Retail Banking vs Corporate Banking Explained

While retail banking offers its services to people for personal use, commercial banking serves institutions. JPMorgan Chase is the largest bank in the U.S., with $3.7 trillion in assets as of March 31, 2023. Retail banking encompasses financial services that banks provide to individual customers or small businesses. It has various products and services such as savings and current accounts, fixed deposits, loans, credit cards, debit cards, insurance, and investment products.

It can be used to finance a range of expenses and can be paid back over time. These banks include large banks that are often the household names with which you’re familiar. Review a bank’s website or ask a representative about its menu of services before you sign up for an account. The Fed funds rate is a target range that the Fed hopes to influence the banks to maintain.

Retail Banking vs Corporate Banking

As a result, the bank has less savings to pass along to customers. The advantage, though, is that you get more convenience and access to a wide variety of services through a single financial institution. A community bank is a financial institution that serves individuals and businesses within a limited geographic area. Although there’s no precise definition, a community bank is generally defined as an institution with less than $10 billion in assets.

In the 21st century, a movement toward internet banking has also broadly expanded the offerings for retail banking customers. Several banks now provide online services to customers solely through the internet and mobile applications, limiting the number of times a customer needs to go to a local branch to do business. Retail banks come in a variety of types and sizes, from local community banks, which are small and locally run to the retail banking services of large, global corporate banks such as JPMorgan Chase and Citibank. In the U.S., the term commercial bank is used for a normal bank to distinguish it from an investment bank.

Meaning of retail banking in English

Because they have different levels of returns and risk, these products can be used to accomplish a variety of financial goals. They’re simultaneously retail banks, commercial banks, and investment banks. You might be able to open a business account at the same retail bank that you use for your personal needs.

• Further, if Black Americans and White Americans achieve full wealth parity, financial-services companies could realize up to $60 billion in additional revenue from Black customers every year.
• Savings accounts, certificates of deposit, and other financial products offer a better rate of return compared to stuffing their money under a mattress.
• Retail banking provides a convenient and secure way to manage customers’ finances.
• Retail banking is the branch of the banking sector that offers financial services to individual customers.
• Deregulation allowed banks to raise interest rates on deposits and loans.

Losses from derivatives forced many banks out of business. The Federal Reserve, the nation’s central bank, regulates most retail banks. One of their regulatory powers is to require banks to maintain a percentage of their deposits on an account at the Fed.

Commercial Banking Vs. Retail Banks: The Main Differences

In contrast, the volume of transactions is much lower in commercial banking. The value of these transactions, however, is considerably much higher as the client base is typically made of sizable business enterprises. Corporate banks tend to have physical locations from which they offer their services. In the recent past, however, these institutions have been increasingly operating online.

Banks no longer had to direct a portion of their funds toward specific industries, such as home mortgages. They could instead use their funds in a wide range of loans, including commercial investments. Most retail banks sell their mortgages to large banks in the secondary market. As a result, they were spared from the worst of the 2007 banking crisis. They’ve almost disappeared since the savings and loans crisis of the 1980s. Many loan officers help individuals and small businesses secure funding through personal and small business loans.

How has Retail Banking affected Rural India?

The interest charged on these loans is how retail banks make money. Additionally, the Federal Deposit Insurance Corporation (FDIC) insures banking deposits. So, if you go to the bank to withdraw your deposits and the bank doesn’t have the money, you have an insurance policy that will (usually) ensure you don’t lose your funds.

In 1999, the Gramm-Leach-Bliley Act repealed Glass-Steagall. They promised to restrict themselves to low-risk securities. But as competition increased, even traditional banks invested in risky derivatives to increase profit and shareholder value.

New Business Terms

However, some loan officers specialize in mortgages, which are especially complex. To facilitate mortgages, loan officers must be licensed as mortgage retail banking means loan originators (MLOs). Given that retail banks serve many clients with a multitude of transactions, it’s referred to as mass-market banking.

All these banks offer retail banking services, which form a large portion of their revenue. Credit unions are another type of retail bank that works as a non-profit cooperative where members pool their assets to be able to provide loans and other financial services to other members. Consumers use local branches that have the capacity to deliver all these services to retail customers.

These include Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup. Retail banking makes up 50% to 75% of these banks’ total revenue. This is known as the reserve requirement and is seen as a safety and liquidity measure.

In fact, retail-banking keeps the money circulating as the Fed allows only 10% of deposits on hand. So, the retail banks have to circulate the remaining 90% either in the form of loans or in the form of investment products. Retail banks offer products and services to individuals, families, and small businesses instead of corporations, government organizations, or other banks. Some banks are exclusively retail- or consumer-oriented, meaning they don’t have any branches or divisions specializing in commercial or investment banking services.

These services may include tax planning, retirement planning, investment guidance, and other types of financial planning. Retail banks provide a range of loans, including personal loans, auto loans, and mortgages. These loans have different interest rates and repayment terms, depending on the borrower’s creditworthiness and the purpose of the loan.