Retail Banking vs. Corporate Banking: What's the Difference?

Retail Banking vs. Corporate Banking: An Overview

Retail banking is a bank's services that deal directly with consumers, while corporate banking is the part of the banking industry that serves business or corporate customers.

Retail banking is the face of banking to the general public via the many bank branches located in most cities, mobile apps, and banking websites. Corporate banking, on the other hand, works directly with businesses of various sizes to provide them loans, credit, savings accounts, and checking accounts that are specifically designed for companies rather than for individuals.

Retail Banking

Retail banking provides financial services to the general public. Also referred to as consumer or personal banking, this side of the industry allows consumers to manage their money by giving them access to basic banking services, credit, and financial advice.

Retail banking encompasses a wide variety of products and services, including:

• Checking and savings accounts
• Certificates of deposit (CDs)
• Mortgages 
• Automobile financing
• Credit cards
• Lines of credit such as home equity lines of credit (HELOCs) and other personal credit products
• Foreign currency and remittance services

Retail banking clients may also be offered the following services, generally through another division or affiliate of the bank:

• Stockbrokerage (discount and full-service)
• Insurance
• Wealth management
• Private banking

The level of personalized retail banking services offered to a client depends on their income level and the extent of their relationship with the bank. While a teller or customer service representative would generally serve a client of modest means, an account manager or private banker would handle the banking requirements of a high-net-worth individual (HNWI) who has a wide-ranging relationship with the bank.

Retail banks still have brick-and-mortar branches, but retail banking is perhaps an area of banking that has been most affected by technology, thanks to the proliferation of automated teller machines (ATMs) and the popularity of online and telephone banking.

Corporate Banking

Corporate banking, also known as business banking, typically serves a diverse clientele, ranging from small- to midsized local businesses with a few million dollars in revenue to large conglomerates with billions in sales and offices across the country. The term was originally used in the U.S. to distinguish this line of business from investment banking after the Glass-Steagall Act of 1933 separated the two activities.

After that law was repealed in the late 1990s, corporate banking and investment banking services have been offered for many years under the same umbrella by most banks in the U.S. and elsewhere. Corporate banking is a key profit center for most banks. But as the largest category of customer loans, it also is the source of regular writedowns for loans that have soured. 

Commercial banks offer more than just deposit and withdrawal of business funds. The following products and services, among others, to corporations and other financial institutions:

• Loans and other credit products
• Treasury and cash management services
• Equipment lending
• Commercial real estate
• Trade finance
• Employer services

Some banks will allow businesses to have a warm card to allow employees to deposit into the business accounts. Through their investment banking arms, commercial banks also offer related services to their corporate clients, such as asset management and securities underwriters.

Special Considerations

The financial sector is one of the most important parts of the economy—both domestic and global. In the first place, consumers—both personal and commercial—deposit their money into savings accounts, which banks use to lend to others. Banks also help create credit, facilitate trade, and help in the formation of capital.

When banks have problems, the economy can suffer. Take the 2007-2008 financial crisis as an example. The crisis had its roots in the U.S. housing bubble and the excessive exposure of banks and financial institutions around the world to derivatives and securities based on U.S. home prices. Banks grew increasingly reluctant to lend money, either to their counterparts or to companies.

This resulted in a near-total freeze in the global banking and lending mechanism, causing the most severe recession worldwide since the Great Depression. This near-death experience for the global economy led to a renewed regulatory focus on the largest banks that are deemed “too big to fail” because of their importance to the worldwide financial system.

The Bottom Line

Retail banking is the part of a bank that deals directly with individual, non-business customers. This operation brings in customer deposits that largely enable banks to make loans to their retail and business customers. Corporate, or business, banking deals with corporate and other business customers of varying sizes. Among a range of services, this type of bank lends to enable businesses to grow and hire people, contributing to the expansion of the economy.