Commercial banking, also known as business banking or institutional banking, refers to banking products and services designed for corporations, institutions, and sometimes governments. In addition to deposit products like checking and savings accounts, commercial banks offer merchant services, commercial loans, global trade services, treasury services, and other corporate-oriented products.
What is commercial banking?
In a nutshell, commercial banking refers to banking products and services designed for corporations, institutions, and sometimes governments, as opposed to banking products offered to individual consumers.
Many of the products offered by commercial banks are similar to those offered to individuals by retail banks, such as checking and savings accounts. However, many of the products and services offered by commercial banks are specifically designed to meet the financial needs of corporations and institutions.
For example, when a retail business works with a bank to assist with payment processing services, that's an example of a commercial banking service.
Products and services offered by commercial banks
As I mentioned, some of the products offered by commercial banks are quite similar to those most people use every day. This includes checking and savings accounts, and while these accounts are specifically designed for corporate needs, their basic structure is the same.
In addition to these deposit products, commercial banks offer an array of other products and services. While not all commercial banks offer each one, these may include:
- Merchant services, such as credit card processing, mobile payment solutions, gift cards, and electronic check services
- Global trade services, such as foreign exchange, financing, letters of credit, and global payments
- Treasury management services, such as fund collecting and disbursement, and fraud prevention
- Lending services, such as working capital for businesses, commercial real estate lending, equipment financing, and other types
- Retirement products and services for businesses and their employees
- Employee stock ownership plans
- Insurance products designed for corporations and institutions
- Advisory services
- Specialized services for certain types of businesses, such as auto dealer services, aircraft lending, investment real estate lending, and others
Other types of banking
In addition to commercial banking, there are several other varieties of banking products and services:
- Investment banking: Investment banks provide services to corporations, governments, and individuals. These services include raising financial capital by underwriting debt or equity issuances, and assisting in mergers and acquisitions.
- Retail banking: This is what most people think of when they hear the word "bank." Retail banking refers to any banking services that are intended for everyday consumers. This includes checking and savings accounts, credit cards, mortgages, auto loans, CDs, and more.
- Private banking: Similar to retail banking, private banking refers to banking and financial services provided to high-net-worth individuals. Private bankers provide financial and wealth management services on a much more personal level than traditional retail banks, which is why it can be considered a separate type of banking.
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