Wholesale Banking

Wholesale banking refers to banking services between merchant banks and other financial institutions. This type of banking deals with larger clients, such as large corporations and other banks, whereas retail banking focuses more on the individual or small business. Wholesale banking services include currency conversion, working capital financing, large trade transactions and other types of services.

Wholesale banking is meant to describe the financial practice of lending and borrowing between two large institutions. Banking services that are considered "wholesale" are reserved only for government agencies, pension funds, corporations with strong financials and other institutional customers of similar size and stature. These services are made up of cash management, equipment financing, large loans, merchant banking and trust services, among others.

Wholesale banking also refers to the borrowing and lending between institutional banks. This type of lending occurs on the interbank market and often involves extremely large sums of money.

Most standard banks operate as merchant banks and offer wholesale banking services in addition to traditional retail banking services. This means that an individual looking for wholesale banking wouldn't have to go to a special institution and could instead engage the same bank in which he conducts his personal retail banking.

The easiest way to conceptualize wholesale banking is to think of it as a discount superstore — like Costco — that deals in such large amounts that it can offer special prices or reduced fees, on a per-dollar basis. It becomes advantageous for large organizations or institutions with a high amount of assets or business transactions to engage in wholesale banking services rather than retail banking services.

For example, there are many occasions when a business with multiple locations needs a wholesale banking solution for cash management. Technology companies with satellite offices are a prime candidate for these services. Let's say that a SaaS company has 10 sales offices distributed around the United States, and each of its 50 sales team members has access to a corporate credit card. The owners of the SaaS company also require that each sales office keeps $1 million in cash reserves, totaling $10 million across the business. It's easy to see that a company with this profile is too large for standard retail banking.

Instead, the business owners can engage a bank and request a corporate facility that keeps all the company's financial accounts. Wholesale banking services act like a facility that offers discounts if a business meets minimum cash reserve requirements and minimum monthly transaction requirements, both of which the SaaS company will hit. It is therefore beneficial for the business to engage in a corporate facility that consolidates all its financial accounts and reduces its fees, rather than keeping 10 retail checking accounts and 50 retail credit cards open.