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How is corporate banking different from retail banking?

The common conception of banks comes from the idea of an organization where you can keep your money without the fear of it getting stolen or manipulated. Banks are not only a medium to save your money but also a system to grow your wealth. While common people have only an idea of ‘regular banks’, termed retail banks, there happens to be another type of bank that caters to organizations or corporations. Retail banks provide deposits, savings accounts, and loans to small businesses and common people. However, when a business grows, it has other financial requirements that a consumer bank cannot deliver. Therefore, the need for a special banking system has emerged, which we call corporate banking.

What is Retail Banking?

Retail banking refers to a banking model devised for the common public. A retail bank has many branches spread across different parts of the city and state, which are responsible for servicing the mass beneficiaries which varied retail needs. 

Retail banking services are often personalized depending on the client’s income level and engagement with the bank. The regular customer service agents in a retail banking setup deal with the regular modest needs of a customer, whereas the account manager deals with the banking affairs of a high-net-worth individual, like approving personal loans.

Fintech solutions like online banking or ATMs for customer benefits and convenience massively drive retail banking. Still, a brick-and-mortar banking setup is imperative in serving most of the crowd. 

What is Corporate Banking?

Unlike retail banking, corporate banking services are dedicated to serving the business community. This system can be compared to a small-scale business world. By offering various financial services to corporate sectors, including fixed asset requirement finance, employer services, commercial services, credit, and treasury services, the corporate banking ecosystem revolves around private limited companies, public limited companies, local bodies and municipal corporations, public sector undertaking, etc.

The corporate banking system is the more specialized banking system. Corporate banking, or business banking, serves an expansive clientele, from small to mid-sized home-grown firms with million-dollar revenue structures to corporate giants with billions and public or private sector offices nationwide.

Key Differences between Retail Banking and Corporate Banking-

Here is a clear distinction between retail and corporate banking drawn based on different factors-

  1.   Retail Banking refers to a business model the banks employ to acquire a major customer base. It offers varied financial products and services to small enterprises and individuals. On the contrary, corporate banking is mainly adopted by the banking sector to earn the largest revenue from bigger enterprises, corporate houses, and government organizations by offering functional products and services.
  2.   The products and services offered by retail banking to the customers are generally standardized, like off-the-shelf products or services. At the same time, corporate banking systems offer customized services and products based on their unique requirement and preferences.
  3.   As retail banking is a broader prospect, it caters to a large customer base. But corporate banking has access to an affluent client base though it is limited in number.
  4.   The processing cost in retail banking is low, whereas corporate banking has a high processing cost.
  5.   Retail banking can only offer loans up to Rs. 5 crores depending on the client’s credit score and financial history. Conversely, business entities can avail of loans of Rs 5 crores and even more.
  6.   Although debatable, the corporate banking sector is more profitable than the retail banking system as corporate banks deal with high revenues and an affluent client base.

Both banking systems are equally valuable depending on which side of the financial edge you are on. Retail banking is mass-market, but corporate banks are imperative in holding the economy.

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Sabyasachi Garai

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