What Is Merchant Banking? [Functions & Benefits]

In this article, we’re answering β€œWhat is merchant banking?”

In short, merchant banking involves providing highly specialized financial services to large institutional clients. This may include corporations, individuals (or families), and even governments.

We’ll discuss the specific functions of merchant banks, the services and benefits they offer, and much more below.

This article is part of our series on opening different bank accounts around the world, which you can access for free by following this link.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

  1. What Is Merchant Banking?
  2. Merchant Banking vs Commercial Banking
  3. Who Is Merchant Banking For?
  4. Benefits of Opening Accounts With Merchant Banks
  5. Merchant Banking Services
  6. Frequently Asked Questions
  7. Do You Want Help Opening Bank Accounts?

What Is Merchant Banking?

Merchant banking is the provision of financial services to large multinational corporations, high-net-worth individuals, and government agencies, by specialized financial institutions. These banks offer underwriting, support for cross-border transactions, alternative funding sources, and trade finance.

That said, these banks can (and do) offer many other services as well, including a wide range of advisory services, private placements, underwriting bond issuances, and much more.

Who is Merchant Banking For?

Merchant banking is generally for commercial entities requiring specialized financial advisory services and high-net-worth individuals who are seeking sophisticated investment opportunities.

Prospective clients that do not fit the above criteria are generally better served through retail and commercial banks, as well as being directly served by private bankers or wealth management advisors.

That said, in many cases, these banks have dedicated divisions within their organizations that also provide these services. Examples of banks engaging in these activities include Citibank, Goldman Sachs, and J.P. Morgan.

Merchant Banking vs Commercial Banking

The main difference between merchant banking and commercial banking is that merchant banking offers specialized financial services to large multinational corporations while commercial banking typically offers standard banking services to small and medium-sized enterprises.

Additionally, while this type of banking typically involves cross-border transactions, advisory, and financing options, commercial banking generally involves banking services within a specific jurisdiction or geographic region.

Benefits of Engaging a Merchant Bank

The benefits of engaging a merchant bank will depend on the specific situation, services required, and desired outcome. Not surprisingly, due to the nature of the services offered, every situation that these bank deals with is different.

With this in mind, the specific benefits that can be accessed in a given situation may vary. So, the following list of benefits is a general representation of what is possible when engaging these banks directly.

Benefits of Opening Accounts With Merchant Banks

  • Access to alternative capital sources
  • Expertise and guidance through advisory
  • Customized solutions for each client
  • Expanded professional network
  • Strong reputation and credibility

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Merchant Banking Services

Merchant banking services include a wide range of financial activities that cater to large multinational corporations, businesses engaging in large cross-border transactions, high-net-worth investors seeking exposure to private placements, and commercial entities seeking advisory and financing services.

With this in mind, the most common services offered by these banks typically include:

  • Underwriting
  • Financial advisory
  • Trade finance
  • Letters of credit
  • Alternative financing
  • And more

Here’s a closer look at a few of the core services that these banks offer.

Investment Banking

Investment banking is part of their core offering. In particular, these banks offer their support in capital raising, underwriting financings, and advising on related activities.

Asset Management

Additionally, they also offer asset management services to both high-net-worth individuals, families, and larger institutional clients seeking a wide range of portfolio management solutions.

Financial Advisory

A wide range of financial advisory services, including mergers and acquisitions advisory, capital raising advisory, restructuring advisory, risk management advisory, and much more.

Corporate Private Banking

Lastly, private banking services are also part of the core offering. These services are offered to both high-net-worth individuals and families as well as corporate clients.

Frequently Asked Questions

Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.

What Is a Merchant Bank Example?

Examples of merchant banks include Goldman Sachs and J.P. Morgan. Even though both banks have divisions that offer services to retail and small business clients, they have specific banking divisions that only serve large multinational clients and high-net-worth individuals (HNWI) seeking specific services.

What Is the Difference Between a Bank and a Merchant Bank?

The main difference between retail bank and a merchant bank is that a retail bank deals directly with individual customers while a merchant bank caters to multinational corporations. Additionally, retail banks provide deposit-taking and related services while these banks are non-deposit-taking financial institutions.

How Do Merchant Banks Make Money?

Merchant banks generally make money by providing specific financial and advisory services. These services may include underwriting capital raising for private placements, providing advisory services, through asset management, investing directly in private banking, and even syndicating loans.

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GlobalBanks Team
GlobalBanks Team

The GlobalBanks editorial team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs. All have in-depth knowledge and experience in various aspects of international banking. In particular, they have expertise in banking for foreigners, non-residents, and both foreign and offshore companies.

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