Difference Between Merchant Banking and Wholesale Banking

Edited by Diffzy | Updated on: July 16, 2022

       

Difference Between Merchant Banking and Wholesale Banking Difference Between Merchant Banking and Wholesale Banking

Why read @ Diffzy

Our articles are well-researched

We make unbiased comparisons

Our content is free to access

We are a one-stop platform for finding differences and comparisons

We compare similar terms in both tabular forms as well as in points


Introduction

The banking industry deals with cash, credit, and other financial transactions for both individuals and businesses. Banks provide the liquidity that families and businesses need to invest in the future and are one of the main drivers of the U.S economy.

A bank or credit union can offer products and services to help you save money, borrow more and build your savings. You don't need to save money before going to college or buying a house. Businesses can get loans immediately to hire to meet future demand and expand their business. Banking is the key to financial growth.

Merchant Bank is an entity that performs various types of financial services for its clients. This bank does not offer regular banking services to the public. They provide financial advice and services to people in business and manage international finances. This type of banking can be high-risk. Citibank and HSBC are two of the most well-respected merchant banks.

A wholesale bank offers banking services to institutional customers, large companies with strong balance sheets, government agencies and other organizations. These banks do not offer services to individuals or small businesses. This includes borrowing and lending among large financial institutions and banks. This banking is less risky than Merchant banking. ICICI Bank and Canara Bank are two of the most popular wholesale banks.

Wholesale Banking vs. Merchant Banking

The major difference between a wholesale bank and a merchant bank is that a wholesale bank offers services to large institutions and big businesses, while a merchant bank handles international services.

Difference between wholesale banking and merchant banking in tabular form

Table: Wholesale Banking vs. Merchant Banking
Parameter for Comparison
Merchant Bank
Wholesale Bank
Concept
This bank specializes in commercial loans and investments. These were the first modern banks.
This refers to the provision of services by banks for real estate developers, large companies, investors, etc.
Risques
This type of banking can expose you to high risks.
This type of banking is relatively risk-free compared to Merchant banking.
Get Deals With
This bank deals with international finance, buying and sale of shares, stock exchanges etc.
This bank works with multinational corporations, the corporate sector, and the public sector.
The Best Advantage
They have access to traders and markets that no company or individual can reach.
These fees are low and provide additional security for depositors.
Example
1. Yes, Bank
2. Bajaj Capital Ltd.
3. Tata Capital Markets Ltd.
1. Bank of India
2. ICICI Bank
3. Canara Bank

So the tabular form shows the differences between wholesale banking and merchant banking. Now let’s see it in detail.

What is Merchant Banking?

These banks offer services such as loan services, fundraising activities and financial advice to individuals and businessmen. This bank does not offer regular banking services to the public. They provide financial services such as raising funds and providing financial advice for businessmen. Axis Bank and Yes Bank are two of the most well-known Indian merchant banks. JP Morgan and Goldman are some of the most well-known international banks. They also offer their services as consultants in trade and technology.

What are the benefits of Merchant Banks?

  1. These banks can offer advice and counselling.
  2. These banks support companies in maximizing their money and ensuring that they grow.
  3. This bank can help us get quick loans and funding for our debts.
  4. They play an important and vital role in the economy of today's country.
  5. They allow a company to invest its funds in the stock market.

Merchant banking is a service that merchant banks offer to their customers. It is designed to meet their financial needs and receive a reasonable fee. Merchant banks are banks that provide financial advice, loan services and fundraising to large corporations.

These banks are experts at international trade and can deal with large companies and industries. Merchant banking is a way to provide funds for large businesses in the country and multinational companies. This helps boost the country's economy.

Merchant banks are not open to the public. They only provide services to large businesses and business entities.

A merchant banker is someone who assists with the subscription of securities. Merchant banker is an important role. They have many responsibilities, including private placement, managing public securities issues, stock broking, international advisory services, and more.

Functions of Merchant Banking

Securities and Exchange Board of India (SEBI), 1992 regulations govern merchant banking in India.

Portfolio Management

The merchant bank provides investment advice to investors in order to help them make their investment decisions. Merchant banks offer portfolio management assistance by trading securities for investors.

Fundraising for clients

Clients can raise funds through merchant banks by purchasing securities.

Promotional activities

In its early stages, the merchant bank can also help promote the institute. It allows the organization to develop their business idea and get approval from the government.

Loan Syndication

Merchant banks offer this service to their clients in order to raise credit from financial institutions and banks.

Leasing Services

Leasing services are also offered by merchant banks to their customers.

Merchant banking offers a wide range of support and opportunities to new businesses. This has a positive impact on the country's economic growth.

What is Wholesale Banking?

Wholesale banking is the business of doing business with business and industrial entities. This includes trading houses and multinational corporations, as well as prime public sector and prime government agencies. They are unable to accept deposits from individuals or raise funds via bulk deposits. This bank works with large investors, people involved in real estate, large and small companies, as well as the public sector. They do not offer services to individuals or small businesses. This includes borrowing and lending among large financial institutions and banks on a very large scale. Canara Bank and Bank of India are some of the most popular wholesale banks. They offer loans for larger amounts, such as to set up an industry or obtain machinery loans.

What are the benefits of Wholesale Banks

  1. These provide additional safety for depositors.
  2. They offer cash management solutions.
  3. This banking is less risky than Merchant banking.
  4. They meet huge working capital requirements.
  5. They assist in financial transaction monitoring and recovery.

More information

Wholesale banking is the sale of banking services to large clients such as banks, financial institutions, government agencies and large corporations. Wholesale banking is different from retail banking which focuses only on small businesses and individual clients. Wholesale banking services include currency exchange, working capital financing and large trade transactions.

Wholesale banking, in its essence is the financial practice that allows two large institutions to lend and borrow money. These services are often provided by investment banks, which also offer retail banking. An individual who is looking for wholesale banking would not have to visit a specific institution. He could instead use the same bank that he uses to do his retail banking.

Services that are "wholesale", are only available to government agencies, pension funds, strong financial institutions, and similar institutional customers. This is for large organizations that need more services than an individual or small business and who require it on a larger scale. These services usually cost less than those offered to individuals because of their large scale.

Wholesale banking is also the lending and borrowing between institutions and banks. This type of lending is done on the interbank markets and can often involve large amounts of money.

Example of wholesale banking

Wholesale banking can be viewed as a superstore that sells large quantities at a discounted price, such that it can offer reduced prices or lower fees per dollar. Large institutions or organizations with large assets or transactions can benefit from wholesale banking services over retail banking.

A wholesale bank solution is needed for cash management in many cases, such as when a company has multiple locations. These services are ideal for technology companies that have satellite offices. Let's say that a SaaS (software-as-a-service) company has 10 sales offices distributed around the United States, and each of its 50 sales team members has access to a corporate credit card. Each sales office must also keep $1 million in cash reserves. This totals $10 million for the SaaS business. This company is simply too large to be considered standard retail banking.

Instead, business owners can contact a bank to request a corporate facility which keeps all of their financial accounts. Wholesale banking services are similar to a facility that provides discounts for businesses that meet minimum cash reserves and minimum monthly transactions requirements.

The corporate facility consolidates all the company's financial accounts and lowers fees. This is a better option than having 10 retail checking accounts open and 50 retail credit cards.

Wholesale banking has many advantages

It provides the same services as a retail bank but at a lower price. You can also get a substantial discount on services if you place large deposits in the financial institution.

Wholesale banking has its disadvantages

  • The cash of an entity that is concentrated in one place can lead to a high dependence on its stability for safety.
  • There are several ways to transform wholesale banking by making large-scale investments in the next generation re-platforming, and automating certain products. - Mutualizing processes, especially in areas like reference data management and lending operations. - Setting ambitious goals for dramatic improvements

How Wholesale Banking Works

Wholesale banking offers institutions too large to be managed by retail banking the much-needed services of wholesale banking. Large companies and government agencies are often served by wholesale banks.

Wholesale Banking for Large Corporations

These institutions have high-revenue banks that can manage cash, daily transactions and loans. Retail banking, on the other hand, is structured around lower monthly volume transactions. Retail banking is likely to be more expensive than wholesale for corporations with millions of dollars in annual revenue.

Wells Fargo's Wholesale Banking services corporations have annual revenues of at least $5 million. 1 Larger business can handle more financial transactions than small businesses. Wholesale banking can accommodate large currencies and larger transaction volumes at a lower price.

These large institutions are able to enjoy discounted prices due to their size and the volume of services they require. Wholesale banks work in a similar fashion to wholesale shops, where consumers can save money by purchasing bulk groceries and home goods.

Wholesale Banking for Government Agencies

The unique requirements of government institutions can also be met by wholesale banking. Municipalities and local governments need more than a place to keep the money. These governments may need additional assistance from bankers with expertise in government banking. To better manage your financial accounts, wholesale banking can offer account management by bankers who have government experience.

Management of government banking requires more than just commercial banking. Wholesale banks must provide financial support that doesn't violate local regulations and avoid conflicts of interest.

Local government account management can include managing public funds. This comes with its own set of regulations. Managers of government banking accounts manage common banking requirements while also taking into consideration additional risks, public relations and local laws and regulations. Although government banking can be riskier than other sectors due to increased scrutiny, it is necessary to ensure that all local governments receive the banking services they need.

Differences between wholesale banking and merchant banking in points

There are main differences between wholesale banking and merchant banking

  1. Merchant banks offer financial support, such as raising funds and providing financial advice to businessmen. Wholesale banking is the business of doing banking business with business and industrial individuals, mostly trading and corporate houses.
  2. Merchant banks deal in international finance, stock exchanges, etc., while wholesale bank deals with large multinational companies, the corporate sector and the public sector.
  3. Only a handful of wholesale banks offer trade financing services to clients, while merchant banks provide trade finance services to clients.
  4. A wholesale bank's job is to be a financier, while merchant banks are financial advisors.
  5. Merchant banking has higher interest rates than wholesale banking, which is lower than merchant banking.
  6. SEBI registration is required for merchant banks, but not for wholesale banks.

Conclusion

Both banks are vastly different in every way. A wholesale bank acts as a lender, while merchant banks are financial advisors. International financial institutions play a large part in the lives of merchant banks.

They offer services such as credit and funds transfer, advice on financial consulting, and more. They can help a company manage its funds and provide advice. Wholesale bank deals are made with large multinational corporations, the corporate sector and the public sector. These banks do not offer services to individuals or small businesses. It includes borrowing and lending among large financial institutions and banks on a large scale.

References

  1. https://www.wallstreetmojo.com/commercial-banking-vs-merchant-banking/
  2. https://www.wise-geek.com/what-is-a-merchant-bank.htm

Category


Cite this article

Use the citation below to add this article to your bibliography:


Styles:

×

MLA Style Citation


"Difference Between Merchant Banking and Wholesale Banking." Diffzy.com, 2022. Tue. 06 Dec. 2022. <https://www.diffzy.com/article/difference-between-merchant-banking-and-wholesale-banking-136>.



Edited by
Diffzy


Share this article