7 Types of Banking Business You Should Know About
Banking is a broad term that covers many different activities and services. In this article, we will explore the main types of banking business and how they differ from each other. We will also discuss some of the benefits and challenges of each type of banking business.
The main types of banking business are:
1. Retail banking
This is the most common type of banking business, where banks provide basic financial services to individual customers, such as checking and savings accounts, loans, credit cards, mortgages, and so on. Retail banking is also known as consumer banking or personal banking.
2. Commercial banking
This is the type of banking business where banks provide financial services to businesses and organizations, such as corporate accounts, loans, trade finance, cash management, treasury services, and so on. Commercial banking is also known as business banking or corporate banking.
3. Investment banking
This is the type of banking business where banks help clients raise capital, buy and sell securities, advise on mergers and acquisitions, and provide other financial advisory services. Investment banking is also known as capital markets or securities services.
4. Private banking
This is the type of banking business where banks offer personalized and customized financial services to high-net-worth individuals (HNWIs), such as wealth management, asset management, estate planning, tax advisory, and so on. Private banking is also known as wealth management or private wealth management.
5. Wholesale banking
This is the type of banking business where banks deal with other financial institutions, such as central banks, commercial banks, investment banks, insurance companies, pension funds, and so on. Wholesale banking involves large-scale transactions and sophisticated products, such as interbank lending, foreign exchange, derivatives, syndicated loans, and so on.
6. Islamic banking
This is the type of banking business that follows the principles and rules of Islamic law (Sharia), which prohibits interest (riba), gambling (maysir), uncertainty (gharar), and unethical activities. Islamic banking offers alternative financial products and services that are compliant with Sharia, such as profit-sharing (mudaraba), leasing (ijara), partnership (musharaka), and so on.
7. Online banking
This is the type of banking business that uses digital platforms and technologies to deliver financial services to customers. Online banking can be offered by traditional banks or by online-only banks that have no physical branches. Online banking allows customers to access their accounts, make transactions, pay bills, transfer money, and so on through the internet or mobile devices.
Each type of banking business has its own advantages and disadvantages for both the banks and the customers. For example:
– Retail banking can generate stable income from fees and interest, but it also faces high competition and low margins.
– Commercial banking can offer diversified revenue streams and cross-selling opportunities, but it also requires high capital and regulatory compliance.
– Investment banking can earn high commissions and fees from complex deals, but it also involves high risks and volatility.
– Private banking can build long-term relationships and loyalty with wealthy clients, but it also demands high standards of service and confidentiality.
– Wholesale banking can benefit from economies of scale and scope, but it also exposes banks to systemic risks and contagion effects.
– Islamic banking can attract customers who value ethical and social responsibility, but it also faces challenges in standardization and innovation.
– Online banking can reduce operational costs and increase convenience for customers, but it also requires high investment in technology and security.
As you can see, there are many types of banking business that cater to different needs and preferences of customers and markets. By understanding the differences and similarities among them, you can make better informed decisions about your financial goals and options.
Types of Banking Business and Their Global Demand
Commercial Banking
Commercial banking is the segment of banking that provides financial services to individuals and businesses, such as deposits, loans, credit cards, and payment services. Commercial banking is the largest and most traditional type of banking in the world, accounting for about 70% of global banking revenue . Commercial banking is also the most stable and profitable segment, as it relies on interest income from lending activities and fee income from payment services.
Commercial banking has been growing steadily in recent years, driven by the expansion of emerging markets, the rise of digital banking, and the increasing demand for financial inclusion. According to a report by McKinsey, global commercial banking revenue grew by 5.2% annually from 2010 to 2019, reaching $3.8 trillion in 2019 . The report also projects that commercial banking revenue will grow by 4.1% annually from 2019 to 2024, reaching $4.6 trillion in 2024 .
Capital Markets Banking
Capital markets banking is the segment of banking that provides financial services to corporate and institutional clients, such as corporate lending, sales and trading, and mergers and acquisitions. Capital markets banking is also known as investment banking or wholesale banking, as it deals with large-scale and complex transactions. Capital markets banking accounts for about 15% to 40% of global banking revenue, depending on the bank and market conditions . Capital markets banking is also the most volatile and risky segment, as it depends on market fluctuations, regulatory changes, and competitive pressures.
Capital markets banking has been recovering from the impact of the global financial crisis of 2008-2009, which caused a sharp decline in revenue and profitability. According to a report by Boston Consulting Group, global capital markets revenue increased by 6.5% annually from 2016 to 2019, reaching $1.1 trillion in 2019 . The report also estimates that capital markets revenue will grow by 3.5% annually from 2019 to 2024, reaching $1.3 trillion in 2024 .
Wealth Management Banking
Wealth management banking is the segment of banking that provides financial services to high-net-worth individuals and families, such as retail brokerage, asset management, and estate planning. Wealth management banking is also known as private banking or asset management, as it focuses on managing the wealth and assets of clients. Wealth management banking accounts for about 10% to 20% of global banking revenue, depending on the bank and market conditions . Wealth management banking is also the most diversified and competitive segment, as it offers a wide range of products and services across different regions and segments.
Wealth management banking has been growing rapidly in recent years, driven by the growth of global wealth, the aging of populations, and the emergence of new technologies. According to a report by Deloitte, global wealth management revenue grew by 7.7% annually from 2015 to 2019, reaching $1.2 trillion in 2019 . The report also forecasts that wealth management revenue will grow by 6.6% annually from 2019 to 2024, reaching $1.7 trillion in 2024 .
References:
https://www.bis.org/publ/bcbs54.pdf
https://www.dnb.nl/binaries/Working%20paper%20251_tcm46-236504.pdf
https://www.investopedia.com/terms/b/banking.asp
https://www.thebalance.com/types-of-banks-and-how-they-make-money-4581989
https://corporatefinanceinstitute.com/resources/careers/companies/types-of-banks/
https://www.bbva.com/en/types-of-banks-and-their-functions/
https://www.bankrate.com/banking/types-of-banks/
https://corporatefinanceinstitute.com/resources/wealth-management/banks-business-segments/
https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Global%20banking%20annual%20review/Global-banking-annual-review-2020-vF.pdf
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