As you all know very well that banking is a crucial part of the financial sector. Different types of banking categorise different clients and offer different services. In this article, we will explore the various types of banking and their distinct features.
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- Retail Banking
- Corporate Banking
- Investment Banking
- Wholesale Banking
- Islamic Banking
Retail Banking
Retail banking, also known as personal banking or consumer banking, is the division of a bank that deals directly with individual customers.
Retail banking is the most visible face of banking to the general public, with bank branches located in abundance in most major cities.
The services offered by retail banks include basic banking services, credit, and financial advice. Retail banking encompasses a wide variety of products and services including:
- Checking and savings accounts
- Credit and debit cards
- Mortgages and personal loans
- Lines of credit such as home equity lines of credit (HELOCs) and other personal credit products
- Insurance products such as life, health, and home insurance
Retail banking clients may also be offered the following services, generally through another division or affiliate of the bank:
- Investment and retirement planning
- Wealth management services
- Private banking services for high-net-worth individuals (HNWIs)
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 physical branches are still required to convey the sense of solidity and stability that is essential in banking, retail banking is perhaps the area of banking that has been most influenced 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, is the part of the banking industry that deals with corporate customers.
Corporate banking works directly with businesses to provide them loans, credit, savings accounts, and checking accounts which are specifically designed for companies rather than for individuals.
Corporate 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. So, the services offered by commercial banks to corporations and other financial institutions include:
Business loans and lines of credit
Cash management services such as payroll processing and wire transfers
Merchant services such as credit card processing
Trade finance services such as letters of credit and export financing
Through their investment banking arms, commercial banks also offer related services to their corporate clients, such as asset management and securities underwriters.
Investment Banking
Investment banking is the part of the banking industry that provides services to large corporations and institutional investors. So, investment banks help companies and governments to raise their capital by underwriting and issuing securities, such as stocks and bonds.
So that, they also provide advice on mergers and acquisitions (M&A), corporate restructuring, and other financial transactions. Investment banks include consultants, banking analysts, capital market analysts, research associates, trading specialists, and many others.
There are several types of investment banks, each directing their services toward different audiences. These include:
Bulge bracket banks
The largest of the investment banks. Examples include Goldman Sachs, Morgan Stanley, Credit Suisse, and Deutsche Bank.
These banks are referred to as full-service investment banks and operate across the entire financial spectrum, generally globally. So, bulge bracket banks handle clients with more than $500 million in assets but also offer services for some smaller clientele.
Middle-market investment banks
A step below the bulge bracket banks. They tend to offer the same products and services, albeit at a smaller scale than the bulge bracket banks. So that, middle-market investment banks serve clients with assets between $5 million and $500 million.
Regional boutique investment banks
The smallest of the investment banks. Regional boutiques specialize in specific actions such as mergers and acquisitions, personal investment management, or other niche investment services.
Elite boutique banks
Offer a much smaller spectrum of services, such as asset management, restructuring, and M&A-related banking. So that, they are smaller but handle larger financial transactions, similar to the bulge bracket banks.
Wholesale Banking
Wholesale banking refers to banking services sold to large clients, such as other banks, other financial institutions, government agencies, large corporations, and real estate developers. So, it is the opposite of retail banking, which focuses on individual clients and small businesses.
Wholesale banking services include currency conversion, working capital financing, large trade transactions, mergers and acquisitions, consultancy, and underwriting, among other services.
Wholesale banking is the financial practice of lending and borrowing between two large institutions. The types of services are provided by investment banks that often also offer retail banking.
So, this means that an individual looking for wholesale banking wouldn’t have to go to a special institution and could instead engage the same bank in which they conduct their personal retail banking. The services that are considered “wholesale” banking.
Islamic banking
Islamic banking is a system of banking that operates in adherence to Sharia rules and principles. So, it dates back to 1963 when modern Islamic banking was initiated and became established in 1975. Since then, it has been one of the fastest-growing sectors globally.
Islamic banking operates on the following principles:
- Prohibition of interest-based transactions (riba)
- Prohibition of speculative behavior (gharar)
- Prohibition of financing activities that are considered haram (forbidden) such as gambling, alcohol, and tobacco
- Encouragement of profit and loss sharing (PLS) and risk-sharing arrangements
Islamic banking offers a range of financial products and services such as savings accounts, current accounts, investment accounts, and home financing.
The difference between Islamic banking and conventional banking is that Islamic banking operates on the principles of Sharia, whereas conventional banking operates on interest-based transactions.
Source:-
Majaski, C. (2023, April 6). The difference between retail banking vs. Corporate Banking. Investopedia. https://www.investopedia.com/articles/general/071213/retail-banking-vs-commercial-banking.asp
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