Businesses, too, have financial requirements. They must store funds, obtain loans, and manage their finances in the same manner as individuals. Regular retail banks offer financial services to individuals but do not serve businesses. Corporate banking offers businesses a range of financial services, including vendor management, capital, loans, and account holding. Corporate and retail banking may offer similar services, but they are vastly different. In this blog, we will learn what retail banking vs corporate banking is, its meaning, features and more.
What is Retail Banking?
Retail banking is a mass-market banking service provided by banks; it is nothing more than banking that the public is familiar with, such as opening savings and fixed deposit accounts, depositing money, withdrawing money, and so on. It is a face-to-face banking system in which bank employees must interact with and handle customers; thus, it is also known as consumer banking.
Retail banking products are also customer-oriented, such as car loans, home loans, and personal loans, and the number of customers in retail banking is also very large, as almost every individual now has a bank account.
As a result, it is difficult for banks to focus on individual clients; however, retail banking is one of the banks’ primary sources of income.
Additionally, the funds obtained from retail clients are invested in the market and used to fund loans, for which clients receive an interest payment in return.
Features of Retail Banking
The following are some of the most important aspects of retail banking:
1. Large client base
Although there are a lot of customers in retail banking, each customer’s account balance can vary greatly, so the banks must continue to have a steady flow of clients to collect money through any channel.
2. Competence in credit evaluation
Maintaining good infrastructure becomes necessary for a bank as services are provided and the number of clients increases; however, if banks use a qualitative approach for credit evaluation, they are free from future follow-ups.
3. Nature is broad
Other than depositing money and providing loans, retail banking deals with various sectors of banking facilities such as providing insurance, securities, and other investment facilities to their clients.
4. Providing additional services
Retail Banking provides services to their customers on bank premises, but it is not possible to provide services in banks 24 hours a day, seven days a week.
Thus, banks adopted a strategy of providing necessary services such as money withdrawal by establishing ATMs in various areas to provide timeless services to their clients.
5. Increases liquidity
Retail banking helps to increase the supply of money in the economy by regulating interest rates and periodically reviewing creditworthiness agreements.
What is Corporate Banking?
Corporate Banking only works with corporate bodies, whether private or public, to help them develop their businesses and projects.
However, the corporate banking division of the banks has very few customers, but those that do exist have sizable balances and conduct expensive business.
Thus, the bank strives to maintain good relationships with such clients, providing them with timely services and resolving their complaints before retail banking customers.
Corporate banks provide credit and asset management services based on the needs and requirements of their clients.
Corporate banking, on the other hand, includes general banking services such as international transaction facilities, investment banking facilities, project finance, advisory services, and so on, in addition to the tailored services provided to their large clients.
It has always been a more profitable segment of the banking system than retail banking because many businesses rely on such banking services to meet their financial needs.
Features of Corporate Banking
Corporate banking includes the following features:
1. Customer base is limited
Corporate banking typically serves medium to large businesses or groups rather than individuals and thus has a smaller customer base than retail banking.
However, corporate banking clients deal with large transaction amounts, and banks earn more profits from corporate banking clients by charging large fees.
2. Authority
A corporate banking account is opened in the name of the company, but the consent of all boards of directors is required to open an account by passing a corporate resolution, as authority to handle company matters is in the hands of its board of directors or members.
3. Accountability
The corporate account of the company is only liable for the contents of the company and not the personal contents of the members, as the company has its identity apart from its members, according to the law.
As a result, a company’s corporate account is not liable for personal creditors of its members.
4. Aids in credit rating evaluation
A company’s corporate accounting functions evaluate its credit history, which influences the interest rate on loans as well as the company’s share price.
Investors look for a company with a good credit rating when investing their money; thus, maintaining a good credit rating becomes a company’s responsibility.
5. Personnel expertise
Banks pay a high salary to recruit highly skilled personnel with relevant knowledge of corporate banking because corporate banking clients are very valuable to the banks.
Retail Banking vs Corporate Banking
The following are some key distinctions between corporate and retail banking:
1. Business models
The corporate banking business model focuses on maximising revenue through the products and services that banks provide to large enterprises and government agencies. The retail banking business model focuses on increasing a bank’s customer base by providing appealing products and services to individual customers and small businesses.
2. Financial products
Corporate banking consists of products and services that a bank can tailor to the needs and preferences of large businesses. Retail banks typically offer standardised products and services that cannot be tailored to individual customers.
3. Processing fees
Because corporate banks deal with high-net-worth individuals, their processing fees are typically high. Retail banks have low processing costs, allowing them to serve a large number of customers.
4. Loan amounts
Corporate banking promotes large-scale lending, in which corporations can obtain large loans with highly flexible terms and interest rates. Loan rates in retail banking are low, and individual customers frequently have limited access to high-value loans.
5. Transaction frequency
Corporate banks handle a low volume of transactions because they are for large sums, whereas retail banks handle a high volume of transactions every day.
6. Profitability
A retail bank is more likely to profit from a large number of individual customers who make frequent transactions. Commercial banks make a lot of money because their business model involves dealing with large corporations with high transaction values and service costs.
Conclusion
Retail banking and corporate banking are two distinct sectors within the banking industry, each serving different customer segments and addressing unique financial needs.
Retail banking primarily serves individual consumers and offers a wide range of products and services tailored to personal banking requirements. It focuses on managing day-to-day finances, savings, and borrowing for personal needs.
On the other hand, corporate banking caters to businesses and corporations of all sizes. It provides specialised financial solutions to support its operations, including business loans, trade finance, cash management, and investment banking services.
While both sectors play crucial roles in the banking industry, they differ in terms of customer segments, product offerings, risk profiles, and relationship management approaches.
So, understanding the distinctions between retail banking and corporate banking is important for individuals and businesses alike, as it enables them to choose the right financial services that align with their specific needs and goals.
FAQs
1. What exactly is Corporate Banking?
Ans: Corporate banking is a type of banking that is tailored to the needs of businesses. They oversee all aspects of a company’s financial needs.
2. What is the main difference between Retail Banking vs Corporate Banking
Ans: The main difference lies in the customer segments they serve. Retail banking focuses on providing financial services to individual consumers, while corporate banking caters to businesses and corporations.
3. What are some examples of Retail Banking services?
Ans: Retail banking services include savings accounts, current accounts, personal loans, mortgages, credit cards, and investment options for individual customers.
4. What are some examples of Corporate Banking services?
Ans: Corporate banking services include business loans, trade finance, cash management, treasury services, investment banking, and risk management solutions for businesses of all sizes.
