What is commercial banking?

Commercial banking is often used interchangeably with business banking to describe financial services offered to companies. These services and products include FDIC-insured deposit funds, checking and savings accounts, and access loans. 

Commercial banking vs. corporate banking

Commercial banking serves small businesses to midsize companies. 

Corporate banking typically caters to middle-market and enterprise business clients, providing more sophisticated offerings like treasury management, larger commercial loans, and more in-depth advisory services for activities like mergers.

Commercial banking vs. retail banking

The difference between commercial banking and retail banking is that commercial banking serves businesses, whereas retail banking only serves non-business customers, including individuals and family trusts. 

Retail banking offers similar products like savings and checking accounts and, in some instances, wealth management services. 

Commercial banking vs. investment banking

Commercial banking vs. investment banking are very different. 

Commercial banking provides deposit and lending products and services like treasury management, larger commercial loans, and more in-depth advisory services for activities like M&A.

Investment banking syndicates capital market raises for private placement and public company financing, including IPOs and later funding rounds, and provides financing and advisory services for M&A transactions. 

In addition to mid-size growth companies and large businesses, investment banking serves institutional investors, government entities, and high-net-worth individuals. 

Why is commercial banking important?

Commercial banking is important because it provides needed business banking services, credit, and liquidity, helping create economic jobs and finance business operations. 

Benefits of using commercial banks

Commercial banks provide benefits, such as making deposits and withdrawing money, earning interest, and making payments easily. Online banking services are convenient and save time.

Benefits or advantages of using commercial banks include:

• Using secure bank accounts to deposit funds and make payments and withdrawals
• Borrowers receiving financing from commercial banking loans, including business working capital (accounts receivable and inventory) financing through lines of credit, long-term equipment loans,  and commercial real estate mortgage loans
• Earning interest income on savings accounts and CDs (certificates of deposit)
• Making electronic payments via ACH in the United States
• Using other payment methods, including paper checks and wire transfers
• Lockbox banking services for collecting receivables
• Global banking services, including foreign exchange and letter of credit services
• Comprehensive services for different banking needs, including branch and online business banking with relationship managers and cash flow management
• ATMs for cash withdrawals and fund deposits

Cons of commercial banks

Cons or disadvantages of commercial banks include:

• High costs, including service fees and account overdrafts
• High transaction fees, especially for wire transfer fees
• Long process for loan approval, with stringent loan and collateral requirements
• Difficulty finding the right banking person to resolve problems in larger banks
• Businesses must adhere to bank loan covenants and maintain adequate liquidity to repay funds
• Low-interest rates on deposit accounts
• High-interest rates charged on unpaid credit card balances

How does commercial banking work?

Commercial banks obtain cash deposits from customers and lend their capital to borrowers at a higher interest rate to make profits. They charge fees for account services, wire transfers, overdrafts, NSF funds, and payment processing. Banks also earn interest on unpaid credit card balances beyond the due date. 

Role of the Federal Reserve in commercial bank regulation

The U.S. government’s central bank, the Federal Reserve, supervises and regulates domestic and foreign commercial banks. The Federal Reserve analyzes bank liquidity by applying annual stress tests to analyze financial strength and the probability of bank failure. 

The Federal Reserve also sets interest rates, manages the money supply, and ensures banks have adequate liquidity. 

Commercial banks borrow or lend funds to maintain the required reserve balances that the Fed mandates. Borrowing and lending between banks occurs with interest rates at the overnight bank funding (Federal Reserve) rate. 

ABA routing number used by financial institutions

The American Bankers Association issues ABA routing numbers to commercial banks and other financial institutions that are federal or state-chartered and have Federal Reserve master account eligibility. 

Financial institutions, including commercial banks, use their customers’ ABA routing and bank account numbers to make and receive requested electronic ACH bank transfers through the ACH Network, clear paper checks, and process other domestic EFT payments. 

Commercial banks in ACH transactions and wire transfers

Nacha-member commercial banks (and credit unions) serve as the ODFI (Originating Depository Financial Institution) and RDFI (Receiving Depository Financial Institution) for sending and receiving domestic electronic ACH bank transfers through the ACH Network. 

All financial institutions in the United States receive domestic ACH payments and ACH deposits. 

Commercial banks may participate in global ACH transactions outside the United States. They also may participate in the FedNow Service (from The Federal Reserve) to make instant payment EFTs for customers. 

Commercial banks initiate and receive domestic and international wire transfers processed through Fedwire or the Swift Network. 

Types of commercial bank lending

Commercial bank lending types include business lines of credit, small business SBA loans, term loans, equipment financing, and commercial real estate financing. 

Commercial banks finance real estate, including construction lending as bridge financing, multi-family apartment financing, commercial office space lending, and mortgage lending for single-family houses and condos owned by institutional investors. 

Commercial banks may provide letters of credit for bank customers

In international transactions, business customers may need letters of credit issued by their commercial bank to guarantee payment to suppliers, based on pro forma invoices and shipping documents, when their vendors ship goods. 

Letters of credit lessen supplier risks in transacting with businesses they don’t know well. 

Commercial bank credit card and debit card issuers

Commercial banks often issue credit and debit cards under their brand name through credit card network companies like Visa and Mastercard. 

Is commercial banking secure?

Yes, in a few ways. First, FDIC-insured institutions provide insurance on deposits up to $250K per entity. 

Second, commercial banks incorporate multiple layers of security, including encryption, password protection, and 2-factor verification, to help keep customer information safe and prevent fraud.

Examples of commercial banking

Commercial banking includes banks and online banking platforms operating in the commercial banking industry, including the following commercial bank examples. 

Examples of commercial banks, including digital banking, are:

• JPMorgan Chase
• Bank of America
• Citigroup
• Wells Fargo
• HSBC
• Webster Bank, N.A. 

What is commercial lending in banking?

Commercial lending in banking occurs when banks assess business loan creditworthiness and provide lines of credit, business loans, including SBA loans, term loans, secured (collateralized) equipment financing, and construction and mortgage loans for commercial real estate.

Our favorite commercial banking service providers

In the commercial banking industry, two types of banking are (1)  traditional banks with physical branch locations and ATMs and online operations and (2) newer digital-only banks with online banking platforms. 

The following comparisons include both types of commercial banking providers. 

1. Rho

Although Rho is a financial technology company rather than a bank, its partner Webster Bank, N.A., Member FDIC, is a national bank that provides banking services through the Rho fee-free business banking platform that lets your business escape the high cost of business banking.  Rho is Business Banking Reimagined for the Digital Age. 

Rho offers online-only commercial banking services for approved businesses with a Rho Account, including new startup businesses with venture-backed financing and small enterprises to midsize companies.

Features

Rho commercial banking platform features for businesses include:

• ‍Rho Checking Account: The free Rho Checking Account is provided to Rho-approved business customers for making cash deposits, withdrawals, and payments. 
• ‍Rho Treasury Account: The Rho Treasury Account uses a network of over 400 FDIC-insured banks to give your business a treasury management solution that provides interest income and access to up to $75 million in FDIC insurance per entity without opening multiple bank accounts (instead of the $250,000 per bank FDIC limit). 
• ‍AP automation: With no added platform fee, Rho customers can access free Rho AP automation software for efficient invoice processing. 
• ‍Fee-free global payments: Businesses make, excluding other bank or intermediary and foreign exchange fees. 
• ‍Corporate cards: The Rho Card is a virtual and physical business spending card with cash back, employee spending controls, and the ability to set a flexible repayment period of up to 60 days (two statement periods). 

Pros

The pros of Rho commercial banking include:

• Simplicity and efficiency for making business transactions
• Global fee-free payments
• Strong Rho account security
• FDIC insurance on cash deposit account balances up to $250,000 or $75 million for the Rho Treasury Account
• Excellent customer service, with a dedicated account manager for every customer
• Rho card with preset limits for controlling spend by employee

Cons

The cons of Rho commercial banking include the following:

• Targeted rather than comprehensive banking services offered 
• Personal funds must be placed in a separate bank
• Rho doesn’t provide line of credit or loan financing
• There are no physical locations for branch banking

Integrations

Rho internal integrations include all Rho products, including AP automation, fee-free global  ACH and wire transfer payments, and Rho corporate cards. In addition to these internal Rho software integrations, Rho has many third-party software integrations for accounting and ERP systems, HR software, and travel booking with the Rho Card. 

Rho integrates ERP and accounting systems to sync all Rho transactions, including invoice, bill pay, and FX transactions, to your general ledger. 

Rho accounting and ERP system integrations include: 

• QuickBooks Online
• NetSuite
• Microsoft Dynamics 365
• Sage Intacct

Rho provides 50+ HR (human resources) software integrations, including BambooHR, Gusto, and Workday. 

Rho travel booking integrations with your Rho Card include:

• Navan
• Concur
• Emburse Travel

Rho is best for fee-free, efficient global payments from a digital-only commercial banking platform.

Fees & Pricing

Rho pricing doesn’t charge a platform fee or transaction fees, giving you free AP automation, free ACH payments and checks, and no Rho-added fees on global wire transfers except competitive foreign exchange fees. Your business will have no per-card or annual fees on the Rho Card. 

2. JPMorgan Chase 

JPMorgan Chase, one of the major global banks headquartered in the U.S., provides a complete array of banking services. It does business as Chase Bank. Chase commercial banking customers range from startups to large corporations. 

JP Morgan Chase has a commercial banking division for businesses. Chase has a different consumer banking operation (including private banking) and an investment banking division. Investment banking may also serve global commercial banking customers.

Features

JPMorgan Chase commercial banking includes these business banking features:

• Credit and financing: JPMorgan Chase's credit and funding include: 
• Asset-based Lending, including collateralized revolving lines of credit and term loans, equipment financing, employee stock ownership plans (ESOPs) financing/advice, and syndicated finance loans.
• ‍International banking: JPMorgan Chase partners with financial advisors in over 100 countries to provide commercial and investment banking services, as well as payment processing and asset management. ‍
• Commercial real estate banking: JP Morgan Chase has the largest commercial real estate and multifamily housing portfolio in the U.S., using local talent. Chase commercial real estate financing includes term, subscription, refinancing, syndicated, and construction loans. ‍
• Credit card solutions: JPMorgan offers debit and credit cards, including P-cards for procurement, virtual payment cards, and other business credit cards, including OneCard for total business spend. ‍
• Payments: JPMorgan Chase provides a range of payment services, including Digital Bill Payment for receiving accounts receivable payments from customers, customized Integrated Payables to pay suppliers, eCommerce payment processing, FedNow instant payments, JP Morgan Wallet, Onyx by JP Morgan blockchain solutions, and rent payment solutions for commercial real estate companies and renters. 

Pros

JPMorgan Chase pros include:

• Complete range of banking services 
• Loan customization 
• Syndication for large loan amounts
• Provides letters of credit to businesses
• Extensive banking experience
• SBA Preferred Lender
• Award-winning 24/7 customer service

Cons

JP Morgan's cons include:

• Long loan approval process with multiple employees involved
• Higher fees for some types of payments and services, including bank account service fees,  overdraft fees, NSF fees, and expensive international wire transfer fees
• Legacy banking systems
• Greater complexity in completing some transactions
• Compensating balances are required to avoid bank account fees

Best for obtaining all banking needs from one source. 

Fees & Pricing

JP Morgan Chase charges bank account fees for business checking accounts, which can be waived by compensating balances or meeting other standard conditions. Chase offers credit card rewards and rebates. Chase charges loan interest rates based on customized underwriting. 

3. American Express 

American Express (AMEX) primarily functions as a credit card company. AMEX also offers online and mobile app-based commercial banking services (in addition to consumer banking services). This comparison highlights commercial banking services and products from American Express. 

Features

American Express consumer banking offers these features:

• Business line of credit 
• Business checking account withsome text
  • 1.3% API on balances up to $500,000
  • Membership rewards points
  • No monthly account maintenance fees
  • FDIC insured up to applicable limits
  • 24/7 customer support
• Business Blueprint™ mobile app with My Insights personalized data dashboard for cash flow and decision-making

Pros

American Express commercial banking pros include:

• Simplicity of use
• Rewards points
• No bank account maintenance fees
• Availability of time for customer support
• Interest income earned on bank account balances
• No eCheck fee or ACH fees

Cons

American Express commercial banking cons include:

• Payment fees for wire transfers
• Wire transfer fees for outgoing domestic wire transfer
• No international wire transfers
• Foreign transaction fees on purchases

It is best for businesses with limited business banking needs who are willing to pay some fees. 

Fees & Pricing

Payment fees & pricing: American Express commercial banking fees for payments are:

• Domestic ACH - no fee
• Incoming international ACH - no fee
• Outgoing domestic Same Day ACH: $10
• Incoming domestic wire transfer: no fee
• Outgoing domestic wire transfer: $25

Check fees & pricing: eChecks - no fee; checkbook no AMEX-added fees but third-party costs for orders.

Debit & ATM fees & pricing: 

• MoneyPass^® ATM Withdrawals:  no fee
• Foreign Transaction Fee: 2.7% of the amount of each transaction after conversion to US dollars

4. Capital One Bank

Capital One is a credit card company. Capital One Bank is a top-10 U.S. bank offering commercial banking services to businesses, with physical locations in several, but not all, states. 

Features

Capital One business banking features include:

• Business checking accounts
• Savings accounts
• Term loans and lines of credit
• Letters of credit financing 
• Asset-based lending and factoring
• Card payment processing (for accepting card payments/partnering with Stripe)
• Escrow Express
• Full-service physical branch locations 
• Corporate credit card rewards programs

Pros

Capital One pros include:

• Wide range of banking services and financial strength
• Assigned relationship managers with industry experience
• Treasury management solutions
• Easy system for managing escrow funds
• Free online bill pay
• Corporate credit card rewards

Cons

Capital One cons include:

• A limited number of states have physical branch locations
• Expensive fees for domestic wire transfers
• Basic and enhanced business checking accounts do not earn rewards or interest

Best for businesses seeking a large regional bank but not requiring a physical branch location

Fees & Pricing

Business Checking Accounts - Basic Checking fees & pricing: Monthly service fee of $15, waived with $2,000 minimum account balance; for domestic wire transfers-incoming: $15; outgoing $25; no-fee digital transactions including mobile deposits, ACH payments, and online bill pay; no fees at Capital One and partner network ATMs

Business Checking Accounts—Enhanced Checking fees & pricing: The $35 monthly service fee is waived with a $25,000 minimum balance. Incoming wires are free, and the first five outgoing wires are free per month. There are no-fee digital transactions, including mobile deposits, ACH payments, and online bill pay. There are no fees at Capital One and partner network ATMs. Enhanced checking is for higher transactions. 

Customized business checking accounts for eligible large, complex businesses: Fees and pricing are by custom quote. Tailored business checking offers premium products for cash management and complex banking needs. 

FAQs

These frequently asked questions (FAQs) and answers relate to commercial banking. 

What is middle market commercial banking?

Middle-market commercial banking is banking services provided to businesses with revenues ranging from $50 million to $1 billion. It includes account deposits, electronic and other payments, bank lending, treasury and cash management services, foreign exchange, and financial advisory services. 

What is the difference between a private bank and a commercial bank?

A private bank provides wealth and investment services to wealthy individuals. In contrast, a commercial bank offers businesses several types of banking services. 

What is the difference between banking and commercial banking?

Banking is a broader term than commercial banking. Commercial banking is a for-profit financial institution providing services to businesses. Credit unions, which are not-for-profit financial institutions, offer banking services, which are not included in the term commercial banking. 

What is commercial lending in banking?

Commercial lending in banking is making business loans to small and medium-sized businesses and larger enterprise businesses, including SBA loans for small businesses, working capital loans like lines of credit, term loans including equipment loans, and commercial real estate loans. 

What is a commercial banking job? 

A commercial banking job may be a CEO, vice president, loan officer, branch manager, trust services manager, personal banker, commercial real estate lender, relationship manager, teller, accountant, or IT manager.  

Is investment banking a better career path than commercial banking? 

Investment banking is sometimes called corporate finance. The compensation is considered high because investment banking provides employees and partners with salaries, large bonuses, and eventual ownership stakes. Investment banking is a compelling career path for workers with the stamina and motivation to work long hours to succeed. 

However, newer employees not suited to a career in investment banking may burn out quickly and switch careers to less stressful commercial banking or another type of work. 

Conclusion: What is commercial banking?

Commercial banking is for-profit banking services provided to businesses by banks and online digital banking platforms owned or partnered with banks.

Rho's online commercial banking platform saves your company money on banking costs and charges no platform fee. With Rho, your business can deposit FDIC-insured money, receive treasury account services, make fee-free electronic payments, and use a Rho corporate credit card to control spend.

With Rho, business banking customers can electronically pay global suppliers and other payees using fee-free Same Day ACH and no-fee-added wire transfers. The Rho banking platform also provides AP automation and lets you manage business spend. Schedule a Rho demo today. 

Competitive data was collected as of September 13, 2024, and is subject to change or update.

Rho is a fintech company, not a bank. Checking and card services provided by Webster Bank, N.A., member FDIC; savings account services provided by American Deposit Management Co. and its partner banks.

Investment management and advisory services provided by RBB Treasury LLC dba Rho Treasury, an SEC-registered investment adviser. RBB Treasury LLC facilitates investments in securities: investments are not deposits and are not FDIC Insured. Investments are not bank guaranteed, and may lose value. Investment products involve risk and past performance does not guarantee future results. Registration with the SEC does not imply a certain level of skill or training. Treasury and custodial services provided through Apex Clearing Corp. Treasury and custodial services provided through Interactive Brokers LLC for clients with accounts opened prior to July 2024; IBKR rates may vary from Apex rate shown above.