Commercial Banking :
Commercial Banking refers to the form of the banking service where commercial banks offer various types of monetary services to anyone who wants to avail its services including the public as well as corporations whereas Merchant Banking refers to the form of the banking service where the merchant banks offer financial services to a large company or wealthy individuals.
When you are looking to build your career in the banking industry, the terms commercial banking and merchant banking will sound familiar to you. In this article, besides discussing the differences between commercial banking and merchant banking, we will guide you about the educational prerequisites to succeed in these both banking sectors.
Both of these are essentially two-key banking services that offer many students good rewarding career choices in finance. They are separated mainly based on the nature of offered services and the clients they serve.
Commercial banks verify and uphold savings accounts of individuals; provides loans and mortgages to individuals or small-scale businesses. But merchant banks operate as fiscal consultants to large-scale companies. Commercial banking is usually reachable to everyone for elementary banking requirements, whereas merchant banking is concerned to hand out primarily to large corporations and very wealthy persons.
What is Merchant Banking?
Merchant banks provide financial services for corporate entities, including trade financing and a whole range of international financial activities. They usually cater to mid-sized corporations and can assist with the underwriting of securities, raising venture capital, and offer a host of trade advisory services depending on the specific needs of their clients. They primarily earn through the fee paid for their advisory services.
The main focus of the merchant banks is to invest the depositor’s assets in a financial portfolio which suits best their various requirements like return, risk-taking capacity, etc., and then appropriately manage these investments. Other services offered by merchant banks include providing counselling and advisory services to wealthy individuals and large corporations. As these banks offer various investment functions, they are typically called investment banks.
Commercial Banking Vs Merchant Banking
By definition, commercial banks are banking establishments that offer basic banking services to the general public like providing a loan and deposit money. By definition, merchant banks are financial institutes that provide various financial services to multinational clients with higher net worth, and they have specialization in international trades.
Commercial banking is accessible to anyone who needs basic banking services. Merchant banks’ accessibility is limited to big companies and affluent individuals.
The main source of income for a commercial bank is the interest received on various loans issued. Apart from that, for various banking services they provide like ATM and mobile banking, they charge certain service fees. The key earning in the case of merchant banks comes from the fees received for the advisory services they offer.
● Effect in economy
Local operation areas of the bank are the economically impacted areas for a commercial bank. Large corporations, the clients of merchant banks are impacted by merchant banks. Hence, stock market prices and the national economy are impacted by merchant banks.
● Risk exposure
Commercial banks’ risk exposure is less in comparison with merchant banks.
● Nature of loan extended
Loans that a commercial bank provides are more debt-related. On the other hand, merchant bank-provided loans are more equity-related.
Commercial banks serve their clients as financiers but merchant banks serve their clients as financial advisors.
● Governing act/body
Commercial banks are under Banking Regulation Act, 1949. Merchant banks follow the rules and regulations composed by SEBI (The Securities and Exchange Board of India).
● Engagement type
Commercial banks engage in the general banking business. Merchant banks are more of a consultancy service providers.
● Target clients
Commercial banks are established to fulfil the banking needs of the general public. Merchant banks are established to accomplish the financial needs of corporate firms.
An accounting, finance, or mathematics degree could help you if you are looking forward to working in the commercial banking industry. Strong knowledge and a Postgraduate Program in Banking and Finance you can look at depending on the role you are trying to pursue.
Merchant banks mainly hire Postgraduates in Banking and Finance. Certifications like Postgraduate Program in Banking and Finance could add great value to your profile. Fluency in a foreign language also could be a great add-on.
Commercial banks offer some of the most popular career options in banking. Job roles in this field accommodate people with widely differing skill sets, and compensation is also adequate.
Advanced educational qualifications or practical experience is not a must for some entry-level positions in commercial banking, which makes it more of an accessible career option for an average individual.
One of the best banking career options in terms of package and bonuses, along with exciting and challenging work roles. Merchant banking is more of a high-profile career where professionals help secure major deals and facilitate raising funds for corporations.
Remuneration is quite competitive right from entry-level positions. Growth prospects are excellent, making it possible for a dedicated professional to rise through the ranks to become a vice president or managing director in a firm.