Payset prespective
October 13, 2022

9 Common Types Of Banks You Need To Know About

The financial landscape is home to many different types of banks and financial institutions. These organizations function in different ways and serve different customers. In this article, we will take a deep dive into the different companies and also summarize the pros and cons of their operations and their common products and services.

9 Common Types Of Banks You Need To Know About

1. Central Banks

Central banks are responsible for the oversight of all other banks. In England, the central bank is the Bank of England

In the United States, the central bank is the Federal Reserve and “The Fed” is split up into twelve regional banks, such as the Federal Reserve Bank of St. Louis, all of which are accountable to the Washington headquarters. 

The central bank regulates the financial system, conducts monetary policy, such as setting interest rates, and supervises commercial financial institutions. 

Consumers will not have any dealings with a central bank, but their financial lives are dictated by many of its decisions and it is important to know its operations. 

Central banks have always been an important part of the financial system, but they become more front and centre in times of economic hardship or financial market troubles.

Pros of Central Banks

  • A centralized body for financial stability.
  • A safety net in times of economic or financial stress.
  • Regulatory oversight of smaller regulators and large banks.

Cons of Central Banks

  • Criticism for its centralized nature and small size.
  • Seen to favour protection of the larger financial system over individuals.
  • Run by economists and detached from “main street”.

Common Services Offered by Central Banks

  • Monetary policy decisions.
  • Regulatory oversight for investment banks and retail/commercial. 
  • Global coordination of policy with overseas central banks.

Most suitable for: Central banks support investment banks and governments.

2. Retail and Commercial Banks

Retail banks provide personal banking services and products to the general public, while commercial banks often deal solely with business clients. However, in the U.S., the term commercial banking can be used to separate a normal business bank from the services of an investment bank.

Banks such as Chase Bank, and Bank of America are common examples of retail banks in the U.S. In Europe, there are the likes of Barclays in the U.K. and BNP Paribas in France. 

These banks will also offer commercial banking in some cases, which is where the lines can get blurred. These are the institutions with a heavy footprint of branches and customer service staff. 

Retail banks provide a wide range of consumer services including checking accounts, personal banks, and mortgages.

Commercial banks are more suited to business customers and will be more expensive to use than retail banks. The purpose of commercial banks is to support businesses with capital, credit, and liquidity.

Some of the products offered by commercial banks include:

  • Loans: Commercial banks offer a range of loans, including business loans, refinancing, and commercial mortgages.
  • Cash Flow Management: Commercial banks have treasury solutions for larger businesses. These services include cash flow management and investment management.
  • Equipment Lending: Commercial banks usually offer services for asset financing. These can allow companies to scale up their business with the necessary equipment.
  • Trade Finance: Commercial banks can provide international trade financing to smooth the outcome of overseas deals as a third party.
  • Commercial Real Estate: Commercial banks often own properties for leasing purposes and these can be office blocks or retail units.
  • Foreign Exchange: Commercial banks provide currency exchange and conversion.

Pros of Retail and Commercial Banks

  • A wide range of banking services.
  • Large branch footprint and support staff.
  • Underwritten by investment banks or central banks.

Cons of Retail and Commercial Banks

  • Large networks and staffing mean large overheads.
  • High fee markups on all products.
  • A huge customer base means less personal assistance.

Common Services Offered by Retail and Commercial Banks

  • Loans.
  • Mortgages.
  • Business assistance for small to large organizations.

Most-suitable for: Retail banks are most suitable for individuals and commercial banks serve businesses.

3. Internet-Only Banks

One of the newest entrants to the financial markets is internet-only banks. 

These are similar to retail banks and offer products and services to the public via an online platform, rather than physical branches, which allows them to benefit from reduced expenses. 

The rise in digital technology has made this a reality. There are also internet banks for small-to-medium-sized businesses. 

Some of the benefits of using an internet-only bank include:

  • Lower Fees: Most online banks don’t charge minimum balance fees or overdraft fees. Any fees that exist are almost guaranteed to be lower than retail banks.
  • Credit Services: Credit can still be issued through some internet banks and is often offered at competitive rates with lower fees.
  • Simplicity: For a retail client, fewer services can sometimes be a good thing. A bank offering basic checking and savings accounts and credit programs might compare well to High Street retail banks offering insurance, stock market accounts, etc.
  • Accessibility: An internet bank is accessible from an app and available twenty-four hours, however business hours often still apply for customer service. Apps are often as good as those at retail banks.

Individuals and businesses who prefer personalized service and access to a wide range of products might prefer a traditional commercial or retail  bank. However - if you are confident in managing your own financial affairs - then internet banks are often the right choice.

Pros of Internet Banks

  • Less and lower fees.
  • Simplicity.
  • Accessibility through apps 24/7.

Cons of Internet Banks

  • A lack of personalized service.
  • No branches for in-person transactions.
  • Limited product offerings.

Common Services Offered by Internet Banks

  • Checking accounts.
  • Loans.
  • Small-to-medium-sized business accounts.

Most-suitable for: Suitable for individuals and small businesses who can handle their financial affairs digitally.

4. Credit Union

A credit union offers traditional banking services and is created, owned, and operated by its members. 

These non-profit institutions are often initially created for people with specific vocations, such as teachers. However, they are now more accessible to the general public. Credit unions are still privately-owned and do not trade on public markets. 

One of the benefits of credit unions is that they can provide financial services to those with lower credit scores that may be rejected at retail banks.

Some of the services of a credit union include:

  • Loans: Credit unions are best known for personal loans and business loans. These loans have the advantage of lower fees but they are limited to the groups mentioned. Auto loans and mortgage loans are also common.
  • Accounts: Customers can open savings and checking accounts at a local branch. These will also have very few fees.

Student loans are another feature of credit unions and other services such as retirement savings.

Pros of Credit Unions

  • Non-profit organizations.
  • Very low fees.
  • Access to financial services with low credit ratings.

Cons of Credit Unions

  • Only serve particular groups affiliated through work.
  • Different unions will have different boards and policies.
  • Limited branch footprint.

Common Services Offered by Credit Unions

  • Checking accounts and savings.
  • Personal and small business loans.
  • Auto loans and mortgages

Most suitable for: Credit unions only serve certain demographics such as teachers or particular companies.

5. Savings & Loans

A savings and loan association, or thrift, is an institution specializing in providing savings accounts and providing loans. 

These firms are run similarly to credit unions and will serve a local community; they are owned by their customers and the general rule is that they cannot provide more than 20% of total lending to businesses. 

These institutions also provide individuals with checking accounts, personal loans, and mortgages. S&Ls are very focused on local communities and depositors at an S&L are literally funding mortgages and construction projects in their neighbourhood. 

More recently, many S&Ls have begun to operate  more like commercial banks.

Pros of Savings and Loans

  • Higher deposit rates.
  • Investors and supporters of local communities.
  • Good customer service.

Cons of Savings and Loans

  • Limited products with a focus on residential mortgages.
  • Limited ability to support business credit.
  • Large exposure to residential property.

Common Services Offered by Savings and Loans

  • Savings accounts.
  • Business loans.
  • Personal loans.

Most suitable for: Savings and Loan associations are like credit unions but will serve a particular community.

6. Investment Banks

Investment banks are involved in more complex banking arrangements for businesses and listed companies. 

The types of services offered include brokerage, initial public offering (IPO) assistance, and stock underwriting. Some of the most famous investment banks are Goldman Sachs, JP Morgan, and Deutsche Bank. 

These banks are closely monitored and regulated by the Federal Reserve due to the size of the investment portfolios that they hold and their risk to the stability of the financial system.

Investment banks were criticized for their role in the 2008 subprime mortgage crisis which engulfed the entire list of organizations in this article. They are often criticized for being “too big to fail” and have been the recipient of bailouts from central banks and governments.

Pros of Investment Banks

  • Provide financial liquidity to financial markets.
  • Assist large companies in fund-raising and stock market IPOs.
  • Highly-qualified staff of analysts and traders.

Cons of Investment Banks

  • Very high payroll costs and staff bonuses.
  • Provider of risky financial products.
  • Seen as “too big to fail”.

Common Services Offered By Investment Banks

  • Equity offerings and private placements.
  • Stock market IPO support and underwriting.
  • Wealth management services.

Most suitable for: Investment banks cater to listed stock market companies and wealthy private investors and family offices.

7. Brokerages

Brokerages are less of a bank, but they still hold customer funds and offer interest-yielding securities and leveraged investments.

A brokerage assists individuals and institutions with the buying and selling of securities such as stocks and bonds. 

More recently, the same technologies that spurred internet banks have been used to create internet-only brokerages such as e-Toro and Robinhood.

Pros of Brokerages

  • Offer direct access to financial markets.
  • A wide range of investment products for individuals and businesses.
  • Good customer support for investors and traders.

Cons of Brokerages

  • Investors need to be skilled in trading.
  • Less tailored service.
  • Rigid in terms of margins or loans due to regulation.

Common Services Offered by Brokerages

  • Financial market access: Stocks, bonds.
  • Foreign exchange and multi-currency balances.
  • Financial analysis and investment reports.

Most suitable for: Brokerages provide services to individual investors and also commercial businesses that can handle their own trading.

8. Private Banks

Private banks are exclusively for individuals with assets over around the 1 million USD mark. The banks cater to high-net-worth individuals, which the U.S. Securities and Exchange Commission defines as holding a minimum of $750,000 in investable assets. 

In the UK they are more widely accessible with some private banks catering to clients with earnings of at least £75,000 or investable assets of £100,000.

These are exclusive banks and even with the right funds, it may not be easy to apply. The products and services provided will carry fees, and there are usually account maintenance fees, but there will also be a highly-personalized service and unique benefits.

Some of the services offered by private banks include: 

  • Better Rates: Private banks offer higher annual yields on deposits. APYs. Loans and mortgage rates will also be better.
  • Financial Planning: Private banks will support their customers through tailored financial planning.
  • Investment Advice: Private banks could be looked at as smaller and private investment banks with analysts and specialists on hand to support financial markets and other investments.
  • Lending: Private banks also provide loans for their clients to support the purchase of land, property, art, etc.

Pros of Private Banks

  • Highly-individual service.
  • Wealth management is suited to wealthy individuals.
  • Smaller customer base than investment banks.

Cons of Private Banks

  • Less available financial statements. 
  • Only available to high-net-worth clients.
  • Other barriers to entry beyond wealth.

Common Services Offered by Private Banks

  • Wealth management.
  • Support for private asset purchases: land, art, property.
  • Preferential interest rates and fees.

Most suitable for: Private banks only support high-net-worth individuals (with assets over $750,000 in the case of the United States).

9. Mortgage Companies

Mortgage firms are specialists in creating or funding mortgage loans for the individual consumer market, or for commercial real estate. 

These companies will seek funding from some of the larger financial institutions such as retail banks and investment banks. 

Many mortgage companies have taken advantage of digital technologies to reduce their need for branch locations, which can lower mortgage costs and fees.

Pros of Mortgage Companies

  • Owned by private shareholders.
  • Access to better rates than retail banks.
  • No exposure to risky financial products.

Cons of Mortgage Companies

  • Heavy exposure to the mortgage market.
  • Boards may not be as democratic as the model suggests.
  • A high number of high street branches.

Common Services Offered by Companies

  • Mortgages are the backbone of mortgage companies.
  • Buy-to-let assistance.
  • Loans for repairs and improvements.

Most suitable for: Mortgage companies provide home loans to individuals.

Payset’s Banking Solution

Payset is an internet-only bank that offers multi-currency accounts and currency exchange. Like many online banks it cannot issue credit. 

Although the company has headquarters and regional offices, there is no need for brick-and-mortar branches since customers are able to access and manage their accounts via the online dashboard from anywhere in the world. 

Lower overhead mean the company can provide better value on multi-currency accounts, currency exchange, and other products. 

Payset is the perfect option for individuals and businesses who need to accept, hold, and send payments in multiple foreign currencies

In a world of freelancing nomads and globalized companies, Payset supports cross-border banking that opens up new opportunities abroad

Benefit 1: Accept up to 38 Currencies

Payset offers the ability to hold balances in 34 foreign currencies within the same account. Account holders can therefore make easy transactions with overseas clients and partners, as well as trade currency for a profit. For example, a British company could take advantage of a dip in the value of the pound by exchanging euro holdings for sterling and then trading back when the pound recovers.

Benefit 2: Work in up to 180 Countries

Payset allows you to send or receive funds to/from over 180 countries, which opens up a wide door for overseas collaborations and allows companies to plan overseas expansions.

Benefit 3: Pay staff in their chosen currency

Companies can organize payroll for overseas offices or freelancers and pay staff in their chosen currency for low fees. 

Benefit 4: Free, instant transfers between Payset accounts

Encourage clients or partners to open an account for instant free payments to and from other Payset accounts.

Benefit 5: Access to numerous payment networks

Payset uses a variety of different payment networks including SWIFT, SEPA, Target2, Faster Payments, CHAPS, and more.

Benefit 6: High Security

Your business funds are safe in a segregated client account in one of Europe's leading credit institutions.

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Frequently asked questions

What is a multi-currency account/virtual IBAN?

A Payset multi-currency account allows you to receive money in 34 different currencies and send money in up to 38 currencies, all within the same account.

You can deposit and withdraw funds, convert currencies at competitive exchange rates, and hold your chosen currencies to capitalize on market movements.

A Payset multi-currency account allows startups and business owners to receive payments from clients virtually anywhere in the world and pay suppliers, staff, and contractors quickly and affordably in their chosen currency.

  • Funds can be deposited and withdrawn from the account for a small fee.
  • Account holders can send and receive money with other Payset users for free.
  • Depending on your region, you can use various payment networks from your Payset account, including SWIFT, SEPA, ACH, Fedwire, Faster Payments, BACS, and CHAPS. 
  • Once you register an account, you will be provided with a Virtual IBAN (International Bank Account Number), which makes all of these transfers easy.
  • We provide you with local payments and collections. For example, transactions in USD, EUR, CAD, and GBP are processed through the local payment networks, which is far cheaper and takes minutes as opposed to days

Are there limits on the amount of money I can send and receive?

No, there are no transaction limits on Payset multi-currency accounts.

However, higher-volume transactions may require additional anti-fraud verification. If you plan to make a large transaction, contact us in advance to avoid verification delays.

How is Payset regulated?

Payset is regulated as an authorized Electronic Money Institution by the UK Financial Conduct Authority. Our activities are also regulated by the Payment Services Regulation 2017 and the Electronic Money Regulation 2011 (SI 2011/99).

How do I send money from my account?

Once you have opened your verified IBAN account and added money to a balance, transferring funds is simple.

Simply log in into your account and add a beneficiary, then simply “make a transfer” in your preferred currency to that beneficiary.

Information contained in this publication is provided for general education and information purposes only and should not be construed as legal, tax, investment or other professional advice or recommendation, or an offer of, or solicitation for, any transactions or any other actions (or refraining therefrom); This material has been prepared without taking into account any particular recipient’s financial objectives or situation. We make no warranty, guarantee or representation, whether express or implied, as to the completeness or accuracy of the information contained herein or fitness thereof for a particular purpose; Use of images and symbols is made for illustrative purposes only and does not constitute a recommendation or advice to take or refraining from any action; Use of brand logos does not necessarily imply a contractual relationship between us and the entities owning the logos, nor does it represent an endorsement of any such entity by Pay Set Limited, or vice versa; Market information is made available to you only as a service, and we do not endorse or approve it; Any reference to past performance, predicted returns, or likelihood performance scenarios may not reflect actual future performance and certainly do not guarantee future outcomes.

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The experience of using PaySet account was really interesting. It is one of the most ergonomic systems I have ever used. Support provided is fast and enquires are resolved in no time. I am very satisfied for using this account! Keep going guys!

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Through our experience with Payset we are happy to say the services provided were accommodated to our needs perfectly and were performed professionally. The support and customer care is fast and efficient, no question or request is left unanswered or unresolved. 10/10

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For the past year, we have worked hand in hand with Payset Limited to assist us with numerous payments related services. At no one time have they failed me, and they have always been on time, making them one of our top reliable business partners.

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