The value of the banker-customer relationship: THE BANKER-CUSTOMER RELATIONSHIP

Comments 0

UK retail banks operate in an extremely competitive environment and invest heavily in gaining competitive advantage. Traditional banks suffer pressure on profit margins and growing threats from non- traditional competitors such as supermarkets and even football clubs. Competitive pressures and available technology have, in part, resulted in a move away from the relational banking of the ‘old fashioned’ high street bank manager, towards the standardisation and transactional banking of the direct seller. Technical competence in lending is largely subordinated to systematic ‘credit scoring’ and centralisation based on empirical information from a variety of sources.

While streamlined systems for lending can reduce costs and increase profitability in the short term they do serve to reinforce the ‘moral hazard’ problems associated with dealing with borrowers at ‘arms length’.

The legal relationship between bankers and their customers was investigated by the National Consumer Council in 1983 and reviewed by the Jack Committee, which reported in 1989. Jack found that the legal relationship was robust and did not require urgent amendment. Both the NCC and Jack, however, were silent on the specific problem of non-performing loans and bad debts.

With a widely publicised code of conduct in place, bankers and their customers should be more certain about their legal relationship. Their commercial relationship, however, is far less clear especially as both retail banks and consumers have undergone significant changes in recent years. In the banker— customer relationship, bank training and professional education, emphasis has typically been placed on ‘beginnings’ (the initial lending decision) and ‘endings’ (the effective use of security). While these are undoubtedly important it is the ‘middle’ (the quality of relationship) that must now be developed.

The emphasis on product-based, transactional banking in the 1980s and early 1990s had a marked effect on bank organisational structures and sources of income. Banks enjoyed the benefits of profitability and sales growth but suffered from a lack of customer loyalty. Increased levels of competition and the advent of technology-driven delivery channels have effectively compounded the problem by making commodities out of bank products and replacing inertia with a greater degree of customer empowerment.

Consequently, by the mid-1990s banks had begun to realise the importance of reintroducing ‘relationship management’ and introducing customer retention policies. Although attitudes and practices are often slow to change in large organisations, banks are beginning to balance the ‘lifetime value’ of customers with the move towards individual account profitability. Banks also know that customer acquisition is more expensive than customer retention although few have applied this logic of this in dealing with bad debts, insolvency and defaulting customers.

US research has indicated that the long- term success of firms, in terms of sustainable competitive advantage, is associated with investment in relationships with customers and suppliers (in banking, customers and suppliers are synonymous in certain circumstances since funds deposited in accounts are used by banks to fund lending). Fine tuning of communications with customers also gives benefits. Specialised training and the focused deployment of staff can, therefore, help to engender the trust, satisfaction and commitment that banks desire in their relationships with customers.

Representative APR 391%

Let's say you want to borrow $100 for two week. Lender can charge you $15 for borrowing $100 for two weeks. You will need to return $115 to the lender at the end of 2 weeks. The cost of the $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you decide to roll over the loan for another two weeks, lender can charge you another $15. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

Implications of Non-payment: Some lenders in our network may automatically roll over your existing loan for another two weeks if you don't pay back the loan on time. Fees for renewing the loan range from lender to lender. Most of the time these fees equal the fees you paid to get the initial payday loan. We ask lenders in our network to follow legal and ethical collection practices set by industry associations and government agencies. Non-payment of a payday loan might negatively effect your credit history.

Calculate APR

Happily Served Customers

Get pre-approved for a large personal loan today!