institutions, and governments. Commercial banks offer commercial loans, worldwide trade and treasury services, and other business-oriented products. The commercial banking approach is designed to increase revenue rather than client base. Despite having a far smaller clientele than retail banks, commercial banks are often more profitable due to their affluent customers.
Corporations and other financial entities can get the following goods and services from commercial banks:
- Loans and various types of credit
- Services for treasury and cash management
- Financing of equipment
- Real estate for business
- Finance for international trade
- Employer-related services
Commercial banks provide services to their corporate clients through their investment banking units as well, such as asset management and securities underwriting.
Difference between Retail and Commercial Banks
Let’s look at how Retail and commercial banking are distinct in various aspects in more detail.
Both types of banks offer a diverse range of services to their customers. The following services are available to retail banking customers:
Savings and checking accounts
Customers can open checking and savings accounts with a retail bank. You must pay a monthly fee once you’ve opened a checking account.
A savings account pays a little greater interest rate than a checking account. You cannot, however, have checks issued on the account.
Clients of retail banks can choose from a variety of mortgage loan options. These loans can be used to buy a home or an investment property. Mortgages, in general, account for a significant portion of retail banking revenues due to their magnitude.
Retail banks are another option for clients searching for auto finance. Existing auto loans can also be refinanced by the banks.
Credit Card services
For banks, credit cards are one of the most profitable sources of interest income. This is due to the fact that this service has some of the highest interest rates in the business.
There are many additional services available through retail banking, but these are the most common.
Loans and other forms of credit
Corporate banks, like retail banks, provide a variety of financing options. The fact that loans are involved is perhaps the most significant distinction. Corporate banking provides more reasonable services than retail banking.
Services for Treasury and Cash Management
Treasury and cash management services are also available to corporate banking clients. Clients can use such services to manage their working capital as well as satisfy their currency exchange demands.
Lending of Equipment
Clients can get a variety of equipment through tailored loans and leases. Equipment like this may be used in a range of industries, including manufacturing, information technology, and transportation.
Corporate banks also provide the following services:
Factoring letters of credit for trade financing
Clients of corporate banking may expect to discover a variety of products to satisfy their financial needs.
Clients to Be Targeted
The clientele of these two banks are vastly different.
Individuals are the focus of retail banking. Corporate clients, ranging from SMEs to big conglomerates, are the focus of commercial banking.
Transaction Volume and Value
The volume of transactions in retail banking is often high. However, because the client base comprises people and small enterprises, the transaction value is modest.
Commercial banking, on the other hand, has a substantially smaller transaction volume. The value of these transactions, on the other hand, is significantly larger because the customer base is often composed of large corporations.
Customization of Products
In general, there is limited product and service customization in retail banking. The majority of items are standardized, sometimes known as “off-the-shelf” products.
Corporate banking is unusual since the goods and services are highly customized to match the client’s individual requirements and preferences.
A commercial bank offers both retail and corporate banking services, which differ in a variety of ways, including customers, products/services supplied, and transaction amounts.
Retail banking is a type of mass-market banking that involves a large number of consumers and significant transaction volumes. Corporate banking, on the other hand, refers to the services provided by banks to businesses in order to help them develop and function more efficiently.