Companies also have financial requirements. They need to store money, obtain loans and manage their finances in the same way as individuals. Regular retail banks provide financial services to private individuals, but do not serve businesses.Commercialbanking offers companies a range of financial services, including supplier management,capital, loan,and account balance. Corporate and retail banking, while offering similar services, are very different. In this blog, we will learn what is retail banking vs corporate banking, its importance, features and more.
What is retail banking?
Retail banking is a mass market banking service offered by banks; it is nothing but banking with which the public is familiar, such asopening savings and fixed deposit accounts,deposit money, withdraw money and so on. It is a face-to-face banking system that requires bank employees to communicate and interact with customers; so it is also known ascustomerbanking affairs.
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 everyone now has a bank account.
As a result, it is difficult for banks to focus on individual customers; However, retail banking is one of the banks' most important sources of income.
In addition, the funds obtained from private customers are invested in the market and used to finance loans, for which the customers receive interest compensation.
Retail banking positions
Following are some of the most important aspects of retail banking:
1. Large customer base
Although there are many customers in the retail banking industry, each customer's account balance can vary widely. Banks must therefore continue to have a constant flow of customers to raise money through any channel.
2. Competency and merit assessment
It becomes necessary for a bank to maintain good infrastructure as services are provided and the number of customers increases; But if banks adopt a qualitative approach to credit assessment, they are shielded from future follow-up actions.
3. Nature is vast
Besides depositing money and granting loans, retail banking deals with various sectors of banking facilities such as providing insurance, securities and other investment facilities to their customers.
4. Providing additional services
Retail Banking provides services to its customers in bank buildings, but it is not possible to provide services in financial institutions 24 hours a day, 7 days a week.
Therefore, the banks adopted a strategy to provide necessary services such as cash withdrawal by establishing ATMs in various areas to provide timeless services to their customers.
5. Increases liquidity
Retail banking helps increase the supply of money in the economy by regulating interest rates and periodically reviewing credit agreements.
What is business banking?
Corporate Banking only works with companies, both private and public, to help them develop their activities and projects.
However, the commercial banking division of banks has very few customers, but those who do have significant balances and do expensive business.
The bank therefore strives to maintain good relations with these customers, to serve them in a timely manner and to resolve their complaints against retail banking customers.
Corporate banksoffering credit and asset management services based on the needs and requirements of their clients.
Corporate banks, on the other hand, include general banking services such as international transaction facilities, investment banking facilities, project financing, advisory services and so on, in addition to the customized services provided to their major 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.
Functions of Corporate Banking
Corporate banking includes the following functions:
1.The customer base is limited
Corporate banking typically serves medium to large companies or groups rather than individuals and thus has a smaller customer base than retail banking.
However, corporate customers process large transaction amounts and banks earn more profit from corporate customers by charging high fees.
2.Authority
A business bank account is opened in the name ofCompany,but the consent of all boards of directors is required to open an account by passing a corporate resolution, as the power to transact corporate affairs is in the hands of the board of directors or its members.
3. Accountability
The company's business account is only liable for the company's content and not the members' personal content, as by law the company has its own identity separate from its members.
As a result, a company's business account is not responsible for members' personal creditors.
4. Helps with creditworthiness
A company's accounting functions evaluate a company's credit history, which affects both loan interest rates and the company's stock price.
Investors look for a company with good credit when investing their money; Thus, maintaining good credit becomes a company's responsibility.
5.Personal expertise
Banks pay high salaries to recruit highly qualified staff with relevant knowledge of corporate banking because corporate banking customers are very valuable to the banks.
Retail banking versus business banking
Following are some key differences between commercial and retail banking:
1. Business models
The investment bankbusiness modelfocuses on maximizing revenue through the products and services that banks provide to large companies and governments. The retail banking business model focuses on growing a bank's customer base by offering attractive 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 companies. Retail banks usually offer thisstandardizedproducts and services that cannot be tailored to individual customers.
3.Handling fee
Because corporate banks deal with wealthy individuals, their processing fees are typically high.Retail banks have low processing costs, which allows them to serve a large number of customers.
4. Loan amount
Corporate bank promotesborrow on a large scale, where companies can get large loans with very flexible terms and interest rates. Interest rates in retail banking are low, and that also applies to individual customersfrequenthave limited access to high-quality loans.
5. Transaction frequency
Corporate banks process a small number of transactions because the amounts involved are large, while retail banks process a large number of transactions every day.
6. Profitability
A retail bank is more likely to benefit from a large number of individual customers who perform frequent transactions. Commercial banks make a lot of money because their business model involves dealing with large corporations with high transaction values and service fees.
Conclusion
Retail banking and corporate banking are two different sectors within the banking industry, each serving different customer segments and addressing unique financial needs.
Retail banking mainly serves the individual consumer and offers a wide range of products and services that are tailored to personal banking needs. It focuses on managing daily finances, saving and borrowing for personal needs.
On the other hand, corporate banking focuses on corporations and businesses of all sizes. It provides specialized financial solutions to support its businessactivities,including corporate lending, trade finance, cash management and investment banking services.
Although both sectors play a crucial role in banking, they differ in customer segments, product offerings, risk profiles and relationship management approaches.
So it is important that both individuals and businesses understand the differences between retail banking and corporate banking as this allows them to choose the right financial services to suit their specific needs and objectives.
Frequently Asked Questions
1.What exactly is business banking?
Answer: Corporate banking is a form of banking that is tailored to the needs of companies. They oversee all aspects of a company's financial needs.
2. What is the main difference between Retail Banking and Corporate Banking
Answer: The main difference lies in the customer segments they serve. Retail banking focuses on providing financial services to individual consumers, while corporate banking focuses on businesses and corporations.
3. What are some examples of retail banking services?
Answer: Retail banking services include savings accounts, checking accounts, personal loans, mortgages,credit card,and investment opportunities for individual clients.
4. What are some examples of Corporate Banking services?
Answer: Corporate banking services include corporate lending, trade finance, cash management, treasury services, investment banking and risk management solutions for companies of all sizes.
