Difference Between Banking and Finance Industries

Difference Between Banking and Finance Industries

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Jaya Sharma
Assistant Manager - Content
Updated on Feb 5, 2024 17:03 IST

Finance and banking are two of the most important industries based on which our entire economy operates. A country with fragile banking and finance industries will cripple down within short span of time.


Table of Contents

What is the difference between banking and finance?

Let us now understand the difference between banking and finance:

Parameter Banking Finance
Purpose To provide financial assistance to individuals and financial institutions Related to money, investment and management
Types Retail banking, mixed banking, chain banking, universal banking, virtual banking Public, corporate and personal finance
Services offered Investment services, insurance services, deposit and loan services Asset management, investment, insurance, banking 

What is Finance?

It is a term that is related to the management, creation and study of money. Everything related to money comes under the branch of finance. This branch is the study of money, capital markets and investment. Further, finance is categorized into corporate, public, social, behavioural and personal finance categories. 

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Types of Finance

There are different domains of finance that deal with different arenas in life including the following:

  • Personal finance: This deals with managing our day-to-day financial needs. Through this, we are able to manage our finances on an everyday basis. For every individual, personal finance is one of the most important subjects to learn. 
  • Corporate finance: These refer to activities and transactions that are related to raising capital for creating, developing, acquiring and operating a business. This domain of finance is related to making company-related decisions with monetary and financial impact. Corporate finance is concerned with maximising shareholder value through short-term and long-term financial planning. It ranges from capital investment to tax considerations. 
  • Public finance: This domain of finance is related to allocating finances for the purpose of development. Here the funds are borrowed from banks, insurance companies, the government and dividends from companies.

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What is Banking?

Banking refers to an industry for handling credit, financial transactions and cash for businesses and individuals. It consists of multiple activities that are conducted via financial institutions that accept deposits from individuals and other entities. 

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Types of Banking

The following are the different types of banking:

  • Branch banking: In this type of banking, banks offer services through their branch offices. Here, customers choose a bank branch at their convenience. There is a main branch that controls the branch office’s operations. 
  • Mixed banking: In this type of banking, banks perform both industrial and commercial activities. They will undertake the deposit and investment-related services. The bank receives the deposits from the public and offers loans to industries for a period of short, medium and long-term development.
  • Unit banking: In this type of banking, one bank offers various banking services to its customers. This single office is both the controlling and operating unit.  
  • Chain banking: In this type of banking, a group of individuals control at least three independent chartered banks. Such a group of individuals have enough stock to control interest in banking corporations. 
  • Wholesale banking: In this type of banking, services are offered to institutional customers, government agencies, and companies with strong finance and pension funds. 
  • Relationship banking: This banking style strengthens relationships with customers so that the banks have a loyal customer base. There is a single point of service for several banking products.
  • Rural banking: In this type of banking, the focus is on rural customers and communities. Here, the areas that are away from towns and cities are part of rural banking. The aim of this type of banking is developing and strengthening the rural economy.
  • Universal banking: In case of universal banking, every commercial and investment bank-related services are provided by a single entity under universal banking. This includes offering services such as asset management, deposits, security sanctions, investment advisory, payment processing, etc.
  • Social banking: This is a banking strategy that makes banking services accessible to all marginalized populations with developmental needs. 
  • Virtual banking: In this type of banking, customers do not have to physically visit the branch since they can use most banking functions digitally. Such services are related to loans, accounts, bill payments and financial transactions. 
  • Corresponding banking: Here, banks offer cross-border payment and international trade-related services in different jurisdictions.

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Similarities Between Banking and Finance

Banking and finance share several similarities, as they are intertwined sectors within the broader financial services industry:

  1. Money Management: Both banking and finance involve the management of money. Banks manage customers' deposits and facilitate transactions, while finance broadly encompasses the management of funds, whether for individuals, corporations, or governments.
  2. Credit and Loans: Both sectors provide loans and credit services. Banks offer these directly to consumers and businesses, while finance includes the provision of credit through various financial instruments and markets.
  3. Investment Activities: Investment is a common ground where banking services include investment products like certificates of deposit (CDs) and individual retirement accounts (IRAs), and finance covers a wider range of investment activities including securities, bonds, and stocks.
  4. Risk Assessment: Risk management is crucial in both fields. Banks assess the risk of lending, and finance professionals evaluate various types of financial risks and ways to mitigate them.
  5. Regulatory Compliance: Both banking and finance operate under financial regulations and are required to comply with laws and regulations designed to maintain the integrity of the financial system.
  6. Economic Impact: Both are critical to the health of the economy, facilitating liquidity in the market, and enabling economic growth and stability.
  7. Financial Markets: Banks are key participants in financial markets, and finance encompasses all market activities, including those involving banks, investment funds, and other financial entities.
  8. Interest Rates: Both are affected by interest rate changes, which influence loan pricing in banking and the valuation of financial assets in finance.

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What is the primary difference between finance and banking?

Finance is a broad term that includes the domain of management, money, investments, and financial assets. It includes activities like investment management, financial planning, and risk assessment. Banking, on the other hand, is a subset of finance and refers specifically to the business of managing money held in banks, including activities like accepting deposits, lending money, and providing financial services.

What are the roles of banks in the financial system?

Banks primarily act as intermediaries in the financial system. They accept deposits from individuals as well as businesses. It is then used to extend loans to other customers. This process facilitates the flow of money within the economy and is crucial for economic growth.

Is investment banking a part of finance or banking?

Investment banking is a specialized area within finance. It deals with assisting corporations in raising capital that provides advisory services for mergers and acquisitions as well as other complex financial transactions. While it's termed "banking," it's more aligned with the broader finance industry's focus on investments and asset management.

What are the career opportunities in finance versus banking?

Careers in finance include roles like financial analyst, investment manager, financial planner, risk manager, and more. In banking, career paths typically include retail banking, commercial banking, loan officers, and branch management. Finance generally offers a wider range of opportunities, extending into areas like corporate finance, personal finance, and investments.

Do finance and banking require different skill sets?

While there is overlap, banking typically focuses more on customer service, compliance, and operations management. Finance, especially areas like investment and corporate finance, often requires strong analytical skills, understanding of financial markets, and proficiency in financial modeling and analysis.

How do regulatory environments differ for finance and banking?

Banking is heavily regulated with a focus on safeguarding depositor's funds and maintaining financial stability. Finance, while also regulated, covers a broader range of activities and thus can have varied regulatory requirements, especially in areas like investments and securities.

Can finance exist without banking?

While banking is an integral part of the finance sector, finance as a discipline covers much more than just banking activities. Areas like investment management, risk management, and corporate finance operate somewhat independently of traditional banking.

What is the impact of technology on finance and banking?

Technology impacts both sectors significantly but in different ways. In banking, technology has improved customer service, transaction efficiency, and security. In finance, technology has led to the development of complex financial models, algorithmic trading, and fintech innovations that have transformed traditional financial services.

About the Author
Jaya Sharma
Assistant Manager - Content

Jaya is a writer with an experience of over 5 years in content creation and marketing. Her writing style is versatile since she likes to write as per the requirement of the domain. She has worked on Technology, Fina... Read Full Bio