What Is Corporate Banking? Definition and Comparisons

There are several areas of banking for the different needs of individuals and corporations. Large companies often seek solutions with corporate banking because it specialises in providing loans and other financial services to enterprise businesses. Knowing what this type of banking is and the differences between similar areas like retail banking and commercial banking can help you decide if a career as a corporate banker is right for you.

In this article, we discuss what corporate banking is, how it differs from other financial institutions and the requirements needed to become a corporate banker.

What is corporate banking?

Corporate banking is a financial area that involves loaning money and other financial services to businesses. Rather than small businesses or startups, corporate banking serves enterprise corporations while business and investment banks might help smaller businesses grow. Corporate banking organisations typically serve publicly traded, large government departments, and businesses with high profit and turnover. Corporate banking is often where banks make most of their profit.

Some services corporate banking offers include:

• Cash management

• Lending (equipment and financial)

• Commercial real estate

• Private equity financing

• Treasury support

• Trade resources

Components of corporate banking

There are a few different segments of corporate banking depending on the needs of a company. Here is a brief description of each and how they function:

• Deposit-taking institutions: corporate banking depends on their institutions to receive deposits from businesses hoping to earn through interest. They achieve this through individual institutions or networks of commercial banks and credit unions.

• Mortgage firms: these firms service mortgages for individuals and corporations. These firms fund mortgages for borrowers and look for potential clients that need funding.

• Central banks and monetary authorities: these institutions manage a locations economy by regulating and supervising commercial or retail banks with the goal of reducing inflation and stabilising the currency. Sometimes, smaller banks and lenders seek financial help or advice from these larger institutions.

• Other financial institutions: some institutions like shadow banks or independent lenders perform the same functions as banks but are not banks.

• Brokerage firms: brokerage firms facilitate transactions between two companies. These firms often earn a profit as part of the commission of the sale.

• Financial technology: financial technology or Fintech is the combination of technology tools and resources that corporate banking uses to differentiate itself from the competition and traditional ways of banking. This can include block chain, online banking and mobile payments.

Related: How To Become a Finance Broker

What is retail banking?

Retail banking is the banking service that is available to most people. Otherwise known as consumer banking, retail banking helps consumers manage their money, offers them credit services and provides financial advice. Small businesses might take part in retail banking for these same basic services, too but they mostly consider commercial banking. Some of these services include:

• Banking accounts (checking and saving)

• Bonds

• Financial advising

• Mortgage financing

• Credit cards

Corporate banking vs. retail banking

There are some key differences between corporate banking and retail banking. Here are a few of the important distinctions:

Customer size

Retail bankers hope to achieve their revenue goals by offering products and services like credit cards and checking accounts for the wider market. Since credit limits or amounts in the accounts may be smaller than those of bigger companies, the more individuals they have, the better. Conversely, corporate banking focuses on fewer companies with larger needs. For example, they may target government departments and offer large loans for commercial properties.

Customisation

Retail banking typically has standardised product offerings, along with other standards like payment schedules, interest rates and minimum requirements. Corporate banking involves tailoring their offerings like mortgages or deposit models to fit the need of the corporations. Because the return on investment can be higher in corporate banking, this customisation can help them build long-term relationships.

Processing fees

The processing cost for transactions, fees and employees in retail banking is often much less than the processing fees in corporate banking. Retail banking still earns money from the volume of transactions retail banking processes. Corporate banking charges higher fees for processing, usually because of the customisation and higher amounts processed.

Loan amounts

Retail banking often offers much lower loan amounts than corporate banking. Although both might require minimum credit score and income to secure the loan, enterprises often need larger amounts for projects like acquisitions, technology investments or building and buying commercial properties. Retail banking might have rigid standards for this, while corporate banking could provide larger amounts or be flexible because forecasts might show a future increase in income.

Transaction volume

Clients in retail banking are often individuals, sole proprietorships and partnerships. As retail banking depends on a high volume of customers, they often perform many transactions. Individuals with high income and high-earning enterprises are more likely to consider corporate banking. On the other side, large companies looking to brokerage a deal with other companies consider firms in corporate banking, though these bigger business deals may occur less frequently.

Profitability

Corporate banking is almost always more profitable than retail banking. Although the volume of transactions and customers is much higher in retail banking, companies that enlist corporate banking for their financial needs often pay more. Besides the price, corporate banking also focuses on building long-term customers with corporations and government departments.

What is commercial banking?

Similar to retail banking, commercial banks accept deposits and offer checking account, certificate of deposit (CD) and loan services to individuals and small businesses. Traditionally in-person banks, many commercial banks now operate online. Some of the major value offerings of commercial banking include:

• Credit services

• Managing cash and treasury services

• Lending of equipment

• Trade options and services

• Employer services

• Commercial mortgages and real estate

Commercial banking differs from investment banking as investment bankers advise their clients and provide the money they can use for their business or invest in other businesses.

Related: What Is an Investment Banker?

Corporate banking vs. commercial banking

The differences between corporate banking and commercial banking are fairly similar to those between retail banking and corporate. Here are a few reasons these two are different:

Primary services

Though the tasks might be similar, corporate banks serve international companies and government departments as their customers. Often, they loan money for companies to use for their business and then they collect interest. People and smaller businesses seek commercial banking for credit and other basic financial services like checking accounts or credit cards.

Location

Corporate banks work with both local businesses and with businesses internationally. Many of their clients either have primary offices abroad or have operations abroad. Commercial banks typically assist individuals and small businesses locally.

Commission and loan amount

Commercial bankers typically earn a higher commission rate than corporate bankers. This is because corporate loans are often much higher than commercial loans. With a higher amount, the banks can earn just as much money in a time period as their commercial counterparts.

Length of loan

Corporate banking offers shorter-term loans than commercial loans. Often, larger companies can pay these loan amounts off sooner than smaller businesses can. Enterprises might take out loans to help achieve their shorter-term or day-to-day activities, while commercial loans might be for broader business operations.

Requirements for a career in banking

There are some basic requirements to starting a career in banking:

CV

To apply for any banking job, you can first create a CV. This includes your educational history, professional experience, skills and contact information. Your CV highlights why you're the most qualified candidate for the position.

Related: What Is a CV?

Skills

Corporate banking requires a lot of the same skills as most finance areas, including customer service and basic math skills. Besides these, most corporate bankers might develop the following skills through their education and experience:

• Analysis

• Mathematics

• Verbal and written communication

• Customer service and interpersonal

• Negotiation

• Ethics

• Attention to detail

Related: 10 Best Skills To Include on a Resume

Education

Some levels of banking jobs require only an HSC or equivalent to start in the industry or a Certificate IV in Banking Services. Because corporate banking can be more involved, some positions may require a bachelor's degree or further. There are several roles in corporate banking, such as consultants, analysts and customer support agents. Some certificates and degrees you might consider for possible careers include:

• Graduate Certificate of Finance and Banking

• Advanced Diploma in Banking Services Management

• Bachelor's degree in commerce

• Bachelor's degree in economics

• Bachelor's degree in business

• Bachelor's degree in finance

• Master's degree in business, economics or finance

• Master's degree in applied finance

Although institutions may not require these, advanced degrees can help highlight your knowledge as a candidate and assist you as you grow your career.

Experience

Most of the experience you gain as a banker you learn while working. For more advanced positions like corporate consultants or business administrators, institutions may require prior experience working with corporations. Some of the duties institutions may want in a candidate include:

• Identifying solutions to match clients' financial needs

• Building relationships and manage existing or previous client rosters, offering various services

• Following up with corporations and other departments to ensure timely completion of tasks

• Educating clients on new technology tools and resources

• Managing customer files

• Managing loan processes from beginning to end