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What Is Merchant Banking?

By Kristi Waterworth – Updated Apr 16, 2025 at 11:11 PM EST

Key Points

Merchant banks specialize in services for mid-sized firms needing international financing and underwriting.
They differ from investment banks by not handling huge transactions like IPOs or mergers.
Merchant banks facilitate complex services like loan syndication and managing international monetary transactions.

Although most of us think of banks that take deposits when we think of banking, there are other types of banks in the investing world. Merchant banks are banks that help medium-sized businesses with a range of financial services.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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Citigroup is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and JPMorgan Chase. The Motley Fool has a disclosure policy.

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Merchant banks vs. investment banks

Merchant banks are frequently confused with investment banks, but the two are very different. Investment banks are meant for huge transactions like IPOs, or other very large public and private share offerings. Their clients typically include institutional investors, governments, and huge multinational corporations. They can also assist with mergers and acquisitions, another service that large public companies need.

Merchant banks, on the other hand, bridge the gap between retail bank business services for small businesses and investment banks. They typically service high-net-worth individuals or mid-level businesses with an international presence. They can handle a multitude of international monetary transactions and help companies connect to outside financing, either through bank lenders or private equity firms. They do not assist with mergers or acquisitions.

Specific functions of merchant banking

There are several services that a merchant bank can provide for its customers, including:

Portfolio management: Merchant banks help clients buy and sell securities to help improve their values. Often, they work with institutional investors to help connect them with companies looking to sell private shares to raise funding for bigger projects.
Loan syndication: When a business large enough to need a merchant bank is looking to borrow money, it’s generally a lot more than any single bank is willing to take on. Instead of borrowing from one lender, these companies take out multiple loans from different banks, a process called loan syndication. Merchant banks can help arrange this financing, which can be a complex process.
International transactions: These days, it’s easy for the average person to perform an international transaction. The company you’re dealing with automatically does the calculations, and the transaction is completed. That’s not exactly how it works for bigger companies. Merchant banks often help companies manage the currency exchanges and letters of credit required for major purchases in other countries.