The Banking Industry: Definition, Trends and Key Terms

By Indeed Editorial Team

Published June 1, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Working in finance can be a great way to find competitive pay and job stability. This is because many people seek the help of finance professionals when organizing and managing their money. One of the most popular industries in finance is the banking industry, as banks provide valuable services like storing funds, managing credit and facilitating financial transactions. In this article, we explore what the banking industry is like and learn about some of its defining characteristics, including current trends and key terms.

Related: 12 Careers You Can Pursue in Banking

What is the banking industry?

The banking industry includes systems of financial institutions called banks that help people store and use their money. Banks offer clients the opportunity to open accounts for different purposes, like saving or investing their money. The banking industry is also valuable to the economy, as it provides resources for individuals, families and organizations to use for transactions and investments. One way that the banking industry does this is by organizing and distributing loans for applicants that they can use for purposes like purchasing property, starting a business or financing a college education.

What do professionals in the banking industry do?

There are many different types of professionals in the banking industry, all of who serve a specific purpose in managing people's money. For example, bank tellers can help clients open and close accounts, make deposits and withdrawals and schedule recurring payments for other services. Another type of baking professional is a mortgage consultant who can help individuals and families apply for mortgages that allow them to purchase properties. Similarly, a credit analyst at a bank can analyze a client's credit to make recommendations about whether they might be a good candidate to receive a loan.

Related: Types of Banking Jobs

Types of banks

Here are some common types of banks:

Commercial bank

A commercial bank is an institution that offers financial services to individuals and businesses in the general public. Commercial banks often have physical branches that employ tellers and consultants who can help perform banking tasks for clients. This can include conducting deposits or withdrawals, organizing loans and creating protection for personal assets. A commercial bank can also assist business clients with securing business loans that they can use to fund their operations.

Investment bank

An investment bank primarily serves large organizations, corporations and institutions that need help with investments. Investment banks can help with tasks like organizing and confirming mergers and acquisitions, issuing securities and helping businesses finance projects that require large amounts of funding. Many investment banks employ highly experienced financial analysts who can provide guidance and recommendations about which investments clients might benefit from making.

Retail bank

A retail bank functions similarly to a commercial bank by providing financial services to clients in the general public. However, a retail bank typically only serves individual clients by helping them with their banking needs and doesn't take on businesses as clients. Retail banks can assist individual clients with taking care of their money, accessing credit options and making secure deposits. A retail bank can also open new checking and savings accounts for clients, facilitate their personal loans and set up mortgages that can help them purchase pieces of property.

Community bank

Community banks usually exist to serve clients in the general area where they operate. This means that most community banks only take on clients who come from their communities, which often results in community banks being smaller than other types of banks. By focusing their services on members of the community, community banks can personalize the services they offer and usually establish lasting relationships with the clients they acquire.

Central bank

The central bank is the primary source for liquid resources that all banks in a banking system use. Most countries have some sort of central bank that supports the rest of the banking operations in the nation. In the United States, the central bank is called the Federal Reserve. The Federal Reserve has several functions, like purchasing and selling securities, determining how much money a bank can issue in loans, setting interest rates and helping banks borrow funds.

Related: Retail vs. Commercial Banking: What's the Difference?

Current trends in the banking industry

While the banking industry remains a constant in society, it experiences changes when new trends arise. One of the most popular current trends in the banking industry is the use of online banking, which allows account holders to access their accounts and manage their funds from home over the computer. A closely related trend is an increase in mobile banking, which provides users with a way to access their bank accounts using mobile devices. Both of these trends relate to advances in technology that help the banking industry improve its processes.

Another widespread trend in the banking industry is the rise in investment banking. Investment banking is a service that involves banking professionals offering advice to their clients about where they might want to invest their money. Due to developments in artificial intelligence and automated banking processes, investment banking is increasing in popularity due to how easy it can be to engage in. Many people use investment banking to inform their investment decisions while also reducing the cost of consulting a professional, as many investment banking tasks can be completed automatically.

Related: A Complete Guide to Investment Banking

Common banking industry terms

Here are some key terms to know in the banking industry:

  • Checking account: This is an account that clients can use to withdraw money to make purchases and deposit money into. Many people use a checking account to pay for bills and services and to receive their paychecks, often through direct deposit.

  • Savings account: A savings account is an account that clients can use to store money for periods of time. Savings accounts often accrue interest, which can help clients increase their wealth, and they typically limit the number of withdrawals a client can make from them each month.

  • Overdraft fee: An overdraft fee occurs when a checking account does not have enough funds to cover a transaction after it's confirmed. This typically involves an account going into a negative balance, which the bank can cover and then charge clients for at a later date.

  • Compound interest: This is interest that a bank adds to a deposit over time, which can help clients grow their funds. Compound interest often applies to savings accounts.

  • Annual percentage rate (APR): The annual percentage rate is the amount of interest a client can earn by keeping a certain amount of money in an account over the course of a year. However, APR does not include compound interest.

  • Routing number: A routing number is a nine-digit value that connects a client to their bank. Routing numbers are most often used in transactions like money transfers, wires and payments that use a bank account directly rather than a card or cash.

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