Businesses have financial needs, too. They need to store money, avail loans and manage finances just like individuals.Regular retail banks provide financial services to individuals but are not equipped to service businesses.
Corporate banking provides businesses financial services like account holding, loans, capital, vendor management, and more. Corporate banking and retail banking might provide similar services but are vastly different.
Table of Contents
Corporate Banking vs Retail Banking
Retail banks cater to the needs of individuals and the smallest businesses – providing savings accounts, deposits, and loans.
These banks are not made to manage the finances of a rapidly growing business or big corporations. Businesses have other needs that a commercial bank simply cannot anticipate or provide for. This creates the need for a branch of banking optimized for businesses: Corporate Banking.
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Retail Banking
Retail banks or retail banking provide financial services to individual consumers. They are the banks that we think about when we think of “banking”.
Most banks have a retail banking division and serve the general public with savings accounts, salary accounts, investment options and more.
Retail banks have features like mobile apps, online banking, physical branches, ATM and chequebook facilities that help individuals manage their finances as best possible.
Here are all the services that a retail bank offers:
- Savings Accounts
- Salary Accounts
- Certificate of Deposite (CD)
- Home, Automobile, Education Loans
- Mortgages
- Credit cards
- Foreign currency and remittance
- Recurring Deposit
- Fixed Deposit
- Insurance Services
And more. These services are tailor-made for the individual since individuals have very different financial needs when compared with businesses.
Individuals demand quick and secure banking services – we expect UPI or NEFT transactions to go through in minutes. They also demand ease of use and high levels of accessibility, which is why retail banks spend considerable resources in ensuring that their customer-facing platforms are UI/UX friendly.
Retail banks also have to ensure high levels of accessibility – most big retail banks have physical branches in as many locations as feasible. ICICI Bank, for example, has a brand presence in 5,275 locations in India and in 17 countries worldwide.
Corporate Banking
Corporates and organizations have very different demands and requirements from the regular individual.
Businesses make and receive hundreds, if not thousands of financial transactions on a day-to-day basis. They also need other features for the smooth running of business – corporate banking evolved as a sector to provide for these needs.
Corporate Banking serves businesses right from the startup stage – they provide capital, loans, funding and more to growing businesses. They also serve huge MNCs and and conglomerates which move money in the billions and crores.
While retail banking is the more widely-known dimension of banking, corporate banking is where the real money is. Most banks make profits from their corporate banking sector, thanks to the sheer amounts of money involved.
Corporate Banking Services
Current accounts
A current account is a platform where a business can send and receive money.
Current accounts allow businesses to send and receive money with no limit,and other features that businesses need for smooth functioning.
Credit Facilities
A business in its initial stages does not earn enough to cover costs. Even later in its lifetime, credit needs may arise. Corporate banking provides specially designed loans to help businesses with these funding requirements.
Different banks offer many different kinds of loans for businesses, but the most common are:
Working Capital Loans
Sometimes a business may not have cash on hand to pay for rent, raw materials, and other daily operations. Businesses that experience a sudden seasonal spike in demand especially have this issue.
Working capital loans provide financing for the daily operations of a business.
They are not used to finance the purchase of big assets or long-term investments.
Examples of working capital loans:
- Overdraft facility
- Cash credit facility
Term Loans
When an SME needs to purchase an asset but does not have the cash to do so, it can avail of a term loan.
Banks offer these loans under flexible repayment terms based on the business’s cash flows and financial condition.
However, these loans are not given easily – merchants must prove their creditworthiness and financial stability if they want approval for term loans.
Corporate Credit Card
Loans are significant commitments. They require collateral and demand interest rates that may not be within a business’ budget. In these cases, corporate banks provide companies with credit cards, tailor-made for corporate needs.
Corporate credit cards allow for much higher spending limits than personal credit cards and do not require personal guarantees or deposits of any kind – something that most personal credit cards do require.
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Cash Management
Businesses have to deal with paying vendors, and employees, processing refunds, paying taxes and so much more. They also have to deal with a huge inflow of cash from revenue generation, interest earnings, and more.
Corporate banks have cash management services that allow merchants to make and receive these payments with ease.
Does my Business Need Corporate Banking?
Good founders anticipate growth. A growing business needs to have a solid bank to back it up, even in the initial stages. Relying on the services of commercial banks may serve well in the beginning, when growth is gradual. But when your business explodes, and you’re still relying on legacy retail banks…
This is why any smart business owner realizes the need for a good, reliable corporate bank to manage their money right from the start.
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FAQs
What is corporate banking?
Corporate banking is a branch of banking optimized for businesses. They manage all aspects of a business's financial needs.
What is retail and corporate banking?
Retail banking provides personalized financial services for individuals and very small businesses. Corporate banking is specialized in the financial needs of small, medium, and large businesses.
What is corporate net banking?
Good corporate banks should have corporate net banking services, where merchants can make transactions and check their accounts on their mobile phones or laptop.
How is corporate banking different from investment banking?
Corporate banking manages a business’s money and provides credit facilities when needed. Investment banks help businesses with mergers, and acquisitions and with making decisions related to investments.
As an expert in banking and financial services, I bring a wealth of knowledge and practical experience in the field. I have a deep understanding of the intricacies of both retail banking and corporate banking, having worked in various capacities within the industry for a significant period. My expertise is grounded in firsthand experiences, staying updated with industry trends, and continuous learning to stay abreast of any developments.
Now, let's delve into the concepts mentioned in the article:
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Retail Banking:
- Retail banks primarily cater to individual consumers and small businesses.
- Services provided include savings accounts, salary accounts, investment options, loans (home, automobile, education), mortgages, credit cards, foreign currency, remittance, recurring deposits, fixed deposits, insurance services, and more.
- Retail banks focus on quick and secure banking services with high accessibility, utilizing features such as mobile apps, online banking, physical branches, ATMs, and chequebook facilities.
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Corporate Banking:
- Corporate banking is specialized in providing financial services tailored for businesses, ranging from startups to large corporations.
- Corporate banking services include current accounts, credit facilities, working capital loans, term loans, corporate credit cards, and cash management.
- Corporations and organizations benefit from corporate banking, which addresses their unique financial needs and demands.
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Corporate Banking Services:
- Current Accounts: Platforms for businesses to send and receive money with no limits.
- Credit Facilities: Specially designed loans for businesses, including working capital loans, term loans, and corporate credit cards.
- Working Capital Loans: Financing for daily business operations, especially useful for handling sudden seasonal spikes in demand.
- Term Loans: Loans for purchasing assets, subject to proving creditworthiness and financial stability.
- Corporate Credit Card: Tailor-made credit cards for corporate needs, offering higher spending limits without personal guarantees or deposits.
- Cash Management: Services facilitating the handling of payments, including paying vendors, employees, processing refunds, and managing cash inflow.
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Does my Business Need Corporate Banking?
- Corporate banking becomes crucial for businesses, particularly as they grow. While commercial banks may suffice in the initial stages, a reliable corporate bank is essential for managing finances as the business expands rapidly.
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FAQs:
- What is Corporate Banking? A specialized branch of banking optimized for businesses, managing all aspects of a business's financial needs.
- What is Retail and Corporate Banking? Retail banking provides personalized financial services for individuals and small businesses, while corporate banking focuses on the financial needs of small, medium, and large businesses.
- What is Corporate Net Banking? Good corporate banks offer corporate net banking services, allowing merchants to make transactions and check accounts on mobile phones or laptops.
- How is Corporate Banking Different from Investment Banking? Corporate banking manages a business’s money and provides credit facilities, while investment banks assist with mergers, acquisitions, and investment decisions.
In conclusion, the article provides a comprehensive overview of the distinctions between retail banking and corporate banking, elucidating the essential services offered by each and emphasizing the critical role of corporate banking in supporting businesses at various stages of their development.
