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Commercial Banking vs Investment Banking – What Should You Choose

Did you take commerce as your streamline after class 12? If you are going to say yes, then my dear friend, you are already one step ahead in getting your dream job. You are already one step closer towards getting your job in the field of finance. In this article, we are going to discuss why commercial banking vs investment banking is two of the most pursued and highly fruitful career options to think of. These career fields offer huge remunerations for offering the best quality service. Moreover, they also provide additional growth possibilities in your respective career. 

Commercial Banking vs Investment Banking

We will also discuss the basic differences between Commercial Banking vs Investment Banking, how Commercial Banking functions differ vs Investment Banking functions, required eligibility criteria for Commercial Banking vs Investment Banking roles, Skills critical for Commercial Banking vs Investment Banking positions, Commercial Banking vs Investment Banking job landscape, and Commercial Banking versus Investment Banking Salary. Both banking fields are two of the core types of banking services that provide some of the most alluring careers in finance. However, their functions can be explained separately depending on the type of financial services they provide and the clients they serve.

Commercial Banking vs Investment Banking Definition

Definition of Commercial Banking

Commercial banks are engaged in checking and saving accounts for individual persons and business organisations, for issuing debit as well as credit cards and other retail banking services. They also provide loans to persons and small business firms and receive interest fees on the credit provided. Commercial banks can also provide certificates of saving as well as deposit schemes targeted towards retail customers.

Commercial banks carry out their duties by offering checking and savings accounts, charging interest on such loans, disbursing the funds in the form of loans, and raising funds from the general public in the form of deposits. Other than collecting deposits and providing loans, commercial banks also perform other functions like agency tasks, discounting the bills of exchange, investment of funds, etc.

Definition of Investment Banking

Investment banks exist to help clients like corporations, governments, and High-Net-Worth Persons or HNIs with raising capital. They act as a bridge between investors and companies seeking capital, helping them convert savings into investments. Moreover, they also help in creating revenues from arbitrage and speculation, financial engineering, dealers and brokerage operations, corporate finance, treasury control, and corporate restructuring.   

They also provide paramount services to the clients by executing functions like the purchase and sales of securities as well as assets that also include initial public offer (IPO) management, and, lastly underwriting of shares, advising services just for the sake of M&A (Mergers & Acquisitions) and finally also bonds.  Here are some popular investment banks Morgan Stanley, JP Morgan Chase, Goldman Sachs, etc.

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Commercial Banking vs Investment Banking Principal Differences

Theoretical Dissimilarities Between Commercial Banking vs Investment Banking

Commercial Banking Functions 

Also called corporate banking, commercial banking offers services and products related to banking to business organisations, institutions, governments, and, corporations. Other than deposit products like savings and checking accounts, commercial banks provide global trade, commercial loans, treasury services and other business-based products. The commercial banking model is established to generate additional revenue rather than expand their customer base. However, commercial banks have a considerably smaller client base as compared to retail banks and they are usually more profitable due to their wealthy customer base. 

Investment Banking

Investment banks are financial organisations that support larger corporations to raise as well as control capital. They not only store money on accounts but also do the same for their clients and these accounts are linked with certain deals or ongoing investments. Investment banks provide an extensive scope of services. They are proficient in assisting corporations to raise capital by issuing stock shares or bonds. Essentially, their business structure is based on the fees that clients provide in exchange for the financial services they offer and the commission they earn through securities sales. 

Investment banks also help companies with making massive transactions or different capital transfers. Normally these tasks revolve around M&A supervision, which is why investment banking institutions oversee this process, as companies get involved in the process of raising capital whenever needed and assist all of them with controlling the financial as legal aspects of the problems involved. Almost entirely, huge, publicly traded corporations are the clients of investment banks.

Eligibility Criteria for Commercial Banking vs Investment Banking Roles

Commercial Banking

Anyone interested in a career in commercial banking would advantage from possessing a degree certificate in accountancy, finance, and mathematics. However, depending upon the nature of a particular role, prerequisites for a career in commercial banking may change. Nevertheless, outstanding communication and interpersonal skills are crucial for practically any banking-related job. Having a Chartered Public Accountant (CPA) certification, which could be a huge advantage, is something that anyone preparing for an accounting-focused position should think about obtaining. 

One of the finest methods to understand the industry and gain experience for a career in banking is through internships. Mortgage banker, branch manager, loan officer, trust officer, and credit analyst are just a few of the roles available in commercial banking. To succeed in that position, each of them would need a different skill set, as well as varying degrees of professional responsibility. It would therefore be advisable to plan carefully.

Essential Skills Needed for Commercial Banking vs Investment Banking Positions:

  • Great technology proficiency
  • Meticulous
  • Brilliant accountancy skills
  • Dynamic sales efficiency
  • Robust marketing skills

Investment Banking

In order to become an expert investment banking professional, you need to develop or possess relevant skills and must have previously studied subjects like finance, investment, and similar other topics. Normally, employers like to hire those candidates who received a bachelor’s degree in topics like finance, investment, or similar topics. They are also in favour of graduates or master’s degree holders like an MBA. Pursuing a master’s degree qualification in Business Administration in fields like finance creates a plethora of opportunities to network that can prove beneficial for people wanting to make a career in finance. 

Unlike other entry-stage roles in different areas of finance, internship courses in banking can be highly competitive. Initially, you would be working as an investment banking analyst or associate. However, before becoming an MD (managing director) or an SVP (Senior Vice President) or a VP (Vice President), you need to climb a steep ladder while parallelly gaining some years of work experience.

Skills imperative for Commercial Banking vs Investment Banking positions:

  • Highest knowledge degree in financial principles
  • Comprehensive analytical skills
  • Unbeatable networking skills
  • Unmatched client negotiation skills
  • Can perform under high pressure.
  • Non-negotiable hard technical skills such as Financial Valuation & Modelling, and, especially, Microsoft Office (Excel and PowerPoint)


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Commercial Banking versus Investment Banking Job Landscape

Although the banking sector has experienced some good changes, during the past ten years, banking professions have been negatively impacted for a number of reasons. According to the U.S. Bureau of Labour Statistics, between 2004 and 2014, the number of banking professions has decreased by 2%. Mergers and a growing technological reliance with a sharp increase in internet banking services are a few factors contributing to this situation. This has impacted the need for bank tellers as well as other similar jobs with a similar job description that often involve direct customer contact. However, during the same time, there has also been an increase in the need for technologists, financial analysts, marketing experts, and financial advisors who have a thorough understanding of the full range of financial products provided by commercial banks and can assist in their efficient sales.

A new stage of industry unifications with M&A functions between investment banking corporations and commercial banking firms started with the abolishment of the Glass-Steagall rule.  FleetBoston’s takeover of Wachovia and the Bank of America’s buyout of Wells Fargo are two outstanding examples of this trend. Sadly, this has also led to a decline in the requirement for conventional commercial banking jobs. As a result, the sector is going through a significant transformation, much like the services and operations of banks.

Until ten years ago, the most popular finance profession option was investment banking. But over the past few years, the level of competitiveness in this industry has increased as a result of massive losses, particularly in the years after the financial crunch. The financial sector is still undergoing a significant transformation as the economy starts to rebound.

Despite the fact that entering the profession has become even more challenging, investment banking will still be regarded as one of the best career options. According to a value estimated by the US Bureau of Labour Statistics, particularly the financial sector would likely have an overall growth in employment of about 11% from 2012 to 2022. This is a significant figure that is encouraging for anyone considering a career in finance, especially when it comes to the lengthy overall ratings.

Commercial Banking versus Investment Banking Salary

Commercial Banking

Commercial banking is still a top draw for those looking to break into the banking industry, despite being severely impacted by mergers and acquisitions and the introduction of internet banking services. The salary may change based on the positions and generally speaking, technical and interpersonal skills-required roles bring in a greater salary package. 

The average yearly salary for a loan officer, the entry-level roles, can range from 30,000 to 120,000 USD based on the degree of experience. Because of industry mergers and a surge in banking automation, a bank teller is becoming more of a regular banking role that is no longer in demand nowadays. A bank teller often makes between 20,000 and 40,000 USD on average per year.

One might expect to make, on average, somewhere around 40,000 as well as 150,000 USD per year as a branch manager. People who have a profound knowledge of and expertise in functions like M&As, get infinite opportunities for Commercial banking roles, and, are usually taken up by experienced professionals. Trust Officer focuses more on people-based-skills position, suitable for those with a passion for in-depth financial knowledge and an aptitude in financial consulting for HNIs. He might make, on average, between 45,000 and 80,000 USD annually.

Investment Banking

As opposed to certain other finance career prospects, investment banking still pays significantly higher, despite a little decline. The average salary for investment bankers within India is Rs. 400000 per year, as the starting salary is from Rs. 200000 for entry-level positions and ends at Rs. 2875000 per year on average for top roles. Your compensation is affected by your set of skills, credentials, company size and work location, just like in the majority of corporations. For instance, big corporations will pay a sizable sum to a candidate with a certified MBA degree. Additionally, associates in investment banking are given incentives focused on equity. Associates or analysts are paid more over time and after gaining upwards of three years of job experience.

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Career Advantages of Commercial Banking versus Investment Banking

Commercial Banking Career benefits

Several of the most well-liked work opportunities in banking are offered by commercial banks. People with a wide range of skill sets can work in these positions, and the remuneration is also reasonable. Commercial banking is a more accessible job choice for the typical person because certain entry-level roles do not require additional hands-on experience or academic credentials.

Investment Banking Career Advantages

From the standpoint of a career in finance, it is essentially the greatest choice. One of the reasons is that it is thought to be one of the most well-known jobs in the field that pays well. Without a doubt, entry-level pay is among the highest in the financial sector, and a new investment banker serving for a global corporation might earn much more than relatively qualified practitioners in other branches of finance.

For inexperienced analysts who engage with some of the leading geniuses in the field and operate in a demanding work environment, the training is intensive. They are qualified to hold the positions of VP/SVP, Director, as well as MD since they have worked very hard over a period of time. They can only build a strong basis in investment banking and demonstrate a long-term commitment after an initial working stage of two to three years. This position would be ideal for someone with the capacity to work under extremely tight schedules, in-depth financial knowledge, good negotiating skills, and a competitive edge.

Commercial Banking vs Investment Banking Work-Life Balance

In terms of work hours, commercial banking roles clearly offer a benefit over investment banking roles. Even for higher-level roles, the conventional work timings in commercial banking are 50 to 55 hours because the emphasis is still on regular banking hours. Commercial banks’ job functions are, however, being progressively redefined as a result of industry transformations, and employees are required to put in a significant amount of time at work after normal banking hours. This is why the work-life balance of modern commercial bankers may be less than perfect. They are still in a far stronger place than investment bankers. Compared to investment bankers, commercial bankers typically experience lesser stress-related problems and lead more balanced lives.

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Investment banking positions have a bad image for needing long shifts because there isn’t enough time left for connecting with dear ones or indulging in hobbies. It appears that senior executives would just be awarded with a great work-life balance since financial occupations are among the most alluring. But that might not always be fact.

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Frequently Asked Questions

Q1. What are the essential separations between Investment Banking and Commercial Banking?

The essential separations between Investment Banking and Commercial Banking are well-explained below:

Clientele – Obviously, here is how commercial banking differs from investment banking. The number one factor is their clientele. Generally, investment banking firms provide services to enormous publicly traded organisations, whereas commercial banking firms provide products and services to small, middle-class-market-based clients.

Services – The second difference is the services provided by them. Investment banking organisations are in charge of monitoring gigantic volumes of money and provide advisory services to their clients regarding making well-informed investment decisions. Commercial banks, on the other hand, are entrusted with the role of managing daily financial transactions as well as small loan requests for mainly non-public credit borrowers. 

Performance Measure – The other crucial distinction between investment banks and commercial banks is that they and their success are connected with the stock market’s success. Whereas commercial banks are impacted by loan demand and economic prosperity.

Financial Differences – Commercial banks serve customers and small and medium-sized firms while making money from interest and other fees. For instance, a commercial bank may lend money to a small company and charge interest, which is the money that the bank makes. The investment services that investment banks offer are how they raise income. An investment bank, for instance, can support a corporation throughout the initial public offering (IPO) process and help it issue stocks. The bank would bill the corporation for its products and services.

Q2. List down the skills that are non-negotiable for me in order to make a career in commercial as well as investment banking.

I have mentioned the relevant and critical skills and academic credentials that are absolutely crucial to become a commercial banking professional as well as an investment banking professional.

Commercial Banking

  • Great technology proficiency
  • Meticulous
  • Brilliant accountancy skills
  • Dynamic sales efficiency
  • Robust marketing skills
  • Degree certificate in accountancy, finance, and mathematics
  • Outstanding communication and interpersonal skills

Investment Banking

  • Previously studied subjects like finance, investment, and similar other topics
  • Must be a graduate or a master’s degree holder in MBA.
  • Highest knowledge degree in financial principles
  • Comprehensive analytical skills
  • Unbeatable networking skills
  • Unmatched client negotiation skills
  • Can perform under high pressure.
  • Non-negotiable hard technical skills such as Financial Valuation & Modelling, and, especially, Microsoft Office (Excel and PowerPoint)

Q3. I am confused about selecting a suitable career way – investment banker or commercial banker, can you please help me?

Here are some variables to take into account while picking between the two career ways:

Pick your likings – As mentioned earlier, commercial banking and investment banking differ in a lot of ways. Investment banking is for those people who like to interact with gigantic corporations and governments on a daily basis, helping them make sound decisions related to investments. While commercial banking is for those who have outstanding people-based skills and have a profound knowledge of technicalities involved in internet banking services.  

Think about your educational preferences – if you want a job right away after the class 12 final examinations, commercial banking is ideal for you. However, you still need to have in-depth financial expertise in accountancy, finance, and mathematics, which can be gained through a graduate programme in a Bachelor of Commerce. An additional Chartered Public Accountant (CPA) certification can help you a lot on your job. On the other hand, in order to take up the role of an investment banker, not only you need to be a graduate with a specialisation in any of the following subjects – statistics, administration, accountancy, and, economics, but also an additional credential like an MBA can be beneficial for you during the recruitment process, salary hike, and career growth. 

Q4. Can I switch to Investment Banking from commercial banking later on?

If later on, you want to switch to investment banking from commercial banking, you’ll require new skills that also include financial valuation & modelling.

Q5. What can be an example regarding commercial banking?

Commercial banks help in making deposits or financing loans related to autos. They also function on a wide range, like Bank of America as well as Citibank

Conclusion

Interpersonal with strong technical knowledge and people skills may very well be considered suitable for commercial banking, which offers a less stressful work environment. Both the commercial and investment banking sectors have plenty of opportunities for growth. However, benefits, working hours, and role criteria vary widely, and these aspects typically play a major influence in selecting the ideal career. However, the work-life balance is better in commercial banking, and the rewards are not bad either. These requirements may aid anyone looking for a job in banking in making the best decision. In order to choose the appropriate job profile, it is vital to recognise one’s skills and knowledge and aptitude rather than simply follow the crowd or opt for better benefits.

Arka Roy Chowdhury has done his post-graduate diploma course from Asian College of Journalism. Previously, he has worked at a few publications. Currently, he is an intern at IIM skills. Arka is an avid reader of sports and entertainment news.

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