The 8 Types of Banks
1. Retail Banks
2. Commercial Banks
3. Investment Banks
4. Credit Unions
5. Private Banks
6. Savings and Loan Banks
7. Challenger Banks
8. Neobanks
If you’re looking to open a business bank account, a personal account, or looking for a loan or investment opportunities, it’s important to be aware of the different types of banks you can do business with.
The banking industry is full of opportunities, but it can be a complicated place. Many different types of banks and other financial institutions function differently, offer different services, and provide different benefits. That’s why it's important to research before getting started.
In this article, we will discuss the different types of banks, and their key features, and give some insight into which type of bank is suitable for you.
Types of Banks Overview
| Types of banks | What it is | Key services | Suitable for |
| Retail Banks | Banks that offer services to individuals | Bank accounts, loans, debit and credit cards, and ATMs. | Individuals and small businesses |
| Commercial Banks | Banks designed for commercial purposes | Various loans, cash management, credit products, equipment lending, trade finance, commercial real estate, foreign exchange | Small and mid-size businesses |
| Investment Banks | Banks that manage investment portfolios | Stock trade, securities, and bonds management, corporate finance, merger & acquisition assistance, and asset management | Large corporations, and institutional investors |
| Credit Unions | Member-owned and non-profit financial institutions | Similar services to retail and commercial banks, but only to certain demographics | Individuals seeking affordability and local support |
| Private Banks | Banks offering personalized banking services | Financial planning, investment guidance, wealth management, credit services, lending | High-net-worth individuals |
| Savings and Loan Associations (S&Ls) | Banks specializing in making mortgage loans. | Mortgages, refinance loans, and alternative home loans using deposited savings | Customers seeking a community-oriented banking experience for homebuying |
| Challenger banks | New banks that challenge traditional banking models by offering innovative products and services | Savings accounts, investment accounts, mobile banking | Individuals and businesses seeking convenience and remote banking |
| Neobanks | Digital-only banks that operate entirely online with no physical branches | Multi-currency accounts, mobile banking | Individuals and businesses seeking innovative 100% banking options |
1. Retail Banks
Retail banks, also referred to as consumer banking or personal banking, are the types of banks that offer services that cater to individuals. These banks can facilitate the majority of the services that individuals would require from a financial institution, including regular transactions, personal loans, and specific brokerage services.
Despite being widely used by the general public, retail banks also provide business bank accounts and are sometimes used by small businesses.
Small businesses may opt for retail banks instead of commercial banks due to eligibility issues such as a lack of required credit history or revenue. Additionally, they may prefer the convenience of retail banks which come with more locations and longer hours than commercial banks.
Key Services Offered By Retail Banks
| Retail Banks Key Services | Description |
| Bank Accounts | Checking and savings accounts for individuals, with relatively low account minimums and minimal fees |
| Loans | Namely personal loans, auto loans and home equity loans |
| Debit Cards | Usually complimentary with your bank account |
| Credit Cards | Usually applicable to your bank account The requirements for opening a line of credit involve your account balance, deposit frequency, and credit history. |
| ATMs | All large retail banks have ATMs in various locations and usually carry no fees. |
| Wire Transfers | With either no fees or minimal fees and usually succeed instantly or within 24 hours, depending on the bank. |
| Notary Services | Such as notarizing documents, and providing certified copies of documents. |
Examples of Retail Banks
According to Statista, the top 5 most valuable retail banking banks worldwide as of February 2023 are:
- Industrial and Commercial Bank of China (ICBC)
- China Construction Bank
- Agricultural Bank of China
- Bank of China
- Bank of America
You may notice that 4 out of 5 of these banks are Chinese banks. This is because China is leading the global banking industry in terms of banking brand value.
Pros and Cons
The benefits and drawbacks of retail banking vary based on the specific bank. However, there are common aspects to look at
Advantages
- Convenient access to financial services
- Greater affordability and accessibility of loans
Disadvantages
- Typically low-interest rates for saving account
- Limited products and services
- Customer service is often inadequate due to the high number of users
Who Should Use Retail Banks
✅ Individuals who need a personal bank account and common financial services like debit cards, credit cards, and access to ATMs.
✅ Smaller companies that need a business account to start up their business. Retail banks have more branches for convenient access and physical support.
💡Recommendation: If you own a business and are interested in opening a business bank account, there are benefits to keeping your personal and business bank accounts separate.
2. Commercial Banks
Commercial banks are designed for businesses and for commercial purposes, typically offering essential banking services to small and medium-sized businesses.
Compared to retail banks, commercial banks carry a few more fees and expenses to use, but they also offer more financial services and products.
These banks play an essential role in a local economy as they provide capital and liquidity in the market by taking deposited funds and lending them out in the form of credit which ultimately helps boost the economy.
Key Services Offered By Commercial Banks
| Commercial Banks Key Services | Description |
| Various Loans | Business term loans, commercial lending options, refinancing, and commercial mortgages |
| Cash Management Services | Treasury management solutions ideal for larger businesses including market liquidity assessment, cash flow management, and investment management |
| Credit Products | Different types of credit lines suited for business purposes |
| Equipment Lending | Equipment lending, leasing, or equipment financing These loans can be paid off through recurring monthly payments over a fixed period. |
| Trade Finance | Mitigating international trade risks by acting as intermediaries between exporters and importers |
| Commercial Real Estate | Wide range of property leasing services that enable businesses to generate revenue These properties often include brick-and-mortar stores, shopping centres, strip malls, retail spaces, restaurants, and office buildings. |
| Foreign Exchange Services | Currency exchange and conversion |
| Notary Services | Such as confirming the validity of documents through notarization and providing official copies of documents |
Advantages
- Accessible funding source: getting a business-term loan from a commercial bank is generally easier than raising money in the capital market, with a simpler process, fewer qualifications, and fewer costs.
- Business-centric products available
Disadvantages
- Collaterals requirement: Although it may be easier to get a loan than to raise capital, borrowers need to offer assets as collateral and the loan is usually lower than the security value.
- Multiple fees: commercial banks usually charge fees for each of the services, which can add up over time. Some services may have high fees.
Who Should Use Commercial Banks
✅ Businesses, both in smaller and larger sizes, that need access to more corporate banking services such as foreign exchange and trade financing
✅ Companies in need of financing through loans to start up their businesses.
3. Investment Banks
Investment banks are a bit different from the other two on the list.
Their main function is to manage the trade of stocks, securities, and bonds between companies and their investors.
Investment banks also specialize in complex services such as underwriting, corporate finance advice, and managing investment portfolios to raise capital for businesses and, in some cases, the federal government.
Additionally, they play major roles in the mergers and acquisitions of companies, working to reorganize acquired firms.
Typically, the type of customers with investment banking is high-profile companies and individuals.
Key Services Offered by Investment Banks
| Investment Banks Key Services | Description |
| Corporate Finance | Guidance through managing sources of funding, capital structuring, and making investment decisions |
| Merger & Acquisition Assistance | Assess merger offers, assist in funding arrangements, and advise on maximizing returns |
| Raising Capital | Facilitate initial public offerings (IPOs), issue and sell bonds on behalf of the clients, and offer shares to investors via private placements |
| Equity Research | Report, analyze and advise clients on whether to buy, sell, or hold investments |
| Brokerage Services | Trade stocks, bonds, and various securities |
| Asset Management | Oversee investments to increase value while minimizing risk and decide which investments to pursue or avoid in order to build great portfolios |
Examples of Investment Banks
Among the banks, here are those with the highest revenue from investment banking in 2022, according to Statista:
Pros and Cons
Advantages
- Access to capital markets
- Access to a diverse pool of investors
- Professional guidance in mergers and acquisitions
Disadvantages
- Expensive fees
- Challenges in finding the right investment bank
Who Should Use Investment Banks
✅ Large incorporations, institutional investors, and governments looking for assistance with larger financial transactions and investments.
✅ Companies in need of insights and strategic decisions involved with capital markets and valuations.
4. Credit Unions
Credit unions are types of financial cooperatives that offer typical banking services but operate as non-profit institutions and are owned by their members.
They have been a consistent alternative to traditional banking for many. As of 2023, the membership of credit unions has increased to 138 million, according to the Credit Union National Association.
In their functionality, they are very similar to retail and commercial banks, and their services are targeted at individual consumers, startups, and small businesses. The difference is credit unions mainly serve people affiliated with certain groups, such as people living in a certain region, those living in low-income communities, active members of the military or military veterans, and so on.
They charge much lower fees than other banks and aim to provide more affordable services to members.
🔎 Insight: Credit unions, being member-owned and not-for-profit organizations, are able to collect lower fees because they are generally exempt from Federal and most state taxes. (They still have to pay other taxes, like payroll and property taxes)
Key Services Offered by Credit Unions:
| Credit Unions Key Services | Description |
| Loans | Personal loans, business loans, auto loans, and mortgage loans are available only to the clientele demographics that they serve. The fees and rates are very favourable. |
| Accounts | Customers of credit unions can open savings and checking accounts with their affiliated branches. The cost of banking through the union is low, as the account minimums and required fees will be low to non-existent. |
| Credit Cards | Affiliates of credit unions can open lines of credit through the institution. |
| ATM Services | Access cash without the need for debit cards |
| Student Loans | Dispense student loans with flexible repayment plans at relatively lower interest rates |
| Retirement Savings Accounts | For qualifying elderly customers that are looking for a place to save their money |
| Secured Loans and Lines of Credit | Loans and credit cards for those with lower credit scores This service serves as an opportunity for those with a poor credit history to rebuild their credit. |
| Notary Services | Such as notarizing documents and issuing certified copies |
Examples of Credit Unions
Some of the more notable credit unions include
Pros and Cons
Advantages
- Lower fees and borrowing rates
- Members benefit from credit union profits as shareholders, often as increased dividends on savings and deposits, or reduced interest rates on loans.
- More personal products and services
Disadvantages
- Eligibility requirements for membership
- Limited branches and ATMs
- May have fewer products and services
Who Should Use Credit Unions
✅ Individuals looking for a banking option that provides more affordable services and support from a local financial institution.
✅ Customers within a specific demographic or group (eg. by profession, community, organization) that want a more personalized banking option.
🔎 Insight: You may have heard of both "Federal Credit Unions" and "State Credit Unions".
The key difference is that Federal Credit Unions are regulated and insured by the NCUA (National Credit Union Administration), while State Credit Unions may have different insurance options and adhere to state-specific regulations.
5. Private Banks
Private banks are designed to be, from their name, private. Regular individuals may not be familiar with or come across many private banks because they cater specifically to high-net-worth individuals, like CEOs of larger corporations or someone with minimum liquid assets of USD 1 million.
However, the minimum amount of cash required to open accounts varies from bank to bank.
The financial products and services provided by private banks, such as account maintenance, carry fees. These fees can be avoided by meeting a certain account minimum balance, which shifts from bank to bank.
Key Services Offered by Private Banks
| Private Banks Key Services | Description |
| Preferential Rates | Higher Annual Percentage Yields for deposit accounts Typically lower fees with the advantage of preferential pricing on loans and mortgages |
| Comprehensive Financial Planning | Financial counsel which includes creating savings plans, analyzing the financial implications of major purchases, and so on. |
| Investment Guidance | Investing advice, much like investment banks, on subjects like the sale and purchase of securities, stocks, bonds, and asset allocation. |
| Wealth Management | Includes legal advice, estate planning, personal accounting, retirement planning, and tax guidance |
| Credit Services | Lines of credit with lower rates compared to other bank types |
| Lending | Loans for the purchase of major luxury products, land, property, and so on |
Advantages
- Personalized services
- Possible access to exclusive hedge funds
Disadvantages
- High fees
- Eligibility requirements (for high-net-worth individuals only)
Who Should Use Private Banks
✅ High-net-worth individuals or families looking for more in-depth financial services and advice and can provide the minimum requirements.
✅ High-net-worth customers looking to make more strategic financial decisions regarding investments, estate planning and wealth management.
6. Savings and Loan Associations
Savings and Loan Associations (S&Ls), also known as Thrift Banks, are mutually owned financial institutions that offer mortgages, refinance loans, and alternative home loans using deposited savings.
Although S&Ls are not banks in the traditional sense as they focus on home financing, they also provide limited lending services to businesses, savings accounts and different types of deposit accounts.
S&Ls are required to have at least 65% of their loans to consumers on housing-related terms, which is why their services to businesses are slightly less than those of individuals.
Key Services Offered by Savings and Loan Associations
| S&Ls Key Services | Description |
| Accounts | Saving deposit accounts |
| Loans | Primarily home and property-related loans |
Advantages
- Typically higher interest rates
- Support the community by improving local housing
Disadvantages
- Limited products and services
- May have limited ATM network and online banking options
Who Should Use Savings and Loan Associations
✅ Customers who are looking for a more community-oriented banking experience and are looking to buy a home.
✅ Customers who want to save a little more on fees and earn with higher interest rates on savings.
7. Challenger Banks
Challenger banks, also referred to as Online banks or Digital banks, are banks that challenge the traditional methods of banking.
They offer most of the services that traditional banks do, but primarily through digital channels.
Many challenger banks don't set up physical branches, while a few still maintain a limited number of physical locations.
From 2016-2019, the search for Challenger banks online increased by 32%, while the search for traditional banks decreased by 22% during the same period. An increasing number of users have started considering this option mostly due to the challenges that they may face with traditional banks.
Because they challenge the traditional ways of banking, there have been doubts about their security and legitimacy. But many online banks have authorized banking licenses in the countries where they operate so they are regulated by respective local authorities. These banks have been a growing trend that focuses on improving their services through innovation, technology, and convenience.
Key Services Offered by Challenger Banks
| Challenger Banks Key Service | Description |
| Savings Accounts | Deposit accounts that earn interest |
| Investment Accounts | Accounts that allow you to invest money in various financial instruments such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs) |
| Mobile Banking | Make financial transactions, invest, access account information and get support using a mobile device |
Advantages
- Fewer and lower fees
- Innovative user experience
- Fast and convenient transactions
Disadvantages
- Cyber-attacks concerns
- Limited branches
- Limited products and services
Who Should Use Challenger Banks
✅ Tech-savvy individuals or businesses who prioritize convenience and ease of access to banking.
✅ Customers who travel often and need access to their bank accounts from wherever they are.
💡 Did You Know? Hong Kong has 8 Licensed Virtual Banks that you can choose from.
8. Neobanks
Neobanks are a new type of bank in which smaller, digital platforms perform the same services as retail banks, just without the retail presence.
Neobanks operate exclusively online and focus on improving through technology and convenience.
Though there are still some reservations regarding neobanking, the trend in its use is growing worldwide. According to Statista, the number of users who will have adopted neobanking is estimated to grow to over 370 million by 2027.
Being completely online, these banks have low overhead and are therefore more likely to offer unique features that typical banks won’t offer such as foreign exchange services, a multi-currency account, and more.
Many of the neobanks are not banks. They don't hold banking licenses, but rather financial licenses such as a Money Service Operators License in Hong Kong and a Payment Service Provider Licence in Singapore which allow them to provide cross-border payment services.
Neobanks will normally hold your money in a segregated account held by a real banking institution.
Key Services Offered by Neobanks
| Challenger Banks Key Service | Description |
| Multi-currency Accounts | Accounts that support multiple currencies for individuals and businesses, facilitating both local and international transfers |
| Mobile Banking | Perform various financial activities through a mobile device |
| Innovative Tools and Banking Platforms | Such as budgeting tools and integrations with accounting software |
Advantages
- Quick application processes: streamlined and done completely online.
- Convenience: users can access their accounts from anywhere at any time.
- Lower fees: neobanks can offer lower fees as they don't have branch maintenance costs.
Disadvantages
- Limited services: neobanks usually have limited services compared to the traditional banks
- Online security concerns: like online fraud and hacking
Who Should Use Neobanks
✅ Customers who are looking for an innovative way of banking through advanced features and an intuitive user experience.
✅ Small businesses that tend to be overlooked and discredited by banks and are unable to open a business account for their company.
Challenger Banks vs. Neobanks
After discussing both Challenger banks and Neobanks, the two types might appear the same. However, they do have slight differences, which we will summarize below.
Challenger banks typically offer a full range of banking services and financial products since many of them hold a banking license granted by their local regulatory authority. This means that they can operate like a traditional bank, but are bound by the same regulations as well.
Many, but not all banks are covered under their local deposit insurance schemes. For example, the Financial Services Compensation Scheme (FSCS) in the United Kingdom. With this license, companies are free to use the word 'bank' in their name without restrictions.
On the other hand, Neobanks can usually offer only limited banking and financial services. This is mostly due to the nature of the license they hold. Most neobanks don't carry an official banking license. Rather, they carry Payment Services licenses (like the Payment Service Provider License in Singapore) that allow them to provide payment services across customers.
The lack of a banking license can mean that the funds kept with the institution are not insured to the degree of traditional banks. This also means that they cannot use the word 'bank' in their name.
It's important to take note of the licenses of such companies to have a better understanding of the products they offer, and the services provided.
💡Tip: We have you covered if you want a more in-depth comparison between Challenger banks and Neobanks.
| Challenger Banks | Neobanks | |
|---|---|---|
| Services Provided | • Challenger Banks can usually provide a full range of services similar to traditional banks (Eg. Loans, credit, trade finance) • Challenger banks can have a physical branch, though rarely |
• Neobanks may have limited services to deposit accounts and debit cards. • Neobanks operate exclusively online and have no physical branch. |
| License to Operate | • Challenger banks usually have a banking license. | • Neobanks don't always have a license. Instead, have a Payment Service License (eg. Money Service Operator License in Hong Kong) |
| Naming | • Challenger banks can use the word 'bank' in their name with no restrictions if they have a banking license | • Neobanks cannot be considered 'banks' if they don't have a banking license and cannot use the word 'bank' in their name |
Alternative Banking Solution
If you're considering a different type of bank for your business needs, you can consider Statrys. Let's start by saying that Statrys is not a bank, but a financial institution holding a Money Service Operator license in Hong Kong. We provide alternative business account solutions to SMEs and entrepreneurs and support businesses for payments.
Since 2018, Statrys has been providing businesses with a business account solution that enables cross-border payments at competitive foreign exchange rates.
Key Services Offered by Statrys
- A multi-currency business account in Hong Kong
- Virtual and physical payment cards for more flexibility in making payments
- FX services at competitive exchange rates (spot and forward contracts).
- A dedicated account manager for every client
- 85% of the clients have their accounts approved in less than 3 days.
If you're an entrepreneur with a business in Asia, then Statrys could be suitable for you. You can rest assured that Statrys provides a 100% human customer support experience, offering personalized help to all clients.
FAQs
What are the different bank types?
There are Retail banks, Commercial banks, Investment banks, Credit unions, Private banks, Savings and Loan Associations, Challenger banks, and Neobanks.
What is the most common type of bank?
What services do the retail banks offer?
What services do commercial banks offer?
