A commercial bank is a for-profit financial institution that offers loans to and accepts deposits from the public, either businesses or individuals. Commercial banks play a crucial role in the economy.
But what services do commercial banks provide? And how do these services help businesses?
Let’s dive into everything you need to know.
What Are The Different Types of Commercial Banks?
There are three main types of commercial banks: public sector banks, private banks, and foreign banks. Let’s dive in and explore each.
Public Sector Banks
This commercial banking system is a subset of the national central bank. The government acts as the primary stakeholder in public sector banks, and they are an extension of that governing body.
Private Sector Banks
Individuals or businesses primarily own private banks. The government has little to no involvement in these banks other than requiring that they follow central bank guidelines. Private-owned banks are at liberty to devise their own financial strategies and often make it a priority to meet each customer’s unique needs.
Unlike public and private sector banks, foreign banks operate outside the nation in which they are headquartered. They have locations worldwide and make nearly 40 percent of all loans to American businesses.
What Are The Functions of Commercial Banks?
Commercial banks have several different functions, and each function is vital to stimulating the economy and providing intermediary financial services.
Here are a few of their primary functions:
Commercial banks accept deposits from both businesses and individual entities. They handle savings deposits, time deposits, and current deposits. Time deposits carry a higher interest rate than savings deposits, and current deposits don’t offer any interest.
One of the primary functions of commercial banks is to lend funds, and these loans can be in cash credit, advances, or otherwise. You can get many different types of loans from a commercial bank depending on your spend limit, the timeframe you’d like to work with, and what you’re looking for in terms of interest rates.
Acting as Agents
In addition to accepting deposits and lending credit, commercial banks act as mediators between individuals, businesses, and government entities. They do so by collecting bills and fees, helping manage digital banking services, and facilitating stock market trading for their users.
Dealing With Foreign Exchange
Commercial banks are responsible for handling exchanges between foreign and national currencies. They often serve as trusted partners between foreign banks and home banks, dealing with the exchange of money and the handling of different account types overseas.
What Services Do Commercial Banks Offer?
There is no question that commercial banks play an essential role on both a national and global scale. They are beneficial for economic growth, particularly in developing countries, and offer customers many financial options. But along with their core functions, what types of services do these banks perform? The following are some of the commercial banking solutions offered by Capital One, though you can find most through other commercial banks as well.
1. Commercial Lending
Commercial lending refers to a borrowing relationship between a business and a commercial bank. In essence, it provides the funds by which companies can pay for their various business expenses. You can repay commercial loans within a short period or long-term.
2. Loan Syndications
Capital One and other commercial banking services can arrange syndicated loan transactions for companies that require a more flexible credit structure that falls outside an individual bank’s limits. Loan syndication services can be advantageous for several reasons. For one, they simplify negotiating multiple credit agreements, and they also improve borrower control over financing activities. Loan syndications can provide funding for many different corporate purposes, including acquisitions and capital expenditures.
3. Depository Services
The hallmark of commercial banks is the ability to make deposits. Whether you’re making an individual or company transaction, most banks offer a wide range of depository services to meet your needs regardless of your business size. Commercial checking services may include checking with earnings credits, checking with earnings credits and interest, and interest-only checking. Depository services are critical to day-to-day business operations and provide the means to manage their transactions.
4. Accounts Payable Solutions
Many commercial banks offer customers solutions to streamline their accounts payable processes. Capital One, for instance, lets users choose from a variety of card options that you can use to pay invoices. Accounts payable solutions are an important—and convenient—way for businesses to manage their payments owed to suppliers. By staying on top of this process, they can make payments easier and get things taken care of in a more timely fashion.
5. Liquidity Management Solutions
Liquidity refers to the ease by which you can readily convert assets to cash without affecting their market prices. Many commercial banks offer liquidity management solutions to help businesses monitor their money.
Standard liquidity management solutions involve cash concentration, automated investment and loan sweep, and demand deposit accounts. These can help businesses keep an eye on where their funds are going and determine their liquidity.
6. Foreign Exchange
These days, it’s almost impossible to conduct good business without dealing with foreign currency. 80-95 percent of all US businesses purchase supplies overseas or have sales overseas.
This is why commercial banks offer foreign exchange services to customers. They help with conversion rates and mitigate the risks associated with fluctuating foreign currency. Another benefit to using commercial banks’ foreign exchange services is that they are typically very secure.
7. Investment Banking
Investment banking services assist companies and government institutions in generating capital. They also help facilitate acquisition transactions and other financial advisory services. Some of the services that are generally provided through commercial banks are business valuations, fairness opinions, and corporate debt offerings.
8. Remote Deposit Capture
Remote deposit capture, or RDC, has become essential for financial institutions to remain competitive, and commercial banks are no exception. RDC allows users to deposit checks electronically, ensuring quicker deposits and eliminating the need for people to have to pull up to a physical bank every time they want to deposit something. This can be especially useful for businesses responsible for depositing large volumes of checks over short periods of time.
Teksetra provides RDC services, including risk assessment and implementation expertise, to help businesses start remote deposit capture. Teksetra can help companies with planning, hardware procurement, maintenance, and every other step involved with RDC implementation.
See How Teksetra Can Help
Commercial banks are growing—not only in size but in terms of the number of services offered. As new tech solutions enter the scene, so do banking options, which is why commercial banks need to expand their offerings as much as possible to reach the maximum number of businesses and individual clients.
Teksetra offers end-to-end technology solutions for numerous industries, including finance. Teksetra’s outsourcing acts as an extension of your team, providing the resources and technology your business needs to get more work done. With Teksetra, you can supplement your staff, decrease non-billable time, and complete more projects, all while ensuring a positive customer experience. Looking for treasury management services? Teksetra has a team of experts to answer any questions you may have.
Reach out today to learn more about how Teksetra’s services can help your business in the world of commercial banking!
I am a financial expert with a deep understanding of the commercial banking sector. My expertise comes from years of hands-on experience and in-depth knowledge of financial institutions, banking operations, and economic dynamics.
Now, let's delve into the concepts discussed in the article about commercial banks.
Types of Commercial Banks:
Public Sector Banks:
- Subset of the national central bank.
- Government acts as the primary stakeholder.
- Extension of the governing body.
Private Sector Banks:
- Owned by individuals or businesses.
- Limited government involvement.
- Can devise their own financial strategies.
- Operate outside their nation of origin.
- Have global locations.
- Contribute to a significant portion of loans to American businesses.
Functions of Commercial Banks:
- Handle savings, time, and current deposits.
- Different interest rates for time and savings deposits.
- Provide various types of loans (cash credit, advances, etc.).
- Terms depend on spend limit, timeframe, and interest rates.
Acting as Agents:
- Mediate between individuals, businesses, and government entities.
- Collect bills, manage digital banking services, facilitate stock market trading.
Dealing With Foreign Exchange:
- Handle currency exchanges between foreign and national currencies.
- Serve as trusted partners between foreign and home banks.
Services Offered by Commercial Banks:
- Borrowing relationship between businesses and banks.
- Funds for various business expenses.
- Arrange syndicated loan transactions for flexibility.
- Simplify negotiating multiple credit agreements.
- Provide a range of depository services.
- Critical for day-to-day business operations.
Accounts Payable Solutions:
- Streamline accounts payable processes.
- Convenient way for businesses to manage payments to suppliers.
Liquidity Management Solutions:
- Monitor funds through cash concentration, automated investment, and loan sweep.
- Help determine liquidity.
Foreign Exchange Services:
- Assist with foreign currency transactions.
- Mitigate risks associated with fluctuating foreign currency.
- Generate capital for companies and government institutions.
- Facilitate acquisition transactions and financial advisory services.
Remote Deposit Capture (RDC):
- Deposit checks electronically for quicker deposits.
- Eliminate the need for physical bank visits.
The article emphasizes the growing importance of technology in commercial banking, with services like Remote Deposit Capture provided by companies like Teksetra, showcasing the evolving landscape of financial solutions. Commercial banks are expanding their services to cater to the diverse needs of businesses and individual clients in a rapidly changing economic environment.