In this article, we’re answering “What 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
- What Is Merchant Banking?
- Merchant Banking vs Commercial Banking
- Who Is Merchant Banking For?
- Benefits of Opening Accounts With Merchant Banks
- Merchant Banking Services
- Frequently Asked Questions
- 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
Do You Want Our Free Non-Resident Banking Guide?
Sign up here to receive our Free Non-Resident Banking Starter Guide and weekly updates on the best account opening options available:
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.
Do You Want Help Opening Bank Accounts?
If so, you can get access to GlobalBanks IQ in just a few clicks.
GlobalBanks IQ is our flagship international account opening solution. It gives you instant access to the…
+ Expert insights on which banks to choose & why
+ Step-by-step reports to open accounts in the best banking hubs
+ GlobalBanks international bank database & detailed bank profiles
+ Tried & tested banks for high-risk, offshore, & non-resident clients
+ Plus, get YOUR most pressing bank account opening questions answered by our team!
And “yes!” GlobalBanks IQ helps foreigners and non-resident individuals open bank accounts.
In fact, GlobalBanks IQ even helps non-resident, foreign & offshore entities open bank accounts.
Use the link in our menu above to learn more about GlobalBanks IQ. Or, contact us directly with any questions!
