Corporate Banking
Corporate banking is considered the backbone of many large commercial and investment banks. It addresses the financial needs for large and publicly listed companies.
The entire segment provides a range of services that may be required by an organization, primarily cash management, payment, credit facilities, and hedge solutions.
Often regarded as general business banking, corporate banks cater to large-size entities or organizations with huge financial requirements that surpass revenue criteria.
A key corporate banking service is lending, where a group of banks pool together to provide large loans to clients.
Such credit products not only fulfill the financing needs of corporations but also support the relationship with the client, who may require investment banking services at some later date.
Corporate banking groups use their capital markets skills and experience to assist clients with liquidity management, complex transactions, and cash cycle management.
With the repeal of Glass-Steagall Act in the late 1990s, banks were able to present corporate and investment banking services in one roof.
Corporate banking has proven a source of huge profitability because loan write-offs that may result from loan defaults are however offset by profitable loans and other services.
Retail Banking
Retail banking is also known as consumer or personal banking, which provides core banking services directly to the individual customer.
It enables the citizen to have a proper monetary life. The core services of retail banking are a checking and savings account, mortgage loans, personal installment loans, credit cards, and CDs.
The face of the public banking sector is normally a retail banking branch within each city and town. This form of retail banking meets individualized needs, such as offering standard services to a middle class individual or high-net-worth clients through account managers.
The industry has also moved by technology to online and mobile platforms through which the customers can bank from their digital channels.
Overall, Retail banking caters to individual consumers and lower transaction volumes.
Profits from retail banking are the interest margin earned from loans and deposits whereas in corporate banking, the profit is interest along with service charges. Thus, retail banking is fundamental in allowing consumers to meet their everyday financial needs.
Differences between corporate banking and retail banking:
1. Customers
Retail Banking: This is for individual customers and small businesses, offering saving accounts, credit cards, personal loans, and other simple investment schemes.
Corporate Banking: For the large clients, like the corporates and governments. Provides complex solutions, which are trade finance, cash management, and corporate loans, etc.
2. Products or Services Provided
Retail Banking Wide variety of services: deposit accounts, loans, mortgages, insurance services, online and mobile banking: great relationship system with large branches with digital banking for long-term relationships.
Corporate Banking: Services that include corporate lending, project financing, treasury management, and capital market services.
Services cater to sophisticated needs of corporate customers. Deep, strategic relationships with clients. Relationship managers are close to corporations and understand their unique financial needs to advise them.
3. Risk Profile
Retail Banking: Accommodates small scale transactions of many customers through a wide client base which spreads out the risk. Credit risks are primarily the core concern area for retail banks so that maintaining the client base stable is essential.
Corporate Banking: Risk is relatively higher as they operate the business transactions of more complex and high-level bigger ticket clients.
For highly valued transactions, the corporate bank thoroughly monitors the credit analysis and maintains a strong market risk monitoring.
4. Business Model:
Retail Banking: Based on services to individuals and small businesses, expanding the customer base through different personal banking products.
Corporate Banking: Cash flow and liquidity are maximized and are directed to businesses through cash management, payment processing, and treasury services.
5. Loans Offered
Retail Banking: Provides loans to individuals such as personal loans, home loans, and auto loans.
Corporate Banking: Business-oriented credit facilities are given to project financing, corporate loans, and syndicated loans to help the business and operation of functions.
Summary of Differences
Similarities between corporate banking and retail banking
Access to banks
There are corporate banks which maintain the bank account with respect to its various business areas, and other banking channels include retail banks with offerings through online and mobile banks and allows convenient any place management of funds anywhere on a real time basis.
Transaction
Though the frequency of transaction may be varied with corporate and retail bank transactions, customers gain numerous facilities from both channels about depositing in usual funds management between savings accounts or current accounts.
Transaction cards
Banks issue various types of cards, such as debit, credit, and shopping cards, enabling customers to withdraw funds and make payments easily.
Lending
Both types of banks offer loan services, though loan amounts differ greatly. Retail banks typically provide smaller loans for personal purchases, like homes or vehicles, whereas corporate banks may approve substantial loans for large organizations.
Conclusion
The two forms of banking services i.e retail banking and corporate banking target two different kinds of customers. Retail banking services are directed toward servicing individual customers, whereas corporate banking services cater to corporate clients.
Among them is the type of customer, product, service, size and frequency of deposits, level of risks involved, sources of revenues, and market competition.
Other than being separate, retail and corporate banking serve different types of customers. Both retail and corporate banking play important roles within any economy, but with their specific set of challenges and opportunities.
It helps the individuals and companies in deciding whether to choose which kind of banking service would be apt for them.