Table Of Contents
What Is Retail Banking?
Retail banking encompasses the common banking facilities provided by regular banks to the general public and individuals in society. It caters to families, small businesses, and communities, offering essential banking solutions such as bank accounts, debit cards, car loans, education, or homes.
Retail banking is vital for generating revenue in regular banks, relying on daily deposits, withdrawals, and loan assistance. When an individual visits a bank for account opening, loan services or lockers, or credit card issuance, this is under the umbrella of retail banking and is typically observed and utilized by everyone in the community. This sector supports job creation, economic growth and ensures a steady cash flow. It is often referred to as consumer banking or personal banking services. Banks typically have a separate division dedicated to retail banking.
For example, JPMorgan Chase operates its retail banking through Chase Bank, simultaneously running its investment banking division through JPMorgan.
To elaborate through a hypothetical example, suppose Jason is a businessman who wants to buy a car and is looking for a locker service so he can keep all the jewelry of his wife and mother secured. He visits a bank and applies for a car loan. The loan officer informs Jason about the locker services that the bank provides. Jason takes the benefits, and the loan is given to him at a specific rate of interest for four years. Now all these facilities are a form of retail banking. Similarly, if Jason had a small shop or needed a loan for his daughter's college education, it would still be considered retail banking provided to an individual rather than a company or business.
What Is Commercial Banking?
Commercial banking refers to operations, facilities, and banking products that are strictly made and cater to the needs of prominent corporations, multinational companies, government projects, and authorities. These products are not offered to the general public, individual account holders, or small businesses. Commercial banking typically has a wide range of services and banking facilities. There are also scenarios where it provides retail products like checking accounts and credit cards. Retail banking is taken as a subdivision of commercial banking.
It plays a vital part in the US and global economies by providing financial services and assistance to multinational conglomerates for new projects, business operations, and long-term investments. Many companies would shut down without the funds and capital to operate without commercial banking.
From a hypothetical example, suppose Jason, from the first example, now owns a social media company. The application is widely popular and used by people worldwide with millions of users. If Jason wants to raise capital and is looking for loans, commercial banking will come to his aid. However, for the bank, the client will not be Jason but his company. The loan and other facilities offered will be given to the company, not Jason. The most distinct part is the type of services, the difference in interest rates, and particular services like foreign exchange services, wealth management services, business loans, and credit lines.
Banks understand large-scale corporations' substantial cash flow and capital requirements, offering business loans at different interest rates secured through collateral deposits and mortgages. Regardless of size, banks contribute to the economic stability of nations and provide a wide range of services to diverse clients and customers.
Comparative Table
Below is a comprehensive comparison table highlighting the key differences between retail and commercial banking, two distinct sectors within the banking industry.
| Particulars | Retail banking | Commercial banking |
|---|---|---|
| Meaning | A bank caters to the needs of individual customers, clients, and small businesses like shops and stores offering a broad range of services. | In commercial banking, the bank has developed special services offered to only big companies, government authorities, and large-scale corporations. |
| Size of services | Small compared to commercial banking offered for a simple and short-term period | Services fund and cater to large-scale projects and long-term investment plans. |
| Types of services | Credit cards, personal loans, mortgage | It encompasses various services, including credit lines, business loans, asset management, credit and asset allocation, portfolio management, and more. |
| Careers | Financial advisors, loan managers, underwriters, tellers, branch managers | Professions like customer relationship management, investment bankers, and portfolio managers have complicated and upskilled roles. However, many job roles overlap in both. |
Similarities
Despite their differences, retail and commercial banking share some commonalities contributing to banking services' convenience and efficiency. Let's understand them clearly.
- The same bank can offer both banking services, allowing customers or clients to access retail and commercial facilities without visiting separate institutions. However, some banks specialize in banking and serve a specific clientele.
- Retail and commercial banking offer similar services, such as loans, mortgages, and credit facilities. However, there are variations in terms and conditions, limits, and the scale of operations based on the specific needs of retail or commercial clients.
- Many designations, job roles, and careers are standard in both banking types—loan officers, account managers, and general assistance staff.
- Retail and commercial banking services are provided by both private and public sector banks, ensuring that individuals and businesses have access to banking solutions regardless of the ownership structure.
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