Retail Banking vs. Corporate Banking: An Overview

Retail banking refers to the division of a bank that deals directly with retail customers while corporate banking is the part of the banking industry that deals with corporate customers. Retail banking is the visible face of banking to the general public, with bank branches located in abundance in most major cities. Corporate banking, on the other hand, works directly with businesses to provide them loans, credit, savings accounts, and checking accounts which are specifically designed for companies rather than for individuals.

Key Takeaways

  • Retail banking is the division of a bank that deals directly with retail 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 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:

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

  • Stock brokerage (discount and full-service)
  • Insurance
  • Wealth management
  • Private banking
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Retail 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 an extensive relationship with the bank.

Although brick-and-mortar branches are still necessary to convey the sense of solidity and stability that is crucial to banking, retail banking is perhaps one area of banking that has been most impacted by technology, thanks to the proliferation of automated teller machines (ATMs) and the popularity of online and telephone banking.

Corporate Banking

Corporate banking, also known as business banking, typically serves a diverse clientele, ranging from small- to mid-sized local businesses with a few million in revenues to large conglomerates with billions in sales and offices across the country. The term was originally used in the United States to distinguish it from investment banking after the Glass-Steagall Act of 1933 separated the two activities.

While that law was repealed in the 1990s, corporate banking and investment banking services have been offered for many years under the same umbrella by most banks in the United States and elsewhere. Corporate banking is a key profit center for most banks. But as the biggest originator of customer loans, it is also the source of regular write-downs for loans that have soured. 

Commercial banks offer the following products and services 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, it has devastating effects on the economy. Take the financial crisis as an example. The crisis had its roots in the U.S. housing bubble and 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 severe recession worldwide since the Great 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.