What's the Difference Between an Investment and a Retail Banking?

18-Jan-2023

The banking sector has evolved into a larger spectrum expanding various kinds of services they provide to the general public, private individuals or to organizations, and big businesses. By and large, banking involves services like handling credit, financial transactions, and other issues pertaining to finance. Additionally, banks offer a location where people can frequently exchange money in a secure manner. The likelihood of losing one's hard-earned money through this channel is rather low. Within this sector, Retail banking and Investment are two different categories providing divergent services to different customer bases. To understand the differences between the two variants of banking, let us discuss the two separate divisions of banking.

What is Investment Banking?

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. Essentially, Investment Bankers assist their clients in navigating the complex finance world by advising in acquisitions, mergers, and reorganizations.

Investment Banking in a Nutshell

Investment Banking is concerned primarily with augmenting revenue for firms, Governments, and other entities.
Investment Banking operations include underwriting equity securities and new debt for any corporation.
Expedite services like mergers and acquisitions, broker trade, and reorganization for various entities and private investors.
Handles, manage, and plan large financial projects, and work with governments, corporations, and other entities
Investment Banking came to be legally operational from 1933 to 1999 in the US upon the repeal of the Glass-Steagall Act that distinguished them from the other types of banking.

Understanding what is Investment Banking and Its Essence

To understand what is Investment Banking, we may highlight the services they provide:

Selling Security
Mergers and Acquisitions
Reorganizations
Broker Trades
Underwrite new debt and Equity Securities
Offering and placement of stocks

Typically, Investment banks support significant and complex financial transactions. In the event of a client considering a merger, acquisition, or sale, Investment bankers provide guidance on the worth of the firm and the finest way of organizing a deal. In the US, Investment bankers are responsible for preparing paperwork Securities and Exchange Commission (SEC) essential for the firm to go public and issuing securities as a way of raising capital for the client groups. Numerous large investment banking systems are subsidiaries or affiliates of larger financial organizations, with a good number of them becoming popular such as JP Morgan Chase, Goldman Sachs, Deutsche Bank, Morgan Stanley, Merrill Lynch, and Bank of America.

Businesses and institutions turn to investment banks for advice on how to best plan their development because, in theory, investment bankers are experts who are conscious of recent developments in the investment banking environment. Investment bankers provide customized recommendations with relevance to the current economic state.

What is Retail Banking?

Retail banking is the banking that encompasses all the banking services an individual receives from a bank such as personal account, savings accounts, online banking, mobile banking and even loans. It is the only type of banking that occurs between an individual and his or her own bank.

Difference Between an Investment and a Retail Banking

Retail banking is banking that is intended for the bank's everyday customers, such as the general public, as opposed to huge or international institutions. Even while using online banking, you maintain some sort of connection with your bank, making it a form of retail banking. It provides services like credit and debit cards, online deposits and withdrawals, and several other advantages that satisfy customers' daily needs and demands.

Understanding what is Retail banking and its structure of operation

Retail banks as mentioned earlier offers a variety of services including bank accounts, card facilities, deposits, loans, and many more to the general public to help them with intelligent handling of their regular needs and assisting them in saving and investing their money.

You can use some services, such as withdrawals, and deposits, both online and at the bank branch that is the closest to you. For retail customers, online retail banking has simplified money transfers and shopping. If you wish to use a specific service offered by a retail bank, the most ideal thing to do is to check with the bank branch or go online to the bank's website.

Retail banks provide credit services to public. They provide customers loans to buy expensive products like mansions and cars. Mortgages, vehicle loans, and credit cards are all examples of this type of credit extension. This loan extension is a crucial aspect of the economy since it gives average consumers access to liquidity, which promotes economic expansion.

In the current times, retail banking is characterized by the transition to mobile and online banking and is becoming the largest developments in retail banking. In order to keep their current clients and draw in new ones, banks are specifically introducing new tools and services, such as the capacity to temporarily put holds on cards, examine recurring charges, or scan a fingerprint to log into an account.

Types of Banks in Retail banking

There are three particular types of banks under the ambit of Retail Banking, namely- Commercial Banks, Credit Unions, and Savings and Loans Association.

Commercial Banks: Banks falling under commercial banks provide both private citizens and also small and Big businesses the accessibility to a broad range of banking services. Commercial banks, however, are regarded as retail banks because they provide the same services to their individual consumers.
Credit Unions: In comparison to commercial banks, credit unions are smaller and less profitable organizations. They are typically run by investors by pooling their resources to provide services to their members. Under this method of banking, members can their savings accounts as well as other services like credit and debit cards and apply for loans.
Savings and Loans Association: The special feature of this type of banking that distinguishes it from the previous two is that this division specializes in Mortgages. Although it focuses on residential and property mortgages for its clients, it also provides them with basic banking services.

Now that we have discussed in detail the two different types of banking - Retail banking and Investment banking, the difference between the two categories must be clear to you.