Since we have several banking choices available to you, you may get confused between the different onesbanking and financemodels. Banking services may vary depending on the end customer, i.e. individual or organization. Therefore, it is necessary to understand which bank will correctly meet your needs. Let's take a closer look at this guide to understand in detail the two popular banking models: Retail and Commercial.
Typically, a bank's two target groups are general customers and businesses. This difference forms the basis of private and business banking. While the former caters to individual customers who want to deposit and withdraw money from banks, the latter manages business banking needs. However, this is not the only difference between the two. Other points of distinction for thisBFSI sectorsis explained below.
What does Retail Banking mean?
Retail Banking focuses on the individual consumer and their personal banking needs. The efforts of the retail banking sector are aimed at the mass market consisting of ordinary people. A bank sets up several local branches to reach its target group throughout the area. Examples of retail banking include local banks and large investment banks that offer global services. Some examples are Punjab & Sindh Bank, HDFC, ICICI etc.
Features for Retail Banking
Retail banks have the following characteristics that describe their nature:
- Standardizes products and services:Retail banks offer standardized products and services to the mass population. The variety includes current accounts, savings accounts, fixed deposit accounts, credit cards, mortgages, home loans, etc.
- Different distribution channels:Retail banks offer their services to their end users through numerous channels. These include local bank branches, websites, mobile applications, etc.
- Different consumer groups:Retail banks serve individual customers, associations, households, trusts, small and medium enterprises, etc. Thus, retail banks provide their customers with the opportunity to manage their money, deposit it and access credit when necessary.
Services offered by retail banks
Ordinary consumers can use different products and services from retail banks, depending on their income and level of involvement. Retail banks communicate with consumers through various distribution channels, including bank branches, websites and mobile applications. Through these modes they provide the following services:
Deposit and withdrawal accounts
Users can open current, savings, fixed deposits, recurring deposits and other types of accounts at retail banks. This allows them to store, manage and earn interest on their money. Depending on the account type and agreement, funds can be withdrawn and transferred via payment cards, checks, electronic fund transfers, real-time gross settlement, etc.
Secured and unsecured individual loans
Individual level customers can borrow money from banks through secured or unsecured modes. The former involves mortgages, home loans, home loans, car loans, etc. Unsecured loans, on the other hand, have no collateral and depend on a customer's credit score.
Other products and services
Various other products and services include foreign exchange services, currency exchanges, certificates of deposit, money transfers, etc.
What does Commercial Banking mean?
Commercial banking involves meeting the needs of business banking. These financial institutions provide financial services to governments, corporations, businesses of all sizes, institutions, etc. These banks offer business-oriented products such as commercial loans, global trade, financial services, etc.
In these types of companies, the focus is on increasing sales rather than on the customer base. Wealthy customers in the commercial banking sector eliminate the small customer base and drive higher profitability. So if you want to consider onebanking careerat commercial banks, let IPB provide you with insight into this and guide you in the right direction.
Characteristics for commercial banking
Commercial banking has the following functions:
- Customized products and services:Commercial banks provide customized financial products and services to their end users. The focus is on enabling efficiency and streamlining business operations.
- Low volume, high profit trading:Compared to retail banks, commercial banks do not deal in large volumes. This is because their customer base is a specific group and not the mass market. Even under such conditions, the profitability of retail banks is high. This happens because of their low volume, but high value to consumers. The profitability margin is high in these cases.
Services offered by commercial banks
Commercial banks offer business-specific banking products and services, including the following:
Lending services
Businesses often need money for working capital, investments and related needs. Commercial banks thus offer numerous banking and financial options to finance their needs. Such banks can tailor their financial loans and credit options to the needs of their target group. For example, real estate companies, the manufacturing sector, etc. can benefit from targeted lending opportunities. These options allow them to meet short-term financing and long-term capital needs.
Treasury management services
When managing financial assets, such as cash and investments, treasury management provides the opportunity to streamline the company's finances. Through these services, companies can optimize their liquidity while minimizing risks such as fraud.
Global trading services
Companies involved in international trade can benefit from commercial banks that offer global trade services. These include foreign exchange, global payments, letters of credit and related services. Import and export companies manage trade finance and eliminate the risks associated with payment and delivery through a third party introduced by commercial banks.
- Personnel-related services
Large companies need to have employee benefits that hit two chords with one stone. These programs should not burden the company's pockets, but at the same time value the employees. Commercial banks enable these operations by offering direct deposit, payroll processing, health insurance, retirement programs, employee stock ownership plans, disability programs, etc.
Dealer services
The rise of online businesses has created the need for efficient banking. Commercial banks offer services such as electronic check services, mobile payment gateways, credit card processing, etc. These services focus on timely and accurate transaction processing.
Comparison between retail and commercial banking
Now that we have understood the meaning and services that the two banking models offer, let's compare them in depth.The table below shows the distinction between commercial and retail banking:
| Basis | Retailbanking | Commercial banking |
| Retail banking is the same as consumer banking. Here the bank offers its services to the general public. The bank provides basic banking services to the customer. | Commercial Banking involves offering specialized services to specific customers. These banks use customer deposits and offer them to companies to invest and make money. |
| Retail banks deal with mass markets, including the public. In short, they serve individuals and the general population. This means they have a broader customer base. | Commercial banks serving specific businesses, governments and corporations including small, medium and large enterprises, etc. Their customer base is relatively narrow. |
| Retail banks have low processing costs. | Commercial banks have relatively higher costs than retail banks. |
| Retail banks offer standardized products and services to their mass market. | Commercial banks can tailor their products and services to customer needs. |
| Retail banks offer a lower transaction value in their products and services to the target group. | Commercial banks provide high-quality loans, transactions and settlement services. |
| The profitability aspect in retail banking is relatively low to cater to the mass population and keep them attracted to the competitive market. | Commercial banks earn higher profits based on high-quality transactions, less market competition and related factors. |
| Retail banks offer the following products and services:
| Commercial banks lend the following products and services:
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However, not everything is different with these two sofa models. You'll also see some similarities between the two. These are given below:
Therapy
Consumers of private and commercial banks can open their deposit accounts with the banks and save their money. There is an option to check and save accounts to manage money.
debit card
Commercial and residential banking users may have access to credit and debit cards to conduct transactions. Similarly, NEFT, RTGS and related financial transaction services are also available in both.
Lending services
Retail banks offer consumers loans based on their credit score (unsecured loans) or mortgage loans (secured loans), depending on their needs. For example, there are home loans, car loans, education loans, etc. available. On the other hand, commercial loans allow businesses to borrow money to invest, create assets and generate profits.
Distribution channels
Usually, the service distribution channels are the same for both private and commercial banks. For example, users can visit the local branches to access the services. Similarly, there are online and mobile applications available for remote banking.
This comprehensive comparison outlines every detail, distinction and similarity between commercial banks and retail banks.
Resume
The differences in retail and commercial banking services mainly arise from differences in the target group. But commercial banks typically include most of the features of retail banks. They have some additions that meet the specific needs of businesses, corporations and governments.
So while retail banks offer services to individuals to finance their daily lives, commercial banks manage the trade finances of companies and businesses. If you are considering onebanking course after graduationfor a career in retail and commercial banking, please contact the IPB team.
