Within the parameters of what most people think about when they think about banks there are two types – retail and corporate. Retail banking refers to the part of a bank that deals directly with consumers. Corporate banking, as might be surmised, deals with the part of a bank or a type of bank that deals with businesses.
In fairness, most large banks are not specifically retail or corporate – they are both. The distinction is made by having a retail division and a corporate division within the same bank umbrella.
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Retail Banking Products
The retail end of a bank includes the normal things you probably associate with a bricks and mortar bank including checking and savings accounts, certificates of deposit (CDs), mortgages, automobile loans, credit cards, lines of credit and often currency exchange services.
Retail banks often also offer stock brokerage services, insurance, wealth management and private banking. Retail banking has been severely impacted by technology and online banks that offer retail products are prolific. The profit potential of retail banking is both considerable and consistent making banks a longtime investment target for knowledgeable investors.
Corporate Banking Products
The corporate side of banking services everything from large corporations to small (but growing) companies. Products and services they provide include access to funding (loans and other credit products). In fact, funding is the biggest area of business within corporate banking and a huge source of profit.
Other services include treasury and cash management, equipment lending, commercial real estate, debt and equity structuring, trade finance and employer services such as payroll and even group retirement plans.
Investing In Banks
CNBC’s Jim Cramer pointed out recently that investors avoided investing in banks over recent years thanks to low interest rates and resulting slim profit margins. As the economy grows, says Cramer that has been changing. Suddenly banks are back in. Cramer credits the Federal Reserve consensus that the economy can support higher interest rates for bank stocks coming back into favor. It doesn’t hurt that many banks have initiated share buyback programs which tend to boost stock prices.
According to Cramer banks are getting back to where they were before the Bush and Obama administrations forced the issuing of equity during the Great Recession. Cramer’s favorites include large banks like: JPMorgan Chase & Co. (NYSE:JPMB), Wells Fargo & Co. (NYSE:WFCB), Bank of America Corp. (NYSE:BACB) and Citigroup Inc. (NYSE:CC).
The Peer-To-Peer Option
There’s another “bank-like” investment option that not many people think about – peer-to-peer lending. This includes platforms like Lending Club and Prosper. Investing through companies like these allows you to loan money to individuals as if you were a bank. Return is not bad at 6% or more.
Your investments are split into increments as small as $25 over hundreds or even thousands of loans – depending on how much you invest. This isn’t just a way to help many people, it also reduces risk by spreading the wealth so to speak. Opening an investment account in peer-to-peer lending can be done for as little as $1,000.