Difference Between Retail Banking and Commercial Banking (With Table)

Firstly, it needs to be understood that Retail banks and commercial banks are a type of 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 still belong to being two sides of the same business. The services and products which commercial banks offer are usually similar and common to that of retail banks. Although retail banking and commercial banking are said to be on the same side of a business, there are some differences.

Retail Banking vs Commercial Banking

The 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 some efficient banking services like credit, financial advice, etc., to the public.

A commercial bank is a bank that provides services such as accepting of deposit, offering basic investment products and making business loans which are operated for profit as a business.

Comparison Table Between Retail Banking and Commercial Banking

Parameters Of ComparisonRetail BankingCommercial Banking
MeaningRetail Banking, also known as consumer banking, is a bank’s provisions to the general public, rather than companies, corporations or other banks, often 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 (SEM’s) and large corporates.
Processing costLowComparatively low
Example Products and ServicesPersonal 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 AssociationsBBA, 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 the customers who are 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 to be known as mass-market banking having numerous customers with an abundance of transactions.

The Retail bank does not actually depend on retail physical locations. The name “retail” actually refers to the type of business model chosen. A “retail” business is something operates on relatively small, or medium-sized volumes or one which offers goods and services for consumption instead of something which uses consumption of goods and services from other business.

The level of services at a retail bank generally depends on income level and deposits and how their relationship is with the bank. Retail banking is also called consumer banking and private banking. Services that are provided from 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 important source for retail banking. The Retail bank makes a profit from the interest margin received of the lender and borrows transaction.

What is Commercial Banking?

Commercial Banking also called a private banking institution which literally means a bank engaged in commerce. Commercial banks are also called corporate banks sometimes since they provide services to business, government, institutions, etc. These banks offer basic baking services, including deposit accounts and loans to their consumers’ band small to mid-sized business.

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 is 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 usually 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 making the economy grow.

Main Differences Between Retail Banking and Commercial Banking

  1. In Retail banking, the businesses risks are widespread because of a large number of customers. In contrast, in Commercial banking, the risk gets concentrated in a lesser number of businesses having many customers.
  2. 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.
  3. Retail bank refers to orient services offered by commercial banks.
  4. Commercial banks offer their customers’ products for investment. These include savings accounts, check accounts and certificate of deposits facilities.
  5. Retail banking concentrates on non-commercial transactions plus consumer loans, whereas commercial banking primarily focuses on business and commercial loans.

Conclusion

It is practical to understand that both retail and commercial banks are banks that let us deposit money and give loans done by holding the customers’ capital, and this same money is used to provide us with loans. Hence, most of the banking institutions mostly have both retail and commercial arm. Certain banks serve purely as retail bank, and some banks do entirely as commercial banks, but this point is precisely the case.

The difference between a retail bank and a commercial bank is usually only between the products one may choose. Retail banks and Commercial banks are up to the mark when it comes to an economy’s smooth functioning.

Numerous banks have specialised figured divisions set up for both retail banking and commercial banking. Hence, both Retail and commercial banks contribute significantly to the rise of the economy. Both banks provide their customers with service related to segment oriented. They play an essential role in the well-ordered functioning of the economy.

References

  1. https://books.google.com/books?hl=en&lr=&id=EU25GRS92wwC&oi=fnd&pg=PT11&dq=retail+banking+vs+commercial+banking&ots=0KkJTu0RUl&sig=IvgknFKyWVTMv0q3i7fjwx1GhnQ
  2. https://www.tandfonline.com/doi/abs/10.1080/02642069900000020

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