Firstly, it must be understood that retail and commercial banks are depository banking institutions. This means that they make loans for their clients through the deposit they make to them.
Although their clients are different, they belong to two sides of the same business. Commercial banks’ services and products are similar and common to retail banks.
Although retail and commercial banking is said to be on the same side of a business, there are some differences.
Key Takeaways
- Retail banking focuses on individual customers and provides services such as savings and checking accounts, loans, and credit cards.
- On the other hand, commercial banking caters to businesses and corporations and provides services such as commercial loans, cash management, and investment banking.
- The major difference is the customer base, as retail banking serves individuals while commercial banking serves businesses.
Retail Banking vs Commercial Banking
The main difference between Retail Banking and Commercial banking is that a Retail bank refers to a division within a bank that handles retail customers. In contrast, a Commercial bank makes loans that enable the business to grow and hire people who contribute to the company’s expansion.
A retail bank is a bank that provides financial services such as managing their money by giving them access to efficient banking services like credit, financial advice, etc., to the public.
A commercial bank is a bank that provides services such as accepting deposits, offering basic investment products and making business loans which are operated for profit as a business.
Comparison Table
| Parameters Of Comparison | Retail Banking | Commercial Banking |
|---|---|---|
| Meaning | Retail Banking, also known as consumer banking, is a bank’s provisions to the general public, rather than companies, corporations or other banks, described as wholesale banking. | Commercial banking is a financial institution that deposits from the public and loans for consumption and investment to earn profits. |
| Customer Base | Retail Banking includes Mass market personal customers. | Commercial Banking includes small and medium enterprises (SMEs) and large corporates. |
| Processing cost | Low | Comparatively low |
| Example Products and Services | Personal current accounts, credit cards, savings and mortgages. It also includes retail banking infrastructure, such as payments. | Business current accounts, small business loans, factoring and asset-based finance, commercial mortgages and buy-to-let. |
| Associated Trade Associations | BBA, CML, FLA, IMLA, PUK, UKCA, TISA. | BBA, FLA, CML, ABFA. |
What is Retail Banking?
Retail Banking means a division of a bank handling retail customers instead of corporate customers.
Retail banking foresight on dealing directly with customers located in a close city.
This type of banking is an activity that is done face to face, which is clear and visible to the consumer, so there is complete transparency.
This type of banking is highlighted as mass-market banking, with numerous customers with abundant transactions.
The Retail bank does not depend on physical retail locations. The name “retail” refers to the chosen business model type.
A “retail” business operates on relatively small or medium-sized volumes or offers goods and services for consumption instead of using the consumption of goods and services from other businesses.
The level of services at a retail bank depends on income level, deposits, and relationship with the bank. Retail banking is also called consumer banking and private banking.
Services that are provided by retail banking includes saving account, current accounts, various types of loans, mortgages, debit and credit card, certificate of deposit, retirement planning, etc.
Customer deposit is the most crucial source for retail banking. The Retail bank makes a profit from the interest margin the lender receives and borrows transactions.
What is Commercial Banking?
Commercial Banking, a private banking institution, literally means a bank engaged in commerce.
Commercial banks are sometimes called corporate banks since they provide services to businesses, governments, institutions, etc.
These banks offer basic baking services, including deposit accounts and loans to their consumers’ band small to mid-sized businesses.
Commercial banks aim to make a profit for their shareholders since they are typical stocking corporations.
This method is known as financial intermediation, wherein the savers who agree to hold their deposits with the commercial bank are matched down with the borrowers who need loans from the same bank.
Commercial banks make money from eating interest from loans and a variety of fees. Commercial banks are located at physical locations, but now they operate online in a growing number.
Commercial banks create capital. Credit and liquidity in the market are the mechanisms through which these banks play a significant role in growing the economy.
Main Differences Between Retail Banking and Commercial Banking
- In Retail banking, the business’s risks are widespread because of the large number of customers. In contrast, in Commercial banking, the risk gets concentrated in fewer businesses with many customers.
- Retail Banks target consumers who are individuals-many people earn a little from each. In contrast, commercial banks target corporate who are a group of individuals-few people make much more having fewer customers.
- Retail bank refers to orient services offered by commercial banks.
- Commercial banks offer their customers products for investment. These include savings accounts, check accounts and certificate of deposit facilities.
- Retail banking concentrates on non-commercial transactions plus consumer loans, whereas commercial banking primarily focuses on business and commercial loans.
- https://books.google.com/books?hl=en&lr=&id=EU25GRS92wwC&oi=fnd&pg=PT11&dq=retail+banking+vs+commercial+banking&ots=0KkJTu0RUl&sig=IvgknFKyWVTMv0q3i7fjwx1GhnQ
- https://www.tandfonline.com/doi/abs/10.1080/02642069900000020
Last Updated : 01 April, 2024
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
