What is the Difference Between Retail Banking and Corporate Banking

15-Dec-2022

Retail banking and Corporate banking are different branches of the banking industry that caters to varying purposes. While corporate banking is the portion of the banking sector that interacts with corporate customers, retail banking refers to the division of a bank that deals directly with retail consumers. Bank branches can be found in large numbers in the majority of major cities, making retail banking the most accessible face of banking to the general population. In contrast, corporate banking works directly with corporations to offer them loans, credit, savings accounts, and checking accounts that are created particularly for businesses as opposed to people.

Overview of Retail Banking vs Corporate Banking

The differences and comparisons between retail banking and Corporate banking can be made in the following aspects:

• Definition: Retail Banking can be defined as the banking services that cater to the general public while Corporate banking can be defined as the facility which caters only to small and big companies or corporate bodies. 

• Products: Retail banking focuses on customers while Corporate banking on business requirements. 

• Clientele: While retail banking has an extensive clientele, Corporate banking has only limited clients.

• Processing cost: The cost of processing is comparatively low in Retail banking while Corporate banking processing fees are high.

• Transactions: Retail banking transactions are of lower value, and Corporate banking has a high value of transactions. 

• Loan size: Retail banking offers loans amounting to 5 crores while Corporate banking loan sizes are over 5 crores. 

To understand the difference and the concepts around retail banking vs Corporate Banking, let us discuss each of the types in detail.

Retail Banking

The general public can access financial services through retail banking. This area of the market, often known as consumer or personal banking, gives customers access to fundamental banking services, credit, and financial guidance, enabling them to manage their money.

Retail banking includes a broad range of goods and services, such as:

• Checking and Savings accounts

• Certificates of Deposits

• Mortgages 

• Automobile financing

• Credit Cards

• Lines of credit (Eg: HELOCs - Home Equity Line of Credit) and other products of personal credits

• Foreign currency and Remittance Services

 By means of another branch or bank affiliate, retail banking customers may also avail of the following services from a retail bank:

• Stock brokerage ( Full services and Discount)

• Insurance

• Wealth / Asset Management

• Private banking

A client's income level and the depth of their relationship with the bank determine the level of tailored retail banking services supplied to them. While a banker or customer service agent would typically assist a client with little financial resources, a private banker or account manager would take care of a high-net-worth individual's (HNWI) banking needs if they have a long-standing relationship with the bank.

Retail banking is perhaps the area of banking that has been most significantly affected by technology due to the growth of automated teller machines (ATMs) and the prominence of online and telephone banking, even though brick-and-mortar branches are still required to convey a sense of durability and stability that is essential to banking.

Key Features of Retail Banking

Large Clientele

Although there are many customers in retail banking, each client's account balance may vary in size, therefore the banks must maintain a customer base in order to collect the cash through any channel. Multiple consumer groups, including individuals, families, trusts, societies, small and medium-sized businesses (SME), etc. use Retail banking. 

Ability to evaluate credit

Maintaining a good infrastructure becomes necessary for banks when services are offered and the number of clients grows. However, if banks use a qualitative technique for credit evaluation, they are released from further follow-ups.

Wide Scope

In addition to accepting deposits and disbursing loans, retail banking also offers its clients services in the areas of insurance, securities, and other investments. Multiple products and services are available, including current accounts, savings accounts, personal loans, credit cards, debit cards, traveler's checks, mortgages, term deposits, certificates of deposits, wire transfers, locker facilities, and so on.

Offering Extra Services

On the bank's property, Retail Banking offers its clients services, although it is not feasible for banks to be open 24 hours a day. In order to provide their customers with enduring services, banks have chosen a strategy of offering vital services, such as money withdrawal, by way of installing ATMs in various locations. Additionally, there are numerous distribution channels, including bank branches, websites and applications, kiosks, and call centers.

Increases Liquidity

Regulating interest rates and periodically reviewing creditworthiness agreements are two ways that retail banking contributes to growing the amount of money in the economy.

Corporate Banking

Corporate banking, mostly referred to as business banking, often caters to a wide range of clients, from small- to medium-sized local companies with a few million in annual revenue to huge conglomerates with branches all over the country and billions in annual sales. After the Glass-Steagall Act of 1933 divided the two activities, the word was first used in the United States to set it apart from investment banking.

Although that regulation was overturned in the 1990s, the majority of banks in the United States and other countries have long provided corporate banking and investment banking services under the same roof.

For most banks, corporate banking is a significant source of profits. But because it is the largest consumer loan originator, it also causes regular write-downs for soured loans.

The services offered by Corporate Banks are:

• Loans and other credit products

• Treasury and cash management services

• Equipment lending

• Real Estate (Commercial)

• Trade finance

• Employer services

Commercial banks provide comparable services to their corporate customers through their investment banking divisions, including wealth management and securities underwriting.

Key Features of Corporate Banking

Small Number of Clients yet Multiple services

Corporate banks often service medium-sized to big businesses or organizations rather than people; as a result, they have a lesser client base than retail banks. However, corporate banking customers deal with huge transaction volumes, and banks make more money from these customers by levying high fees. The services include receiving deposits, lines of credit, facilitating financial transactions, credit cards, e-banking, working capital finance, term loans, trade finance, bank guarantees, etc. are included in general commercial banking activities.

Additional services such as facilitating international transactions, investment banking, insurance, project financing, advisory services, cash/wealth/asset management, shareholding, underwriting of securities, etc. are included in the services tailored specifically for corporate clients, such as MNCs and government bodies.

Authority

The name of the firm is used to open a corporate banking account, but all board members must agree by passing a corporate resolution to do so because they can handle business concerns.

Accountability

As the company has a separate identity from its members following the law, the corporate account of the firm is solely accountable for the contents of the company and not the personal contents of the individuals. As a result, a company's corporate account is not liable for the debts of its members personally.

Aids in credit rating evaluation

Corporate accounting functions assess a company's credit history, which has an impact on both the share price and the interest rate that will be charged on loans. Corporate banks are responsible for maintaining and keeping good credit ratings as investors are after good credit ratings and they watch out for one when investing their money.

Skilled professionals

As corporate banking clients are among the most valued customers of the banks, banks spend extraordinarily high salaries to acquire highly qualified staff with relevant expertise in corporate banking.

Key Differences - Retail Banking vs. Corporate Banking

Retail banking is a type of banking that allows the general public or an individual to manage their savings or fixed accounts as well as carry out a number of other regular banking tasks including making deposits and opening bank accounts.

Small and big firms and corporations are the primary clients of corporate banking, a subset of commercial banking that provides services including trade finance, derivatives, and other financial instruments. There are a variety of customer-focused retail banking products available, including home loans, auto loans, and personal loans.

Corporate banking is targeted at meeting the needs of businesses and can be customized to address certain requirements, including lending facilities. When it comes to the customer base, retail banking frequently draws a sizable number of clients, whereas corporate banking draws a smaller but more affluent clientele. While processing costs in corporate banking are high, they are relatively modest in retail banking. In terms of profitability, corporate banking is more lucrative than the banks' retail banking division.

Because the customer base consists of both people and small enterprises, such as sole proprietorships, partnership firms, one-man companies, etc., retail banking has a high transaction volume but a low transaction value. On the other hand, corporate banking has a low transaction volume but a high transaction value due to its clientele of high-net-worth individuals and businesses. In terms of profitability, corporate banking is more successful than the banks' retail banking sector.

Due to their clientele, retail and corporate financial institutions are tightly linked. Customers depend on businesses to meet their demands and/or find solutions to problems that are difficult for individuals to address, while businesses depend on consumers to successfully purchase goods and services. Retail banks and corporate banks, in theory, depend on one another to function properly because businesses and customers depend on one another to prosper.

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