Merchant banks are vital to the overseas success of many corporations in the United States because they make multinational operation more securely possible. The functions of merchant banking are different than that of your regular bank because they do not provide services to the general public. You won't see flyers in your mailbox from merchant bankers about college savings accounts, CDs or zero fee checking accounts.

Instead, the features of merchant banking focus on supporting corporations that operate multinationally. The types of merchant banking services offered are tailored to their needs and designed to equip them for success in the global marketplace.

What Makes Merchant Banking Different?

As a consumer and professional, you are probably used to thinking of a bank as the place where you make deposits into a checking or savings account. You can withdraw your money at the bank, or use an ATM to get cash. Typically, you have a debit card so that you can make purchases in stores, as well. Maybe your banker advises you on personal finance or helps you acquire personal financial products like loans or CDs.

While merchant banks still deal with money, they are a bit different and do not usually offer the same services you associate with your personal bank, and they serve a different clientele. The importance of merchant banking lies in their service to multinational corporations, rather than individuals. Some of the features of merchant banking include corporate loans, fundraising and financial advising.

Functions of Merchant Banking

In serving corporations, merchant banks provide many functions that enhance how business is conducted, as well as the security of a corporation. Some of the functions of merchant banking include:

  • Fundraising: Merchant banks work domestically and internationally to help clients raise funds through investors, loans and other funding sources. 

  • Project Management: Merchant banks handle projects for clients by conducting feasibility studies, designing funding plans and offering legal financial advice throughout the process. 

  • Financial Advising: Merchant banks help clients design realistic financial plans and goals, and then craft a strategy for achieving those aims as quickly and easily as possible. 

  • Brokering: Merchant banks buy and sell stocks on behalf of their clients in order to enhance their portfolios and help them reach their financial goals. 

  • Restructuring: Merchant banks help companies reorganize their efforts to be more cost-effective and efficient so they can get the most bang for their buck. They also assist with mergers, takeovers and other major shifts in company structure. 

  • Underwriting: Merchant banks perform international underwriting for things like foreign investment, trade finance and real estate. 

  • Financial Management: The merchant bank manages its clients' portfolios to help them feel more secure about financial decisions, as well as the timing of those decisions. 

The many types of merchant banking services help to ensure that corporations are well supported as they grow and thrive. The features of merchant banking services make multinational growth possible.

Merchant Accounts and Payment Gateways

Of all the types of merchant banking services, merchant accounts are probably the most relatable to your everyday business activities. When you went into business and set up online ordering on a website, you probably also set up an account with a service like PayPal, Square or Stripe. These services are referred to as payment gateways because they are the bridge between the merchant and a merchant bank.

Instead of funds being directly deposited into your business' checking account, they are held in a merchant account first. Money is then manually or automatically transferred to your bank account at regular intervals for your business to use, save or invest.