The banking sector helps countries to maintain stability and sustainability in its economy. The banking industry offers different loans and opportunities to end-users, organizations, and governments to grow their business and earn profit. At the same time, they also create policies to minimize the risks to the businesses. The banking system comes in different forms, such as retail banking, wholesale banking, commercial banking, and corporate banking. Commercial banking is one of the subsets of the wholesale banking system.
Wholesale Banking vs Commercial Banking
The difference between wholesale banking and commercial banking is that wholesale banking is a banking solution provided to large corporations, governments, and other banking institutions, whereas commercial banking is a banking system that provides services to small corporate and individual consumers. The commercial banking and wholesale banking systems provide similar services but to different customer segments.
The wholesale banking system offers services only to large corporations, under the name of a corporation and not to a person. The services offered are cash management, advisory, supports companies to merge and acquire other corporate companies, builds trust among corporates, and other services. It offers services to commercial and corporate banks also.
Commercial banking system offers services to its customers like deposits, short-term and long-term loans, and agency services like ATM, merchant banking, transferring money, and other assets. The customers can open accounts like current, savings, or fixed accounts as per their requirements. The customers need not have strong financial statements to avail of commercial banking services.
Comparison Table Between Wholesale Banking and Commercial Banking
|Parameters of Comparison||Wholesale Banking||Commercial Banking|
|Definition||Wholesale banking offers financial services to large corporations like government, private and public companies with a strong financial statement.||Commercial banking offers financial services to small corporate and individuals even though they do not have strong financial statements.|
|Functions||Some of the functions are mergers and acquisitions, consulting services, underwriting, cash management, and security to the deposited amount.||Some of the services are credit creation, deposits and withdrawals using cheque or debit or credit card, loans against personal assets, trading, facilitating security lockers, and others.|
|Customer segment||Large corporations, financial institutes, and government bodies are the customers of wholesale banks.||Individual customers and small companies are the customers of commercial banks.|
|Example||SBI, CBI, Bank of Baroda, ICICI, and others.||SBI, Kotak Mahindra banks, axis bank, bank of Baroda, and others.|
|Disadvantages||Customers need to deposit a large amount, and the processing fees are higher.||Account creating and maintenance are expensive to customers.|
What is Wholesale Banking?
Wholesale banking is a complete banking system that offers services to its customers through different channels. Wholesale banking operates in the local and international markets. It offers products to its customers like international trading, currency exchange services, trust services, consulting services, agency services, and also practices lending and borrowing from other banks.
Wholesale banking is sometimes termed as corporate or commercial banking, but in reality, corporate banking and commercial banking are the subparts of wholesale banking that offer financial services to a different group of customers. As a whole, the customers of wholesale banking are government bodies, public and private corporations, especially those with large capital. In wholesale banking, customers create corporate accounts under the name of the organization and not on the individual board member of the company.
Wholesale banking imposes low operational fees but higher processing fees. It adds additional security to the assets of the customer and strives to maintain good relationships with its customers. Wholesale banking provides a higher return on investments to its customers and supports them in the development and growth of the business.
What is Commercial Banking?
Commercial banking is one of the channels in the wholesale banking system that offers financial services to small public and private corporations and individual customers. For example, SBI is wholesale banking that offers services to large corporations, individual customers, and small and medium-sized businesses. It handles different channels to provide necessary services to its customers. SBI comes under the commercial bank, corporate bank, and also wholesale banks.
The commercial banking system sells deposits, loans, security lockers, trading finance, and other services similar to wholesale banking but as per the income statement of the customer. A customer of the commercial bank needs not to maintain a higher amount in the account but has to maintain a minimum amount to keep the account active. The bank charges fees for its services from the customers but also charges extra fees for night services and higher withdrawals. Commercial banking is a more profitable banking system than other banking systems.
Main Differences Between Wholesale Banking and Commercial Banking
- Customers of the wholesale banking system are banking institutes, government offices, and large private corporations, whereas customers of the commercial banking system are individual customers and small public and private sector companies.
- Creating a commercial account is expensive. In contrast, creating an account in wholesale banking is less expensive.
- The functions of wholesale banking are to provide consulting services among customers of the bank, facilitate mergers and auditions among its customers, whereas functions of commercial banking are the general functions like depositing, offering different loans to customers.
- Customers of wholesale banking should submit strong and legal financial statements to avail of the services, whereas customers of commercial banking should keep their assets like gold, any other asset in the bank to avail of loans and other services.
- Wholesale banking customers have a fear of exploitation, high-interest rates, and risks of transaction of large amounts. Commercial banking, on the other hand, charges different fees to process different amounts.
The banking sector is compelled to guard the country against recession through its policies and services. It has to maintain a steady circulation of money in the market to protect the country from dissolution in profit. Commercial and wholesale banking systems offer various services to their customers. Wholesale banking has a limited customer base, and commercial banks have a large customer base. New products and services are included in the banking system to attract customers with the help of technology.
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