Commercial and retail banking refers to two aspects of the same industry that provide products and services for banking to two distinct client groups. Retail banks offer services to customers who are retail and commercial banks provide services to corporate customers and businesses, although most banks offer both a retail and commercial division. If you’re trying to decide between commercial and retail banking, it is essential to be aware of the distinctions between the two. We present an overview of retail commercial and retail banking, a summary of their services, and analyze the similarities and distinctions between the two banking options.
What is Retail Banking?
The term “retail banking,” also referred to as personal or consumer banking, offers the financial services of consumers to use for their personal needs, as opposed to large businesses or institutions. Retail banking is a form of mass-market banking designed for people of all ages. Retail banks help clients manage their money by offering different services, such as savings accounts, checking accounts, and loans. They also provide resources for financial and credit counseling.
There are a variety of retail banks. These include local community banks, as well as large-scale corporate banks which offer their services worldwide. In addition, technological advancements have made mobile and online banks more widespread and provide the same services online.
Types of Services for Retail Banking:
Retail banks provide various options and services to aid consumers with their money. The amount of services a retail bank offers customers is contingent on their income level and the degree of relationship with their bank. Retail banking has multiple distribution channels, including branch locations and mobile and website applications. Some of the products and services retail banks provide include:
Deposit Accounts:
Deposit accounts are savings, checking, and other accounts in which you can safely deposit, save and manage your cash. Deposited funds can be withdrawn according to the terms of their agreement. The accounts typically permit the account holder to withdraw money with checkbooks, bank cards, or withdrawal slips from the counter.
Secured Individual Lending:
Secured personal lending refers to types of loans to individuals with an asset of a significant size they wish to acquire. One instance of secured individual credit is taking out a mortgage or home loan for a homeowner’s property or investment. Mortgages significantly contribute to a retail bank’s earnings and its client base. The financing of automobiles is another type of secured individual loan that offers loans for both used and new automobiles and refinancing of existing car loans.
Unsecured Individual Lending:
Unsecured personal lending is the term used to describe personal loans such as student loans and credit cards issued to individuals for personal expenditure. Unsecured loans can be approved without the need to use assets as collateral. However, the terms of personal loans typically depend on a borrower’s credit score. Therefore, it is generally necessary to have a good credit score to qualify for unsecured loans. Moreover, the interest rates may be excessive based on the level of credit.
Certificate of Deposit:
Certificates of Deposit (CD) are an account for savings with a predetermined term as well as a fixed interest rate and the date of withdrawal. They typically come with more interest rates than the standard savings account. Customers can put their money in the form of a CD for a specific period that typically spans three months to five years. CDs usually don’t have monthly charges. However, many banks have penalties for early withdrawals.
Cash Access:
Cash access is the method banks provide to allow users to access cash. Automated ATMs, teller machines (ATMs), and checks are just a few cash access options. In addition, many banks have mobile apps and websites that let customers access their money via a computer or smartphone.
What is Commercial Banking?
Retail and Commercial Banking, a synonym for corporate banks, provides banking services and products to corporations, business institutions, and occasionally governments. Apart from deposits, such as saving and checking accounts, commercial banks also offer commercial loans, global trade and treasury solutions, and other products geared toward business. Commercial banking is designed to increase revenues rather than expand the number of customers they serve. Although commercial banks have a much smaller customer base than retail banking, they’re generally more profitable due to their large number of customers.
Types of Services for Commercial Banking:
The variety of products and services that commercial banks offer are specially designed to fulfill the business and financial needs of businesses and institutions. Commercial banks offer the following services and products:
Merchant Services:
Merchant services can include loans and other lines of credit, including credit card processing and mobile payment solutions or electronic payment services. Merchant accounts allow companies to accept and process payments, which is crucial for online businesses. In addition, they facilitate transaction processing and the ability to settle transactions.
Lending Services:
Commercial banks also have programs to lend money and offer different financing options to companies. The lending services offered consist of working capital, business commercial real estate loans, and equipment finance. Commercial banks can customize loans to various types of equipment in all sectors, including manufacturing and information technology. They also offer mortgage loans and other kinds of financing that allow businesses to lease or purchase properties for business use. Lending services can help businesses secure cash flow in the short term and fulfill their long-term capital requirements.
Treasury Management Services:
Treasury management services can help you streamline the management of business finances by managing financial assets like investments and cash. Disbursements, collection of funds, and fraud prevention are all components of the service. As a result, Treasury management services can help improve the company’s liquidity while reducing risks.
Employee Services:
Commercial banks provide services that aid companies in creating employee benefits programs. Some examples of employee benefits include:
- Direct deposits and payroll processing.
- Retirement programs.
- Insurance plans for Health.
- Disability programs.
- Stock ownership plans for employees.
Global Trade Services:
Global trade and commerce services, including trade finance, can include financing, foreign exchange letters of credit, and global payment. These services can aid in streamlined commerce and trade internationally by introducing a third party to remove supply and payment risk. Trade finance can make it easier for exporters and importers to do business with trade.
The Retail Banking Industry vs. Commercial Banking
Commercial and retail banks offer solutions and products to distinct customers. Although the products and services they provide are similar, the ranges of their services are tailored to meet the particular requirements of their clients. Nevertheless, there are a few similarities between commercial and retail banking:
- Both offer deposit accounts for patrons to control their finances, including savings and checking accounts.
- Both provide debit and credit cards.
- Both offer the possibility of loans.
- Both offer online and alternative mobile bank accounts.
There are a few differences between them:
- Retail banking is for individuals and the general public, whereas commercial banking guide is for companies and businesses.
- The products and services offered by retail banks are designed to be customer-centric, for example, personal loans, car loans, and home loans. Likewise, commercial banks offer banking services and products created to address business and corporate financial needs, like merchant services, international trade services, and employee benefits programs.
- The services and products that banks provide to their customers are standard. Commercial banks, however, modify their offerings and services to meet the requirements of their customers.