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6: Business Models of Banks

6.1 Classic Business Model Concept of Banks

With regard to conventional banking business models, a fundamental distinction can be made between major banks, retail banks, private banks and independent asset managers (Koye 2005a). Classically, the business model of a bank consisted of a price/performance configuration, which was usually provided entirely by the same bank. Only the independent asset manager focussed solely on providing customer advice and drew all other services from other banks.

Major banks are characterised by a high market capitalisation and the ability to pursue capital-intensive strategies. An example in Germany is Deutsche Bank, while Switzerland has Credit Suisse and UBS and, with some qualifications, the Zurich Cantonal Bank. These model types differ from retail banks in their orientation towards all customer segments. As well as private customers without many assets, whose needs are generally covered by a retail division, the wealthy customer segment is also served by a specialised division. In addition, all elements of the value chain of corporate business, asset management, and investment banking are also offered equally. The large customer base allows both economies of scale for basic transactions and more intensive value creation in advisory functions. Asset management and investment banking are usually conducted at a global level. Customer care and loyalty concepts are treated with different levels of intensity for each individual customer group. With private customers without many assets, these institutions are at a disadvantage, compared to retail banks, in that they are not present regionally to the same degree. Therefore, their image focus is on the financial strength and variety of a globally active institution that can guarantee the entire information transfer of its worldwide experience across all business areas with the most up-to-date technology.

The traditional image of a retail bank builds on reliability and often also on its fixed position in the local region in question, and creates trust among private customers without many assets as the main target group of the customer care and loyalty concept. Examples in Germany include the Postbank, the Sparkassen (savings banks) and the Raiffeisen and cooperative banks. Examples in Switzerland include Migros Bank, the COOP Bank, PostFinance, the Raiffeisen Group, the Clientis Group, the Valiant Group, the regional banks and also almost all cantonal banks. Customers are offered the entire product range, with a focus on standard products, which are produced in-house, mostly without any manual modification, and distributed via physical locations. With regard to the information transfer to customers and the supporting use of technology, this model is no different to other banking providers. Although the focus of the business activity often lies in the margin-sensitive retail and corporate customer business, all elements of the banking value chain are also offered. The regional, Raiffeisen and cooperative banks have created synergies through cooperation, in order to achieve economies of scale in the area of basic transactions. As the needs of the main customer groups of these institutions are in the area of basic services and investments, the value creation intensity of the advisory function is lower than in other institutions.

Private banking service providers offer the entire value chain with a strong focus the advisory function for the most intensive value-creating customer group: wealthy clients. In Germany these include the Berenberg Bank, Hauck & Aufha¨user private bankers and the banking house Lampe; in Switzerland, Vontobel, Julius Ba¨r, Lombard Odier Darier Hentsch and Pictet. They offer tailored solutions for financial planning and portfolio management and thus an individual information transfer. The business areas of asset management and investment banking are operated only as an extra, and not by all institutions. Technological developments were mostly adopted only when they had established themselves as standard, as the focus was on the personal relationship with the customer. The core competence is individualised service, in combination with an image of trustworthiness, discretion, and long-standing tradition.

The independent asset manager supports and advises customers in all financerelated matters (Bernet 2000). He does not develop any products himself, but rather compiles the services of third parties. Within the value chain this model concentrates solely on providing advice for value chain-intensive customers and cooperated with external specialists in the areas of asset allocation and basic transactions. Individual or target group-specific solutions are found with the help of information technology. The image focus is on the personal relationship of trust between the asset manager and the customer. Customer care and loyalty are also shaped by the relationship, which often lasts for many years. Technological developments are adopted as soon as they have prevailed on the market.

 
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