Difference Between Commercial Banking and Merchant Banking

Commercial Banking vs Merchant 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 general public as well as the 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.

Both bankings are two of the primary forms of banking services that offer some of the most lucrative careers in finance. Their functions can be defined separately based on the nature of the financial services they offer and the clients they deal with.


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What is Commercial Banking?

Commercial banks offer to check and savings accounts for individuals and businesses, issue debit and credit cards along with a host of retail banking servicesRetail Banking ServicesRetail banking or personal banking refers to the financial services offered by the financial institutions exclusively to the individual clients. The consumer banking provides personal loan, savings account, debit cards, credit cards, locker, etc.read more. They also offer loans to individuals and small businesses and earn through the interest levied on such credit. Commercial banks may also provide certificates of depositCertificates Of DepositCertificate of deposit (CD) is a money market instrument issued by a bank to raise funds from the secondary money market. It is issued for a specific period for a fixed amount of money with a fixed rate of interest. It is an arrangement between the depositor of money and the bank.read more and saving schemes aimed at retail customers.

The commercial banks perform their work by raising the funds from the general public in form of the deposit, offering the savings and checking accounts, and disbursing the funds in form of loan and charging interest on such loans. Apart from collecting the deposits and disbursing the loans, other functions performed by the commercial banks include an investment of the funds, discounting of the bills of exchangeBills Of ExchangeBills of exchange are negotiable instruments that contain an order to pay a certain amount to a particular person within a stipulated period of time. The bill of exchange is issued by the creditor to the debtor when the debtor owes money for goods or services.read more, agency functions, etc.

What is Merchant Banking?

Merchant banksMerchant BanksMerchant Bank is a company that provides services like fundraising activities like IPOs, FPOs, loans, underwriting. They only deal with companies and businesses.read more 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 capitalVenture CapitalVenture capital (VC) is long-term finance extended to startups with high-growth potential to help them succeed exponentially. The investors are venture capitalists who bear the excessive financial risk and provide guidance to startups to attain their objectives.read more, 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 to their various requirements like return, risk-taking capacity, etc, and then managing these investments in a proper manner. Other services offered by merchant banks include providing counseling and advisory services to wealthy individuals and large corporations. As these banks offer various investment functions, in the US, these are called typically as the investment banks.

Commercial vs Merchant Banking Infographics


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Key Differences

  1. A financial intermediary that is established in a place with the main aim of providing the basic different financial services to the general public that includes the acceptance of the deposits and disbursement of the loans is known as the Commercial bank whereas the financial establishments that are established with the main aim of providing financial advisory services and consultancy to clients with high net worth and multinational corporations.
  2. The main source by which the earnings are generated by the commercial banks includes the interest received by disbursing the various types of loans that include auto loans, issuing mortgages, house loans, small business finance loans, etc. Apart from these other earnings which are earned by the commercial banks include fees received on various services like fees received for issuing the ATM card and allowing services related to that, fees against opening and maintaining of the checking account of the customer, rent on the safety deposit box, etc.
    On the other side, a merchant bank generates its primary earnings through fees that are paid for the advisory services given by them to the large customers. Merchant banks provide various financial services to their clients mainly related to the investments like investing depositor’s assets in finance portfolio as per their requirements and then managing these investments in a proper manner so that customer can get the good amount of money on those investments and in return merchant banks charges fees from these clients. Apart from these fees, banks also make a large number of capital investments in the private companies which are in their growing phase and when these investments stakes are sold at the later stage then the company earns a good amount of money.
  3. The impact of both of the banks is on different economies where in case of the commercial bank, the main impact is on the economy of the local area where it is providing its services as the amount of money given as loan is spent by consumers on purchasing homes, new startups and other required areas which also leads to the creation of the jobs thereby impacting the economy of local areas.
    By contrast, in the case of the Merchant banks, the main impact is on large corporations, to whom it is providing its services. These large corporations invest their money in the share market, thereby impacting prices in the stock market and the national economy as a whole.
  4. As the main function of the commercial bankMain Function Of The Commercial BankA commercial bank refers to a financial institution that provides various financial solutions to the individual customers or small business clients. It facilitates bank deposits, locker service, loans, checking accounts, and different financial products like savings accounts, bank overdrafts, and certificates of deposits.read more is to provide loans to its customers, so its role resembles that of a financier whereas the main function of the merchant banks is to provide advice and consultancy to its customers, so its role resembles that of a financial advisor.
  5. When it comes to the risk, the Commercial banks are prone less to the loss and other financial risks whereas on the other hand Merchant banks are prone more to a string of the risks.

Education & Skills

#1 – Commercial Banking

Having a degree in finance, mathematics or accounting would help lay down a solid foundation for someone looking to enter this field.

Some of the key skills needed are:

#2 – Merchant Banking

Top merchant banks regularly hire from the pool of graduates and undergraduates in finance, engineering, and even law.

  • However, they prefer hiring from top MBA programs with an exceptional academic record.
  • Merchant banking career roles can be exceptionally competitive, requiring excellent communication skills, a flair for finance, and the ability to be a great team player along with fluency in a foreign language, which can be an added asset.
  • Acquiring a relevant certification including Chartered Financial Analyst (CFA) or Financial Risk Manager (FRM) can be of great advantage in acquiring advanced skill sets required for higher merchant banking roles.

Critical skills needed for the job include:

  • Excellent analytical abilities
  • Ability to perform under pressure
  • Should be good at number-crunching
  • Strong work ethics

Employment Outlook

It is true that banking has seen positive developments as an industry but there are several reasons why banking jobs have been impacted in the last decade. As per the US Bureau of Labor Statistics, banking jobs have gone down by 2% between 2004 and 2014. Some of the reasons for this state of affairs include industry consolidation and an increasing reliance on technology with a sudden spurt in online banking services.

This has affected the demand for bank tellers and similar job roles typically involving personal interaction with the customers. However, at the same time, there has been a rise in the demand for financial analysts, financial advisors, marketing professionals and techies who understand an entire suite of financial products offered by commercial banks and can help sell them effectively.

With the repeal of the Glass-Steagall act, a new era of industry consolidation began with M&A activity involving investment banks and commercial banks. Two of the prime examples of this trend include the acquisition of Wachovia by Wells Fargo and of FleetBoston by Bank of America. This has also contributed to a slowdown in the demand for traditional banking jobs as the industry is undergoing a major transformation both in terms of the nature of services banks offer and the way they operate.

As far as merchant banking jobs are concerned, it would be relevant to add here that although theoretically defined as separate forms of banking, few merchant banks and investment banks function purely within their technically defined limits. A number of merchant banks are also engaged in M&A activity and other investment banking roles and it follows logically that the factors affecting investment banking jobs have also contributed to a decline in jobs for merchant banks as well. Some of these factors include the industry consolidation we have already discussed above along with the credit crunch of 2008.

To sum it up, those planning to build a career in commercial or merchant banking need to acquire the competencies for emerging job roles in the banking industry to be able to make the most of it. It must be realized that as industry changes are forcing a fundamental shift in the nature of banking careers, they continue to become ever more challenging and competitive.

Comparative Table

Basis of comparison Commercial Banking Merchant Banking
Definition Commercial banking can be defined as the banking establishment which provides basic banking functions to the general public like lending of the money and accepting the deposits. Merchant banking can be defined as the financial institution which provides a wide range of financial services to clients with high net worth and multinational corporations and they generally have a specialization in international tradeInternational TradeThe trading or exchange of products and/or services across international borders is referred to as international trade. It frequently includes other risk factors such as exchange rate, government policies, economy, laws of the other nation, judicial system, and financial markets that impact trade between the two.read more.
Accessibility Commercial Banking is accessible generally to any of the people who are having basic banking needs. Merchant Banking is accessible mainly to large companies or wealthy individuals.
Earnings  The primary earning of commercial banks are in the form of interest received on various loans issued. In addition to it, other earnings include fees received on various services like ATM, checking account, etc. The primary earning in case of the merchant banking is through fees that are paid for the advisory services given by them.
Economic Effect The main impact of commercial banking is on the economy of the local area where it is providing its services The main impact of merchant banking is on large corporations, to whom it is providing its services, thereby impacting prices in the stock market and national economy.
Risk Exposure The risk exposure is less when compared with merchant banking. The risk exposureRisk ExposureRisk Exposure refers to predicting possible future loss incurred due to a particular business activity or event. You can calculate it by, Risk Exposure = Event Occurrence Probability x Potential Lossread more is more when compared with commercial banking.
Nature of the loan extended Nature of the loan given by the commercial bank is more Debt-related Nature of the loan given by the merchant bank is more equity-related
Role As a Financier As a financial advisor


Commercial Banking:

Though hit hard by industry consolidation and advent of online banking services, commercial banking continues to be a major attraction for those planning to enter the banking industry. The remuneration can vary depending on the job roles and typically, roles requiring technical and people skills attract a better pay package.

  • The loan officer is an entry-level professional role, attracting an annual salary ranging from anywhere between $30,000 to $120,000 depending on the level of work experience.
  • Bank teller is more of a traditional banking role which is lesser in demand these days due to the impact of industry consolidation and a rise in banking automation. Usually, a bank teller might earn anywhere from $20,000 to $40,000 annually.
  • As a Branch Manager, one can earn between $40,000 to $150,000 annually. Usually an experienced professional occupies this position and can afford some great opportunities to learn about M&A activity.
  • A programmer is more of a technical job with comparatively better future prospects and attracts a package of around $35,000 to $150,000.
  • Trust Officer is more of a people-skills job, fit for those with expert knowledge of finance, and interested in financial counseling for HNIs. He might earn anywhere from $45,000 to $80,000.

Sales are one of the few roles which continue to be of great relevance and can offer some of the best opportunities for building a career in banking and finance. One can earn anywhere from $30,000 to $150,000 annually. This excludes any commissions and bonuses earned.

Merchant Banking:

Traditionally, merchant banking has been considered one of the most rewarding careers in finance. However, several factors discussed above have impacted job growth negatively to an extent.

  • Broadly speaking, the average annual salary of a merchant banker stood around $69,680 as of May 2008. This excludes a significant amount of bonuses earned by a merchant banking professional.
  • Average salaries for a merchant banker could vary depending on the location. For instance, the figures stand at $157,640 for the state of Connecticut, $129,620 for New York, and at $111,750 for Washington D.C.

This is why a number of individuals might look for work opportunities in certain locations with relatively better prospects.

Average salaries for some of the popular job roles in merchant banking are included here.

  • Merchant Sales Specialist $63,000
  • Business Sales Consultant $71,000
  • Experienced Sales Representative $61,000
  • Independent Sales Agent $78,000
  • Mergers &Acquisitions Analyst $41,000

Career Pros & Cons

Commercial Banking

  • Some of the most popular career options in banking are offered by commercial banks. Job roles in this field accommodate people with widely differing skill sets and compensation is adequate as well.
  • Advanced educational qualifications or practical experience is not a must for some of the entry-level positions in commercial banking, which makes it more of an accessible career option for an average individual.
  • The demand for traditional job roles involving personal interaction with customers is on the decline due to industry consolidation and banking automation. Individuals with a combination of people and technical skills are preferred these days as more challenging roles emerge.
  • Perks are not among the best, at least not as competitive as in merchant banking roles. Additionally, working hours are also not what they used to be, still, it is relatively better than the hours in a merchant banking role.

Merchant Banking

  • 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 the raising of funds for corporations.
  • Remuneration is quite a competitive right from entry-level positions and growth prospects are excellent, making it possible for a dedicated professional to rise up through the ranks to become a vice president or managing director in a firm.
  • Despite being classified as a high-profile career, the prospects in terms of pay packages and growth opportunities depend largely on the work location. It may not be possible for everyone to relocate to a hub of activity in merchant banking.
  • Very few individuals may actually be able to rise to higher management positions due to cut-throat competition in the field and fewer opportunities at the top. In fact, due to the slowdown brought about by industry consolidation job growth has been impacted in the last few years.
  • Working hours are longer as compared with commercial banking and the amount of work stress is on the higher side, which everyone may not be able to cope with.

Work-Life Balance

Commercial banking offers a clear advantage over merchant banking roles as far as work hours are concerned. Given the competitive nature of the job and intense involvement needed, merchant bankers usually have much longer work hours and high levels of work stress as compared with commercial bankers. Most of the merchant bankers work for six or seven days a week, spending nearly 65 to 75 hours at work. This affects the work-life balance adversely and merchant bankers lead a comparatively stressful life, spending little time with family and friends. In the long-term, this unhealthy trend can impact the health and well-being of an individual and create stress-related problems.

In commercial banking, work hours are usually confined to 50-55 hours even for higher-level positions as the focus of work continues to be on standard banking hours. However, due to industry changes job roles are also increasingly redefined in commercial banks, and workers are required to spend a good amount of time after banking hours at work. This is why current-age commercial bankers may not have the ideal work-life balance, still, they are in a much better position as compared with merchant bankers. Commercial bankers tend to face lower levels of stress-related issues than merchant bankers and lead more of a balanced life.


For dynamic, outgoing, and ambitious individuals, merchant banking could be the right choice of a career option, offering an intensely competitive work engagement with some of the best industry perks. On the other hand, individuals with excellent people skills and technical know-how may be better suited for commercial banking with a relatively less stressful work existence.

Growth opportunities abound in both of these fields, however, perks, working hours, and the nature of roles differ greatly, and these factors usually play a central role in choosing the right career. Merchant banking can be the preferred choice in terms of perks and bonuses, along with an exciting and challenging career path. On the other hand, commercial banking offers relatively better work-life balance, and perks are not bad as well. However, commercial banking jobs are also becoming increasingly competitive with longer working hours and focus on technology-oriented roles.

Anyone planning for a career in bankingCareer In BankingBanking is one of the most popular segments. For starting a career, one must get the required graduation degree from a reputed university. The career paths in banking are - auditors, insurance representatives, investment officers and loan officers.read more, these criteria could be helpful in making the right choice. More importantly, it is about going along with the popular choice, or simply better perks, but about identifying one’s individual skill sets and aptitude, to be able to choose the right work profile.

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