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Difference between Investment and Retail Bank

Difference between Investment and Retail Bank

11-Jan-2023

Investment banks and Retail Banks are the two main divisions of the banking industry. Retail banks and investment banks serve distinct clientele, execute different tasks, and provide various services. While retail banks offer banking services and loans to consumers and small businesses, investment banks organize capital raising for institutional clients that participate in capital markets and firms that seek financing as well as give consulting services to them.

What is the Key difference between Investment and Retail Bank

Let's examine the definition of both retail and investment banking to understand their differences in simple terms.

difference between investment and retail bank

Investment Bank

Large financial organizations known as investment banks help their clients, who are typically corporations and governmental bodies, raise capital by underwriting securities and serving as the agent or underwriter in their issue. An investment bank offers these companies complex financial solutions, including management buyouts, valuation and fairness opinions, corporate restructuring, equity underwriting, private placement, and valuation and acquisitions.

An investment bank helps institutional clients that want to invest in the capital markets by setting up funding and offering advisory services. Selling securities of public and private enterprises to institutional investors is their primary source of income. Investment banks can generate income by advising businesses on matters such as buyouts, mergers, and initial public offerings.

Investment banking is a significant area of corporate or commercial banking that prioritizes institutional clients over private clients. In addition to offering consulting services, investment banks also meet the capital market requirements of corporate and institutional clients.

Investment banks' primary source of income comes from the fees that are agreed upon as part of capital market transactions. Investment banks' services contribute to meeting the economic needs of the entire global market, not just those of a single nation.

Retail Bank

A Retail bank, also known as Commercial Bank, on the other hand, is where you keep your current, checking, or savings account. While you cannot obtain an ATM card, deposit money, or apply for a student loan at an investment bank, you can do all these with a Retail bank. Although the amount of transactions in a retail bank is far smaller than those in investment banks, they occur much more frequently. There are retail banks with and without an investment banking division.

As mentioned earlier, retail banks are in charge of offering loans to people and small businesses as well as financial services. Individual consumers and their needs for services like checking accounts, deposits, and loans are their primary areas of concentration. Retail banks also participate in the provision of auxiliary services like safe deposit boxes and automatic payment systems. Consumer banking, personal banking, or retail banking services are common terms used to describe the services offered by retail banks.

Individuals, families, and small companies are the typical clientele served in the local market by a branch or automated teller. Checking, savings, and certificate of deposit accounts are examples of depository activities (CDs). Personal credit, including credit cards and personal lines of credit, home mortgages, auto loans, and another financing for sizable consumer expenditures are the main emphasis of lending.

The methods for generating money by Retail banks are in the form of fees and interest from customer loans ( such as checking accounts, debit cards, credit cards, etc). The degree of regional coverage and deposit growth is the main area of performance by the Retail banks. Retail banks also employ technology to maximize their customer base.

Investment Bank vs Retail Bank

Now that we know the key difference between investment and retail bank let us simplify by categorizing them for Investment Bank vs Retail bank in the following aspects:

Definition

Investment banking can be defined as the division of the banking sector that handles financial transactions involving major firms, institutions, and government agencies. Retail banking, on the other hand, can be defined as the section that meets the general public's demand and also handles their everyday activities.

Scope

Investment banking is concerned with orchestrating and overseeing deals with a comparatively higher dollar value. However, Retail banking is involved in managing deals with comparatively lower dollar values.

Services

Services provided by investment banking include underwriting, debt security, mergers, and acquisitions, etc. On the contrary, access to services including personal bank accounts, loans, money deposits and withdrawals, ATM/Debit/Credit cards, etc. are provided via retail banking.

Goals

The goal of investment banking is to assist larger organizations in raising revenue and providing them with investment advice. While the primary goal of retail banking is to make daily and routine transactions for the general public easier.

Network of Branches

Domestically there aren't a lot of investment banking offices. However, there are several retail banking locations locally.

Examples of Well-Known Investment Banks:

JP Morgan and Chase
Bank of America
Wells Fargo
Morgan Stanley

Examples of Well-known Retail Banks:

HDFC Bank
ICICI Bank
Bank of Baroda
SBI Bank

Shifting from Retail Banking to Investment Banking

It is a difficult task to transition from retail banking to investment banking. Some of the significant hurdles and challenges are education, industry experience, and knowledge. There have been a lot of queries from people concerning guidance and assistance in switching from retail banking to Investment banking. Let us explore a few of the insightful hints that will help you in your career transition.

Connect with people with prior experience in Shifting from Retail to Investment Banking

There aren't many people who have made the move from retail banking to investment banking. However, you still need mentors and guides as you make this transition. Finding previous commercial bankers who are now successful in their investment banking careers will surely be helpful in this situation.

Ways to Locate Such Bankers

So how do you find such individuals? You may begin by employing the following actions in your plan.

Assess your current network: Seniors who have made this switch may exist. Speak with them and seek their advice. Never rely solely on networking for assistance. Develop relationships that will be beneficial in the long run.
Assess online portals like LinkedIn: Create a profile there right now if you don't already have one, and start connecting with investment and commercial bankers.

If you create relationships with people in either of the two groups and let them know what your goals are, they could be willing to suggest you to others who have made the jump from commercial banking to investment banking.

There are significant benefits to networking with bankers who have undergone a shift.

They serve as a guiding force.
It facilitates recruitment. People who have made this change are more likely to be sympathetic to your predicament and open to giving you a chance, which is what is required at this time.
It's possible that the mentor's organization will hire you.
Former commercial bankers who worked for other companies could provide you with recommendations.

Study Investment Banking in Depth

Get an MBA (Finance) Degree: Although an MBA isn't a requirement for employment in commercial banking, you should get one before considering a move to investment banking. Enroll in an MBA program to advance your career.
Certification Program: Enroll in a certificate program in investment banking. A certificate or diploma program can be beneficial as well, depending on your location and its criteria for investment banking professionals. Aim to pass the CFA levels.
Pursue an Internship: You can work for 3 to 6 months at middle-market banks and boutiques to gather experience before deciding whether to switch from commercial banking to investment banking. Pursuing an Internship for those in the mid-level position might seem less ideal. However, It may open up several other chances to learn more about Investment banking in addition to jon opportunities.

Develop Your Investment Banking Knowledge

Employers are looking for certain abilities in investment banking, and since you have experience in commercial banking, you may also have some transferrable skills that are applicable in the equities sector. Since you are already a banking professional, your needs will be higher than those of freshmen because experience is a component of skill requirements.

Excel and equity ideas should be learned first.
To create balance sheets, and income statements, and execute ratio analyses, you need to possess strong analytical abilities and a logical mindset.
Assessing the advantages and disadvantages of the current issue requires the use of critical thinking skills.
Financial modeling practical experience and effective report-writing abilities are crucial.
As a sizable percentage of your job duties will involve the creation of research reports and other work-related papers, report-writing abilities are crucial for communicating.
You must be capable of autonomous thought, decision-making, and complicated problem-solving.
As you are in charge of making decisions, you must process and analyze new information quickly because the area has a steep learning curve.
You must be able to acquire and assimilate information, and you must also have the "correct attitude" and interpersonal abilities including coordination, power, bargaining, and social perception.
Keeping up with industry changes and analyzing how they may impact a company's financial status are additional skills.
Skills in team building are also required. Both teamwork and independent decision-making are required.

Using Ingenious Techniques to Pass the Interview Stage

The interview is the toughest part to land yourself an Investment Banking job. Even before you speak with the interviewer, they will already have three presumptions about you:

You lacked the intelligence to enter investment banking right out of college. Here, you can frankly admit that you were unaware of the investment banking sector in college and lacked the knowledge and direction to pursue it further.
You lack investment banking expertise, notably in the area of financial modeling, which is assumed to be below the required standard. Indicate your educational background (degrees and certificates) in order to enter the investment banking industry. Talk about practicing financial modeling exams, and if you have an internship, be sure to include that. Discuss your gained and transferable corporate banking talents as well.
The attitude and mindset of investment bankers are not yours. Bring back skills. Mention that you've read about the lifestyles of investment bankers and that you're prepared to put in long hours. Commercial bankers work a lot, therefore it will surely be stressful.

There are specific scenarios that you must prepare for and provide support for. Aim to concentrate on your skills. It will be difficult to persuade interviewers given your unusual employment history. It will take time to demonstrate that you have a place in investment banking. Be prepared to answer the inquiry "why move from corporate banking". People who have studied and worked in this profession will be given preference over those who are moving, but don't be concerned—many people have successfully made the transition from retail banking to investment banking.

As mentioned earlier, it is a tough job to transition from Retail banking to Investment banking. It is crucial that you have all the requisite steps taken care of before proceeding with your plan. Get the required education/training, and experience and hone your communication skills.