Introduction
Private banking is the origin of the banking sector. It was first started for the royal family to manage their finances. Later, it took the shape of personal and corporate banking. After then, it was also opened to the general public.
Though the main motto of both types of banking is to manage the finances of their consumer, they vary from each other. The type of services they provide depends on the consumer they entertain.
Private banking is still a service offered to high-class society. On the other hand, personal banking was started to provide the same services to the public but in a general way.
Personal Banking vs. Private Banking
Private banking provides services only to the elite classes. Earlier, it only managed the finances of the royal family. Later it was opened also for high-net-worth individuals. Its services include asset management, estate management, investment planning, financial planning, tax reduction, etc. It offers personalized services with the help of a relationship manager or a private banker. It is appointed for each consumer to manage their assets.
Personal banking is a general form of banking that is used for all types of financial works except business. It provides services like saving accounts, debit and credit cards, personal loans, mortgages, etc. Today, personal banking is one of the most common types of banking. And, as time passes, it is also taking steps in modern technologies. Though not private, banks are trying more and more to provide personal services via online banking.
Difference between personal banking and private banking in tabular form
| Parameter of comparisons | Personal banking | Private banking |
| Consumers | The general public (poor and middle class) | High-net-worth individuals (high-class society) |
| Availability | Open for everyone | Open only for rich classes |
| Services include | Saving accounts, mortgages, personal loans, credit or debit cards, CODs. | Tax preparation, corporate checking, estate management |
| Type of service | general | Personalized (only to high net-worth individuals |
| Required initial balance | 0 | $5,00,000 |
| RM services | Generally, not available (available only in premiums) | Already included in the services |
| Available online | Yes | No |
| Privacy | Doesn’t offer any privacy | Secrecy is maintained |
| Preferential pricing | Not available | available |
What is personal banking?
Personal banking is also known as corporate banking and retail banking. It is a public-based financial service used for saving accounts, private loans, mortgages, etc. It is managed by a group of people or institutions. Unlike private banking, personal banking is associated with individual customers. It can be local as well as global, depending on the type of banking.
The main aim of personal banking is to provide services to individuals who just want a safe place to keep their assets. Personal banking provides numerous services like saving accounts, fixed deposits, personal loans, debit and credit cards, mortgages, etc. However, the most population doesn’t utilize these opportunities offered by the banks. They use it only to save their money and for debit and credit cards.
The most popular use of personal banking is a savings account. Private banks offer a secure platform to keep the money of the individuals safe. A secure network system work behind it that manages the transactions and savings.
It is connected with the help of a chain headed by a chain head. Local bodies then combine to the local main branch located in small cities. These main branches are further connected by a state-level body. Then, all state-level branches are handled by a single body. In India, all banks are connected to the Reserve bank of India.
Personal banking is used only for personal works like keeping your savings, managing your money on small scales, taking loans and mortgaging, and getting easy services. Business services are not included in it. One cannot do business with the help of personal banking. It is used only for personal services.
Personal banking offers relationship manager services (RM). Nevertheless, it requires a relationship manager premium service to avail of it. It helps to manage the money, advice on where to invest the money, and many more.
The services in personal banking are updated every day. Now, it has started a new branch of online services. It helps to reduce the number of visits to the bank. Also, the key services of the bank will be at hand in the form of a mobile app. With the help of online services, the money present in the bank account can be utilized anytime and anywhere. The present UPI services and mobile app services enable to transfer of money from the bank account. Also, it doesn’t need to go to the bank.
Online services have revolutionized banking services. It makes the transfer and withdrawal of money easier. Personal loans and mortgages are also available on the mobile app. It means even personal loans and mortgages can be taken sitting at home.
Types of personal banking
Commercial banking
Commercial banking is a branch of personal banking that offers services like saving accounts, fixed deposits, debit and credit cards, and personal loans. It is a profit-based institution. And, the main source of its income is interest rate spread and transaction fees.
Commercial banks charge a specific percentage from the amount when we transact money. It might be 0.5% to 1%. This percentage is minimal and is included in the transaction slip. It is one of the biggest sources of income for banks.
Next, it earns from the interest spread rate. It is the difference between the percentage that bank charges on loans and the percentage that banks give on saving accounts and fixed deposits are the interest spread rate. It depends on the market. If the market is high, people take loans and also deposit more. Hence, the income of banks is high. However, in low seasons, no one wants to take a long, and they withdraw their money from the bank accounts. It decreases the overall income of the bank.
Credit unions
Credit unions are non-profit organizations that provide loans on lower interest rates as compared to banks. It is a much smaller institution. Being a non-profit institution, it usually faces financial problems. It doesn’t have any proper building to work and generally works in person.
Being a small institution, credit unions face multiple problems. Financial problems and the availability of very a much smaller number of people are common here. They never compete with corporative banks. Also, they have fewer facilities and technologies as compared to the corporative banks. They have fewer employees and work for comparatively fewer hours.
Credit unions are not open for all people. And, mass people are unaware of its existence. They were opened for the welfare of people. Most commonly, they are found in rural areas.
What is private banking?
Private banking is a public-based service that is provided only to high-net-worth individuals. It provides customized services to the HNWIs. The HNWIs need a special system to manage their money and choose the area of investments. These all works are provided by private banking. A private banking service manages all financial matters of HNWIs.
The work of private banking is quite different from other banks. A personalized relationship manager or private banker is appointed to each customer. The main work of this personalized relationship manager is to look after the management of the assets of the person. It also provides services like estate management, financial planning advisory, mortgages, retirement planning, etc.
Private banking is the origin of banking. It was first started to manage the finances of the royal family. The first bank in Venice was opened to manage the finances of the royal family. Later, it widespread during the first and second World Wars. People chose Switzerland to keep their money safe. Still today, Switzerland is famous for private banking. However, in recent times, the United States has also made remarkable growth in the private banking sector.
Private banking offers privileged and personalized services. Privacy and protection remain assured with it. It is one of the most important aspects that an HNWI wants. A relationship manager keeps the tailored proprietary solutions that are kept private so that other competitors can’t copy any alluring idea.
The minimum amount required to open an account in a private bank is $5,00,000. This price was quite higher earlier. It is one of the main reasons that people who open an account in a private bank are always suspected of fraudulence. The Swiss bank of Switzerland is one of the most known private banks that keeps the money of their customers hidden.
Tax invasion is one of the most common features of private banks. It hides the original income of the HNWI from tax authorities. Hence, it is widely popular among the high class. While tax fraud is a crime, tax invasion is considered only as a civil case. Hence, it doesn’t involve any severe punishment.
Private banking offers many services that are not available to the general public. Investing options are one such example. It offers a private manager that advises managing the investment plan. Where and how investing can give profit.
Preferential pricing is an important part of private banking. It offers consumer discounts and preferences in different financial works. These services make private banking an alluring option. More and more elite society is attracted to it. That’s why the net worth of private banking is increasing every day.
Private banking also has some disadvantages. It is available only for the elite class. And, the expense needed to maintain that service is remarkable. Also, only a single person manages the whole system. There might be chances of fraud. And, it is difficult to detect any fraud in a large sum of money.
Main differences between personal banking and private banking (in points)
- Personal banking is available for the general public. It can easily be found in local areas. However, private banking only provides services to high-net-worth individuals. Also, they are available in specific areas only. It is operated worldwide. Hence, a person can open an account in any country irrespective of the fact that he/she is not residential there.
- The services of personal banking include saving accounts, personal loans, mortgages, credit and debit cards, and also online banking. Whereas, private banking services include estate management, financial planning advisory, retirement planning, investment planning, etc.
- In private banking, a personalized service provider is appointed to the individual consumer to manage all financial problems. In contrast, personal banking doesn’t provide any such service. However, with the help of the internet, the services of the banks are customized in a mobile app. It can be said a form of personalized service. But it should be managed by the person rather than any service provider.
- The minimum amount required to open an account in a personal bank is zero. Earlier, it was 100 rupees, but some government policies dropped it to 0. It was done to accommodate even a poor family so that it can get loans. On the other hand, the minimum balance needed to open an account in private banking is $5,00,000. Earlier, it was higher, but it was dropped to accommodate more and more people in it.
- Personal banking doesn’t render any privacy. It can be checked and investigated by anyone. Even higher authorities can ask for the list of all transactions. However, private banking maintains privacy. No one can check out the available balance. It even hides the real income of the consumer from the tax collectors.
Conclusion
Personal and private are two different branches of banking. The services provided don’t match at all. Personal banking focuses on the poor and middle class. In comparison, private banking focuses on the rich class. Services also vary according to the need of consumers.
Though the origin of personal banking lies in private banking, today, personal banking is a larger service provider. It often consumes private banking inside it. However, the net worth of private banking is higher than that of personal banking.
Both are an important part of the banking sector. Their needs and opportunities are different. And, it depends on the need of a person what they want.
References
- Private banking - Wikipedia
- Retail banking - Wikipedia
- Retail Banking - Investopedia
- Private Banking - Investopedia
- Retail Bank Types - Corporatefinanceinstitute
- Private Banking - Corporatefinanceinstitute
