Difference Between Retail Banking and Investment Banking (With Table)

Banking is the most basic and necessary activity in everyone’s daily lives. It helps in handling cash, credit, and transactions whilst providing a safe space for the same. Banks also provide safe space for the consumer to invest their money or take loans. There are different types of banks, which also offer a variety of account types and varied services according to their target customer. 

Retail Banking vs Investment Banking

The difference between retail banking and investment banking is that the former is everyday banking through which the general public can carry out their basic bank requirements. Investment banking is designed to provide funding to larger institutions. It also helps them to make investments. 

Retail banking majorly focuses on daily transactions, especially for the general public. The bills, fees, salary, and other payments are generally made through retail banks. Cheque, saving accounts, and credit cards are some of the services provided by retail banks for the ease of consumers.

Investment banking is large-scale banking, which provides services to large institutions, cooperation, or any government. Investment banking is to facilitate big institutions in their complex transactions, mainly- mergers and acquisitions. Institutions hire investment banks to access their services. However, one cannot deposit small amounts of cash in investment banks. 

Comparison Table Between Retail Banking and Investment Banking

Parameters of ComparisonRetail BankingInvestment Banking
Level of transactions Handles transactions with a lesser amount of moneyHandles transactions with a larger amount of money
ClienteleGeneral publicLarger institutions, government, cooperation
Source of incomeCharges for the services provided by the bankDepends on the capital transactions
Performance influencesCredit demand and economic growthProportional to the performance of the stock market
ServicesIndividual bank accounts, ATM, debit/credit, loans, online banking, etc.Mergers and acquisitions, underwriting equities, debt security, advisory services.

What is Retail Banking?

Retail banking refers to the general bank transactions one does in everyday life. The general public uses the services of retail banks in everyday financial transactions such as sending money to someone else’s account, paying bills, receiving a salary, taking loans, using debit/credit cards, etc.

Retail banking is also known as consumer banking because it is specially designed to facilitate the financial needs of the general public. People can make deposits and invest money for the future. They can also loan from the bank. Since these banks are reliable, the public can rest assured about the money they have saved up in their accounts.  

In retail banks, each individual can open their accounts as per their needs. The bank provides services to each consumer and provides a variety of services such as online banking platforms, ATM services, money orders, wire transfers, banking especially for students, etc. Their major focus is the local market.

Customers’ experience of retail banking is enhanced by serving them via local branches and mobile banking services. However, interestingly, retail banks are not allowed to operate without the charter provided by the federal government. 

Retail banks earn by charging fees for the various services they provide to each of their customers. The interest from the loans also adds up to their income.

What is Investment Banking?

Investment banking focuses on providing its services to large institutions, companies, etc. These banks are specially designed to help the clientele in managing their finances, which are generally complex and of large amounts. These banks provide a variety of services to help their clientele succeed financially. Investment banks help in raising money for large-scale businesses or institutions.

Investment banks provide services such as underwriting equity and debt securities. In simpler terms, if an institution needs to attract more capital via debt or equity issuance, then the banks underwrite the security issued on behalf of the concerned company.

Investment banks are also involved in mergers and acquisitions. These banks help the companies in determining whether the trade is profitable or not. They advise the institutions whether merging with a client is an advisable move.

Other than these major functions of an investment bank, it also engages in investment management. That is, it analyses companies and products, and then, they offer advisory services to their clientele about investing in anything.

The two largest investment banks in the world are Goldman Sachs and Morgan Stanley, according to Statista. These banks earn their income through the fee negotiated as part of the capital transactions. Therefore, their profit value is much higher than other banks.

Main Differences Between Retail Banking and Investment Banking

  1. Retail banking is designed to cater to the needs of the general public and their everyday monetary transactions. Investment banking directs itself at the financial transactions of larger cooperation, institutions, and government.
  2. Retail banking manages transactions of a lesser amount of money. However, investment banking organizes and supervises a hefty amount of money.
  3. Retail banking grants access to services such as individual bank accounts, loans, depositing and withdrawing money, ATM/Debit/Credit cards, etc. Investment banking offers services such as underwriting, debt security, merger, and acquisitions, etc.
  4. Retail banking focuses on facilitating everyday transactions of the general public. Investment banking is specially constructed to help larger institutions in raising capital and advising them about investing.
  5. To facilitate retail banking, the branches of these banks are available locally. But, investment banks cannot be spotted as easily at a local place. 

Conclusion

Banking is the service that handles monetary transactions, credit, and other finance-related issues. Banks provide spaces for people to transact money safely. There are minimal chances of getting deceived and losing one’s hard-earned money.

Investment banking and retail banking are two types of banking, but both are very different and divergent from each other. Retail banking handles the ground level of financial transactions, that is, by facilitating transactions of the general public.

To a layman, banking refers to retail banking. This can be justified by the reason that for retail banking, banks are available locally and are open to the general public. On the other hand, investment banking is for broader clientele, and their branches are not available locally to the general public.

The difference between these two types of banking is very distinct. Even though both the banks manage finances but, the functions, services, clientele, functioning, and availability are a few domains that show the stark difference between these two types.

References

  1. https://www.emerald.com/insight/content/doi/10.1108/09564239410068670/full/html
  2. https://www.tandfonline.com/doi/abs/10.1080/02642069100000002
  3. https://link.springer.com/content/pdf/10.1057/9780230001114.pdf
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