Differences Between Retail Banking and Wholesale Banking (With Table)

In today’s scenario, everything is revolutionized towards going globally digitally. The use of plastic money has increased in the last five years. But for using this plastic money, an individual must have their bank account. It may be a Retail Banking Account (which is for personal use) or a Wholesale Banking Account (which is for large customers or companies, or organizations). Thus, by these banking accounts, you can take a loan from any bank now, which is super easy in return for mortgaging – house, land property, gold, etc. The two are the types of banking.

Retail Banking vs Wholesale Banking

The difference between Retail Banking and Wholesale Banking is that Retail Banking mainly focuses on a single individual. In contrast, Wholesale Banking focuses on the larger group of individuals or organizations, or companies to serve these cooperative clients. In Retail Banking, bank mainly deals with large customers and fewer funds while it is opposite in Wholesale Banking where bank deals with few customers and larger funds.

Retail Banking deals with retail customers or, says an individual. The money transaction of retail bank account holders is less but is in larger numbers. Although all the banks serve their customers with the same services and benefits, the difference comes in with the staff’s hospitality towards their clients.

Wholesale Banking focuses on large groups or organizations or companies. The number of customers is few but the bank transactions of these organizations or companies are huge. The bank also charges them high-interest rates on transactions. Also, wholesale banks provide individual bankers to the organization or companies to serve them with close attention or quick response.

Comparison Table Between Retail Banking and Wholesale Banking

Parameters of ComparisonRetail BankingWholesale Banking
MeaningIt details with retail individuals.It deals with large organizations, companies, or groups.
Size of LoanIt is low and due to which impact of NPA is diversified.It is high, and because of which impact of NPA is more.
Interest RatesInterest rates are lower as they do not have the power to bargain.Interest rates of wholesale banks are large to attract funds from them.
Monitoring and RecoveryIt is not easy.It is easy.
ExampleEducation, Housing, Gold, Car Loan are some of their examples.Loans given for setting industries, export, machinery, etc., are some examples.

What is Retail Banking?

It is also known as consumer or personal banking. Retail banks deal with the common people rather than any company or organization. The main functions of retail banking are –

  1. Retail banks provide safety and security for the general public’s money, offer deposits in saving accounts, fixed deposits, etc.
  2. Bank offers credit and loans on some interest value by mortgaging – property, house, gold, etc.
  3. Banks also help the public customers to invest their money in bank’s different insurance and policies. 

The advantages of Retail banks are that they stress upon small businesses and local people for earning. Considering the earlier records, retail banks have increased their profit and business for their respective banks. And these banks are a large part of revenue collector and plays a vital role in economic development. The services including in retail banking are – 

Saving Account – An account that can be opened by the customer to deposit their money and interest can be taken from the bank. 

Loans – Banks provide loans to their valuable customers for different purposes like – education loans, housing loans, car loans, gold loans, etc.

Debit & Credit Cards – Bank provides plastic money which can be used instead of cash payments. The debit card is given for a saving or current account, and the transaction is limited to the balance in your respective account, while Credit card banks allow you to make payment. In response to that, you will be paying the whole amount later with the additional charges.

ATM Cards – ATM card is restricted for the payment to be withdrawn and other transactions only in ATM.

What is Wholesale Banking?

Wholesale Bank provides services to many companies, organizations, real estate workers, mortgage brokers. Wholesale banking services include – large trading transactions, currency conversion, underwriting, consultancy, merging, etc. For claiming a loan from a wholesale, you are your company must have a strong financial statement on a large scale. Wholesale banking is also known as the mediator of lending and borrowing money from other banks. 

Some of the features of Wholesale banking are as follows – 

  1. High Risk – In Wholesale banking, the risk factor is quite huge. If the burrower company gets dissolved, then the associate parties and workers are also failed.
  2. High Cost of Deposit – The interest cost paid by the bank on depositing the money by these companies is high.
  3. Low Operational Cost – The interest cost of transactions that these companies and organizations carry out is quite low because of the fewer customers and transactions. 

Main Differences Between Retail Banking and Wholesale Banking

  1. Retail Banking deals with individuals and focuses mainly on retail customers, while Wholesale Banking focuses on the larger group of individuals or organizations, or companies. 
  2. Retail Banking requires a large network to run smoothly, while Wholesale Banking does not require many branches to cater; thus, only a few wholesale bank branches are available. 
  3. The size of the loans provided to the retailer and wholesaler is different as being a retail customer, the amount of loan money is less. In contrast, the wholesale customer is given a large amount of loan money to set up their own industry, machinery, etc. 
  4. Retail bank customers are given the loan at a very low-cost interest rate. This is because retailers do not have the power to negotiate. In contrast, wholesale bank holders are meant to pay a whopping amount of interest. The banks do this to attract their funds. 
  5. Examples of Retail Banking Loans are – Education, Housing, Car Loans, etc., while Wholesale Banking Loans are – Loans taken to set up their industry, machinery, exporting, etc. 

Conclusion

Retail Banking and Wholesale Banking are entirely two different types of banking available for the customers. Because of their differences, the bank creates other branches for them. Retail Banking branches are large in numbers as the customers are, while Wholesale Banks are few, just like the customers. But the revenue collection from both the banks is the opposite. Retail Bank revenue is less as compared to the Wholesale Banks. The taxes, profits, revenues earned by the banks are enormous for the retail banks while they are less in Wholesale bank. The services and hospitality are also different if compared.  

References

  1. https://www.emerald.com/insight/content/doi/10.1108/IMDS-02-2013-0078/full/html
  2. https://www.aeaweb.org/articles?id=10.1257/aer.100.2.408

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