Finances are a vital part of anyone’s life, regardless of the person’s employment status. It is highly recommended that one must always learn to manage their money intelligently. To begin this, the first step is always to gain as much awareness as you can, corresponding to the relevant subjects. It is always possible that any other banking method can be more fruitful than the currently adopted method. Thus, one must always do extensive research to choose the banking method that fits the finances and reaps the most profits.
The most appropriate form of banking for a client differs on the basis of the type of client. Individuals or the general public typically require basic banking services whereas larger clients such as businesses or corporations may require higher banks with higher capital that needs to be handled with higher care and professionalism. Thus, we can categorize banking services into two groups: Retail banking and Corporate banking. However, they differ in more categories than just their customer base, let us take a closer look.
Retail Banking vs. Corporate Banking
The main difference between retail banking and corporate banking lies in the services they provide and the customer base. Retail banking refers to a bank or a division of a bank that serves and deals with retail customers such as general individuals of the public whereas corporate banking refers to banks that specifically deal with small or large companies and other such corporate bodies. Banks that follow the retail banking system provide basic services whereas corporate banking offers specialized high-end services.
Difference Between Retail Banking and Corporate Banking in Tabular Form
|Parameters of Comparison
|Retail banking services are directed towards individuals or the general public.
|Corporate banking services are directed toward large corporations and companies.
|The services provided are standardized for every customer.
|The services provided are tailor-made for the needs of that particular business or corporation.
|They have comparably low processing costs.
|They demand higher processing costs.
|Banks that provide retail banking services typically have a low value of transactions.
|Banks that provide corporate banking services generally have higher value of transactions.
|Retail banking services usually include loan offers up to 5 crores.
|Corporate banking services usually include loan offers that can easily exceed 5 crores as they serve large corporations.
|Banks that provide retail banking services are usually not as profitable.
|Banks that offer corporate banking services can enjoy the opportunity to garner huge profits.
|Banks that offer these services have an ordinary or modest relationship with their customers.
|Banks that offer such services maintain excellent, high-level relationships with their customers.
|Such banks do not handle grievances appropriately and fulfill them in time. This can happen due to excessive clients.
|These types of banks handle any kinds of grievances or conflicts as professionally as possible within a short period since they do not have many clients.
|Retail banking is also referred to as consumer banking or personal banking.
|Corporate banking is also referred to as business banking.
What is Retail Banking?
Retail banking can be described as the assemblage of financial services that are offered to individuals of the general public rather than big corporations. They offer basic banking services that involve deposits, withdrawals, and other such account management tasks. Banks that offer such services deal with a large crowd of customers and thus can only provide standardized services. This also stands to be the reason why any kind of customer service can easily be subjected to delay or mishandling. Let us take a look at how retail banking works.
How does retail banking work?
As stated previously, retail banking offers basic financial services that are related to personal bank accounts, savings accounts, loans, and also online banking and meet your day-to-day needs. Services that come under retail banking are:-
- Bank accounts: Bank accounts allow customers to deposit money and withdraw money whenever desired. They usually impose a limit on such withdrawals. Deposits can be of different categories that involve interest rates, helping them earn extra money. Bank accounts can be linked to certain mobile applications to allow easier online payments and transactions, more convenient than net banking. Bank accounts include savings accounts, checking accounts, transaction accounts, money market accounts, etc.
- Debit cards: Debit cards are intermediary devices that help you withdraw money for various purposes from a savings account.
- Credit cards: Similar to debit cards, credit cards offer withdrawals of cash that are not sourced from a savings account. The money comes directly from the bank and the withdrawal must pay the money back within a certain amount of time along with additional charges imposed by the bank.
- Home loans: These loans are specifically offered for customers who intend to buy a home or refinance it with a second mortgage. Second mortgages are those that allow customers to borrow money using their property that has once already been mortgaged, as collateral.
- Personal loans: Personal loans are those products that do not impose any obligation to provide a collateral or guarantor to obtain the loan. They are sometimes called signature debts and can be used for any purpose. Creditors typically demand dangerously high-interest rates in case of any requirement of extending such unsecured debts.
- Deposit boxes/ safes: Deposit boxes are extremely protected storage spaces that exist within the bank’s walls that offer to keep non-monetary valuables safe. These can include jewelry, important documents, and other such valuable objects. Customers can use this product when they feel that such valuables aren’t safe to be kept at home.
Types of Retail Banks:-
- Regional banks/ Rural banks: These types of retail banks are the ones established in rural areas. They usually provide services to individuals or groups that demand low-income transactions and loans.
- Large Banks: Large banks are those that typically have multiple branches spread across the country and have good capital for their customers that require large sums of transactions.
- Community Banks: The transaction values and capital amount of community banks lie in between those of rural banks and large banks. They too operate at multiple locations and grant loans, although not as huge as those of large banks.
- Private Banks: unlike rural banks, private banks are not dependent on government bodies for capital and typically operate in urban areas. Private banks also can provide to customers that belong to high-income categories.
- Online banks: The use of online banks reduce fees and provide more convenience to the customers. There is lesser wastage of paper as the customer can operate his account in the comfort of his home. There are no branches but the user needs to have proper appliances and internet to perform online banking.
- Post Offices: Most undeveloped areas have access to post offices in the absence of banks to access any financial services. This is done and regulated by the National Postal System.
What is Corporate Banking?
Corporate banking, also known as business banking, refers to all those financial dealings operated by banks and other such financial institutions to serve large corporate bodies or businesses. Banks that adopt corporate banking methods offer asset management, real estate services, treasury management, loans, credit, trade finance, and other such relevant services. They typically have a very high capital to provide such services.
Since most businesses and companies require time and effort to develop enough profits, there are very few such corporations that can afford professional banking services. Owing to the additional factor of high charges, banks that offer corporate banking have fewer customers compared to retail banking. However, they are highly professional and respond to any kind of grievances on an urgent basis. Typically, the services offered in corporate banking are tailor-made for the particular customer according to their financial needs.
Such professionalism demands higher fees for their services, proving to be the chief profit factor for such banks. Corporate banking reaps higher profits than retail banking for the same reason. Let us look at some key segments that define corporate banking institutions:
- Mortgage firms: These types of firms deal with providing and servicing mortgage loans for large properties. However, mortgages can be provided by banks or even private brokers that provide funding with their capital.
- Brokerage firms: Firms that belong to this category exist to connect two businesses or corporations when they need to make a financial transaction. Income can be generated from this kind of brokerage deal in the form of compensation.
- Deposit-taking institutions: these institutions consist of credit unions, commercial banks, and other such corporations, making up a significant part of the banking industry. They allow clients to make deposits in their units to help them accumulate money through interest.
- Non-banking financial institutions: These institutions can be defined as units that provide the same financial services that a bank would provide but are not exactly banks. An example of such an institution is a credit union or shadow bank.
- FinTech(Financial Technology): The main goal of FinTech is to provide newer technologies to the institutions that desire to integrate innovative methods into their financial services. This can include the automation of services like withdrawals, deposits, and transfers. An example of such technology is cryptocurrency.
- Central banks and miscellaneous: this category includes central banks, regulators, and monetary authorities that maintain and take care of commercial banks by issuing the currency, regulating the policies, etc. These institutions mainly exist to minimize inflation and unemployment to balance the currency of the nation. Institutions belonging to this category are usually the last resort for banks when they have a good chance of running into a financial crisis.
Services Provided by Corporate Banking:-
- Cash management
- Treasury management
- Trade resources
- Private equity funding
- Real estate
Main Differences Between Retail Banking and Corporate Banking in Points
- The main distinction between retail banking and corporate banking is their customer base. Retail banking serves clients that are individuals of the general public whereas corporate banking serves clients that are from small or large businesses or corporations.
- Retail banking offers services that are standardized for every customer. On the other hand, corporate banking offers financial services that are tailor-made for every business according to their needs. This is because banks that offer retail banking have a higher number of clients than banks that offer corporate banking.
- Retail processing imposes lower processing costs than corporate banking services.
- Retail banking provides services to low-income groups i.e., those required to perform small transactions. Corporate banking, however, caters to high-income groups, ones that desire to perform transactions of larger sums.
- When distinguishing both these methods in terms of loans, retail banking typically offers loans up to 5 crores whereas corporate banking can offer loans higher than 5 crores.
- Retail banks maintain moderate relationships with their customers whereas corporate or commercial banks offer high professionalism while maintaining their relationships with the customer.
- Due to these services, corporate banks get to charge higher fees and gain more profits for their services. Retail banking, on the other hand, does not provide much potential to make profits.
- In case of grievances, corporate banking allows the customer to enjoy quick management, responses, and compensations whereas retail banking might not respond in the same manner. This is also because retail banking has a higher customer base than corporate banking.
- Retail banking is also referred to as consumer banking or personal banking whereas corporate banking can also be referred to as business banking.
From the above discussion and statements, we can summarize that retail banking serves a higher number of clients whereas corporate banking deals with a lower number of clients. This is the chief reason for all the other distinctions between retail banking services and corporate banking services. Institutions that require professional management of their finances can turn to banks that offer corporate banking services as they are tailored to meet their financial needs. It is recommended that businesses choose corporate banking for any requirement of loans, deposits, or mortgages as businesses require everything in large amounts, including financial resources. Retail banking services are more appropriate and fit for the general public that only demands small transactions or loans.