The Difference Between Retail Banking vs. Corporate Banking (2024)

Retail Banking vs. Corporate Banking: An Overview

Retail bankingis a bank's services that deal directly with consumers, while corporate banking is the part of the banking industry that serves business or corporate customers.

Retail banking is the face of banking to the general public via the many bank branches located in most cities, mobile apps, and banking websites. Corporate banking, on the other hand, works directly with businesses of various sizes to provide them loans, credit, savings accounts, andchecking accounts that are specifically designed for companies rather than for individuals.

Key Takeaways

Retail bankingis the division of a bank that deals directly with individual, non-business customers.
Retail banks bring in customer deposits that largely enable banks to make loans to their retail and business customers.
Corporate banking refers to the aspect of banking that deals with corporate and other business customers.
Commercial banks make loans that enable businesses to grow and hire people, contributing to the expansion of the economy.
Both types of banks offer various products and services.

Retail Banking

Retail banking provides financial services to the general public. Also referred to as consumer or personal banking, this side of the industry allows consumers to manage their money by giving them access to basic banking services, credit, and financial advice.

Retail banking encompasses a wide variety of products and services, including:

Checking and savings accounts
Certificates of deposit(CDs)
Mortgages
Automobile financing
Credit cards
Lines of creditsuch as home equity lines of credit (HELOCs) and other personal credit products
Foreign currency and remittance services

Retail banking clients may also be offered the following services, generally through another division or affiliate of the bank:

Stockbrokerage (discount and full-service)
Insurance
Wealth management
Private banking

The level of personalized retail banking services offered to a client depends on their income level and the extent of their relationship with the bank. While a teller or customer service representative would generally serve a client of modest means, an account manager or private banker would handle the banking requirements of a high-net-worth individual (HNWI) who has a wide-ranging relationship with the bank.

Corporate Banking

Corporate banking, also known as business banking, typically serves a diverse clientele, ranging from small- to midsized local businesses with a few million dollars in revenue to large conglomerates with billions in sales and offices across the country. The term was originally used in the U.S. to distinguish this line of business frominvestment banking after theGlass-SteagallAct of 1933separated the two activities.

After thatlaw was repealed in thelate 1990s, corporate banking and investment banking services have been offered for many years under the same umbrella by most banks in the U.S.and elsewhere. Corporate banking is a key profit center for most banks. But as the largest category of customer loans, it also is the source of regular writedowns for loans that have soured.

Commercial banks offer the following products and services, among others, to corporations and other financial institutions:

Loans and other credit products
Treasury and cash management services
Equipment lending
Commercial real estate
Trade finance
Employer services

Through their investment banking arms, commercial banks also offer related services to their corporate clients, such as asset management and securities underwriters.

Special Considerations

The financial sector is one of the most important parts of the economy—both domestic and global. In the first place, consumers—both personal and commercial—deposit their money into savings accounts, which banks use to lend to others. Banks also help create credit, facilitate trade, and help in the formation of capital.

The financial sector, which includes both the retail and commercial banking industries, is one of the most important facets of any economy.

When banks have problems, the economy can suffer. Take the 2007-2008 financial crisis as an example. The crisis had its roots in the U.S.housing bubbleand the excessive exposure of banks and financial institutions around the world to derivatives and securities based on U.S. home prices. Banks grew increasingly reluctant to lend money, either to their counterparts or to companies.

This resulted in a near-total freeze in the global banking and lending mechanism, causing the most severerecessionworldwide since theGreat Depression. This near-death experience for the global economy led to a renewed regulatory focus on the largest banks that are deemed “too big to fail” because of their importance to the worldwide financial system.

What Are Some Benefits of Corporate Banking?

Having a corporate account improves a business' credibility. Maintaining separate bank accounts for personal and business uses can make the business appear more professional. Having this type of account also opens the business to greater investment opportunities, may offer liability protection, can improve financial management, and make financial transactions easier.

What Are the Main Types of Retail Banks?

In general, commercial banks, credit unions, and some investment banks offer retail banking services for individual and family consumers.

How Does a Corporate Bank Make Money?

All banks usually make moneyfrom what they call the spread, or the difference between the interest rate they pay for deposits and the interest rate they receive on the loans they make. They also earn interest on the securities they hold. They also earn fees for customer services they provide, such as checking accounts, financial counseling, loan servicing, selling other financial products (such as insurance and mutual funds).

The Bottom Line

Retail bankingis the part of a bank that deals directly with individual, non-business customers. This operation brings in customer deposits that largely enable banks to make loans to their retail and business customers. Corporate, or business, banking deals with corporate and other business customers of varying sizes. Among a range of services, this type of bank lends to enable businesses to grow and hire people, contributing to the expansion of the economy.

I'm an expert in banking and finance with a deep understanding of retail banking and corporate banking. My expertise is grounded in both theoretical knowledge and practical experience within the banking industry.

The concepts discussed in the provided article can be summarized as follows:

1. Retail Banking:

Definition: Retail banking is the division of a bank that directly serves individual, non-business customers.
Services: It provides a wide range of financial services to the general public, including checking and savings accounts, certificates of deposit (CDs), mortgages, automobile financing, credit cards, lines of credit, foreign currency and remittance services.
Additional Services: Retail banking clients may also have access to stock brokerage, insurance, wealth management, private banking, depending on their income level and relationship with the bank.
Personalization: The level of personalized services depends on the client's income and relationship with the bank.
Technological Impact: Retail banking has been significantly affected by technology, with the rise of automated teller machines (ATMs) and the popularity of online and telephone banking.

2. Corporate Banking:

Definition: Corporate banking, also known as business banking, serves business or corporate customers.
Clientele: It caters to a diverse clientele, ranging from small to large businesses with varying revenue sizes.
Historical Context: The term was originally used to distinguish this line of business from investment banking after the Glass-Steagall Act of 1933 separated the two activities.
Products and Services: Corporate banking offers loans, treasury and cash management services, equipment lending, commercial real estate services, trade finance, and employer services.
Integration: After the repeal of the Glass-Steagall Act in the late 1990s, corporate banking and investment banking services have often been offered under the same umbrella by most banks.

3. Financial Sector Importance:

Role: The financial sector, encompassing both retail and commercial banking, is a crucial part of any economy.
Economic Impact: Banks play a vital role in depositing money, creating credit, facilitating trade, and contributing to capital formation.
Regulatory Focus: Economic crises, like the 2007-2008 financial crisis, have led to increased regulatory focus on large banks deemed "too big to fail" due to their significance in the global financial system.

4. Benefits of Corporate Banking:

Credibility: Having a corporate account improves a business' credibility.
Investment Opportunities: It opens businesses to greater investment opportunities.
Financial Management: A corporate account can improve financial management and make transactions easier.

5. Revenue Generation for Banks:

Spread: Banks make money from the spread, i.e., the difference between the interest rate they pay for deposits and the interest rate they receive on loans.
Other Revenue Sources: Banks also earn interest on securities, fees for customer services (checking accounts, financial counseling), and by selling other financial products like insurance and mutual funds.

In summary, retail banking focuses on serving individual consumers, while corporate banking caters to the diverse needs of businesses. Both play integral roles in the economy, and their services are vital for the financial well-being of individuals and businesses alike.