The term “banking” refers to the activities conducted or the services rendered by a bank. A bank is involved in many different types of industries, such as retail banking, corporate banking, merchant banking, wealth management, credit management, etc. The general population is the target market for the retail banking model, which includes placing bank branches across a city that regularly service retail customers. Corporate banking, on the other hand, aims to assist firms by lending money, extending credit, and providing guidance. According to the needs of business houses, it offers specialized financing that is specifically created and tailored for them.
Retail Banking vs. Corporate Banking
The banking industry is divided into many branches that serve various objectives, including corporate banking and retail banking. Retail banking refers to the area of a bank that works directly with retail customers, as opposed to corporate banking, which is part of the banking industry that deals with corporate customers. In contrast to corporate banking, which is the area of the banking sector that serves corporate clients, retail banking refers to the portion of a bank that details directly with retail customers. Since there are numerous bank branches in most major cities, retail banking is what the general public can see. Contrarily, corporate banking works directly with businesses to offer them loans, credit, savings accounts, and checking accounts that are created particularly for businesses as opposed to people.
Difference Between Retail Banking and Corporate Banking in Tabular Form
|PARAMETERS||RETAIL BANKING||CORPORATE BANKING|
|Meaning||The term “retail banking” refers to the area or division of a bank that interacts with retail customers and offers basic banking services.||Corporate banking refers to a division or unit of the bank that offers specialized banking services to major corporate clients.|
|Complexity||In the case of the retail segment, the banking products may generally range from credit cards to housing plans.||In the wholesale segment, there are ‘n’ number of financial products.|
|Financing||Usually called B2C financing.||Usually called B2B financing.|
|Credit Due Negligence||The retail financing is parameterized if the borrower fits into the pre-defined credit parameters/ credit matrix.||Corporate financing is done with great emphasis on each of the 5C’s (Character, capacity, collateral, capital, and conditions) on account of large amounts and complexities.|
|Monitoring/ Reviewing||Non-payment of first/ subsequent EMI, Performance review with a relationship manager, Scorecard parameter reviews, etc.||Site Visiting Reports, Early Default Alerts, Security Margin Cover, etc.|
|Personalization V. Standardization||The mass market is served by retail banks’ standardized goods and services.||Corporate banks might alter their offerings to suit the needs of their customers.|
|Processing Costs||Processing costs are low with retail banks.||Comparatively speaking, corporate banks are more expensive than retail banks.|
What is Retail Banking?
Retail banking, as the name suggests, turns the bank into a shop where customers can select and purchase the goods or services they require to achieve their individual goals. Retail banking refers to the fundamental financial and banking services that are offered by banks to their clients. Consumer banking is another name for it because it is what the average person sees when they think of banking. Fixed deposits, recurring deposits, and mutual funds are a few examples of these services. Retail banks include, for instance, cooperative banks, small finance banks, regional or rural banks, and payment banks.
Characteristics of Retail Banking
- Multiple Products and Services: Current and savings accounts, individual loans, credit and debit cards, traveler’s checks, mortgages, term and certificate of deposits, wire transfers, locker services, and other financial products.
- Multiple Distribution Channels: Branch locations of banks, websites and applications, Call Centers, and Kiosks.
- Multiple Consumer Groups: There are numerous consumer groups, including individuals, families, trusts, societies, small and medium-sized businesses (SMEs), etc.
Banks provide these services at their regionally located branches. If a customer has a question, complaint, or advice, they can go directly to the bank branch. Additionally, banks offer e-banking services, which make it possible to carry out regular transactions online or with credit cards. Money management, deposits, and credit are three areas of focus for retail banking. Thus, it aids clients in managing money, investing, and obtaining credit, as well as saving and investing.
Services Provided by Retail Banks
- Bank Accounts: The availability of deposit accounts enabling consumers to store their money in a bank is a key characteristic of retail banks. Customers who have a savings or salary account can receive money or wages straight into their accounts and send money to others. These accounts frequently have minimum balance requirements, but they enable users to withdraw money whenever they want using ATM cards or in-person bank services.
- Secured Loans: in the case of a secured loan, the borrower is given the loan sum in exchange for an asset, such as a car or piece of real estate. For instance, a retail bank will lend money to a consumer for a home loan against a tangible asset. If the borrower has a loan guarantor- someone who promises to pay the debt if the borrower is unable to repay, retail banks may also grant a secured loan.
- Unsecured Loans: Unsecured loans for a variety of expenses are available from retail banks to customers. These personal loans are often given by banks to customers in times of need. They remove the possibility of customers losing their assets by not requiring any collateral. A bank takes into account several considerations before approving an unsecured loan because it does not require any security. These consist of a positive history with the bank, a high credit score, and a track record of on-time payments.
- Fixed and Recurring deposits: Customers who have enough savings can apply for a savings account with a set duration. These are fixed deposits, fixed interest rates, and fixed maturities. Compared to savings accounts, they offer a substantially larger interest rate. A customer can deposit money into a recurring deposit account regularly and earn respectable returns.
What is Corporate Banking?
Corporate banking refers to the services provided to business entities and corporations by the corporate division of a commercial bank, including local governments, public sector organizations, private limited companies, and public limited companies. It offers specialized banking solutions and financial services to business clients so they may operate smoothly and effectively. Relationship managers are frequently employed by banks to grow their client base and increase revenue. Instead of growing the clientele, this type of project places more emphasis on increasing revenue. Small clientele and higher profitability are made up for in the commercial banking sector by wealthy clients. As a result, let IPB provide you with information and correctly point you out if you're thinking about a career in banking at a commercial bank.
Corporate Banking Characteristics
- General Commercial Banking Activities: It includes services like taking deposits, extending credit lines, simplifying financial transactions, credit cards, e-banking, working capital financing, term loans, trade loans, trade financing, bank guarantees, etc.
- Services Designed especially for Business clients, like MNCs and Governmental Organizations: It also comprises other services such as facilitating global trade, investment banking, project financing, insurance, consulting services, holding shares, cash management, asset management, underwriting securities, etc.
Services Provided by Corporate Banking
- Global Trading: A corporate bank can provide its clients with worldwide trading assistance, such as foreign currency and trade financing services, to assist them in removing international constraints on commercial payments. Regardless of location, clients with international business operations can use global trade services for rapid and simple international transactions. For instance, a business that imports and exports goods or services can easily attract clients from all over the world with the help of trade finance.
- Merchant Services: A corporate bank can provide its customers with a variety of loans and credit options by way of merchant services. Processing commercial credit cards and international electronic payments are included in these services. A major firm can streamline its payments, particularly for online transactions, by using a merchant account. Public sector organizations, state-owned businesses, municipal statutory bodies, as well as numerous micro, small, and medium-sized businesses can use these commercial banking services. Corporations and large businesses can reduce the cost of accepting payments by using merchant services, and commercial banks provide strong data protection.
- Treasury Management: The treasury management services offered by corporate banks can be used by major organizations with international commercial activities to manage their assets and investments more effectively. Clients can minimize operational and financial risks and manage their holdings with the help of these services. Companies can utilize treasury management systems to predict future financial results and assist the efficient flow of funds throughout their operations.
- Loan Services: Corporate banks, as opposed to retail banks, may approve very sizable loans for clients to make investments and purchase assets to aid in the expansion of their enterprises. Loans for constructing or enhancing organizational infrastructure are another example of these. These business loans may be tailored by the banks so that their clients may simply manage the terms.
Similarities Between Retail and Corporate Banking
It is necessary to know the facts about these two branches of the banking sector, but they also coincide on some points, which are stated as:
- Access to Banking: Customers can open bank accounts and use services from corporate and retail banks. Customers and clients may easily access and manage their accounts from any location, at any time, thanks to their online and mobile banking services.
- Transactions: While there are differences in the volume of transactions between corporate and retail banking, both services enable consumers to make deposits and assist them in managing their money between savings and current accounts.
- Transaction Cards: To make it easier for its customers to withdraw money, banks give them different kinds of account cards. Shopping, debit, and credit cards are among these cards.
- Lending: While both corporate and retail banks are capable of offering loans to their clients, the loan amounts that they do so vary greatly. A corporate bank may approve huge loans to large firms, but retail banks only give modest loans for things like homes or cars.
Main Differences Between Retail Banking and Corporate Banking in Points
- Offering a variety of goods and services to individuals and small businesses is the basis of the retail banking business model, which banks use to build up their customer bases as much as possible. By providing goods and services to commercial enterprises and governmental organizations, corporate banking is an alternative business model that banking institutions have adopted to increase revenue.
- Customers are typically provided with standardized goods and services, also known as “off-the-shelf” goods and services, under retail banking. As opposed to this, clients of corporate banking are offered specialized goods and services based on their needs and preferences.
- In terms of customer bases, corporate banking does not typically have a large customer base, but its clients tend to be wealthy. Retail banking, on the other hand, frequently brings in enormous consumer bases to the banks.
- When it comes to retail banking, processing fees are modest, compared to large processing fees for corporate banking.
- Depending on variables like credit score, history, etc., one can only obtain a loan up to Rs.5 crores through retail banking. As opposed to this, corporations can seek for loans worth more than Rs.5 crores through corporate banking.
- Since the customer base in retail banking is made up of both individuals and small businesses like sole proprietorships, partnership firms, one-man businesses, etc., the volume of transactions is low. On the other hand, corporate banking has a low transaction volume but a high value due to its clientele of business entities and high net-worth individuals. Corporate banking is more profitable than the banks’ retail banking business in terms of profitability.
In a commercial bank, both retail banking and corporate banking services are offered. These services vary in terms of their target audiences, the goods and services they offer, and the volume of transactions. With a huge customer base and plenty of transactions, retail banking is mass-market banking. Corporate banking, on the other hand, is a set of services provided by banks to corporate entities to aid in the expansion and smooth operation of their enterprises.