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7. The New Mechanics of Success: Win-Win Cycles and Client Value Generation

7.1 Development of the Customer-Bank Relationship Prior to the Digital Age

Customer focus and creating value from customers requires a radical shift in attitude towards bank services. In an age of increasing transparency and autonomy, customers expect to interact with their bank as equals. Therefore, in the following section the connection between customer success, bank success and shareholder value will be presented in the context of the win-win cycle. Then the influence of satisfied and loyal customers on bank success will be demonstrated. Starting from these findings it is then possible to understand the influence of the characteristics of financial services on customer success.

In the second half of the nineteenth century, two types of bank groups emerged in the German-speaking region: on the one hand the savings banks and cantonal banks in Switzerland, and the Raiffeisen and cooperative banks in Germany, which were founded traditionally to provide credit to craftsmen and/or farmers; on the other hand the major banks, which financed large-scale industry. Markets and industries were of manageable size, it was possible to build a reputation on word of mouth, and the principle of the “honourable businessman” was at the forefront of the business relationships between banks and their customers (on the concept of the honourable businessman, see Der Ehrbare Kaufmann 2013).

From the mid-to-late twentieth century, this relationship tilted gradually. Product

innovations such as options and futures at first allowed the diversification of risks, which also made sense from a business viewpoint, something that had been possible in the raw materials markets for centuries. In the next phase of product innovations, structured products emerged that promised much greater profitability than classic financial investments, due to their possible leverage effect. This was equally attractive to customers and banks in good economic phases—a supposed win-win in the sense of joint yield enhancement. However it should be noted that the principle of the honourable businessman was gradually neglected by the banks, as many customers were completely unaware that increasing yields also meant increasing risks. Banks were not always consistent in informing their customers of this fact. Therefore in phases of falling price developments of “underlying assets”, massive losses became the reality in some cases. Furthermore, the idea of the optimisation of shareholder value from the beginning of the 1990s encouraged an increasingly “product salesoriented” consultation culture. This situation was particularly intensified at the beginning of this millennium, as banks began—in the course of the next product innovation, securitisation (Meyer and Primozic 2011)[1]—to remove from their balances the financing they had provided. This led to a further problem, quite apart from the question of fees or yields for the extra products sold. The primary focus of the (major) banks was no longer on checking the intrinsic value of the loans granted, as they now passed on the loan default risk to the buyers of the securities, which allowed them to expand lending volume considerably. This was one of the decisive factors for the occurrence and extent of the sub-prime crisis (Gabler Wirtschaftslexikon 2013) from 2007, which triggered the necessity for states to rescue banks, including many European banks. All of these developments meant that the provision of situation-adequate and needs-oriented customer advice gradually retreated ever further into the background in the course of the yield orientation of the banks.

As shown in the previous chapters, customers today are in a much better position to inform themselves, to select the best providers—which nowadays are easy to find on the internet, as services are now globally comparable—to suit their needs, and to integrate these into their own solution architecture. Increasingly, they have come to understand that yields involve risks, and are ever less willing to accept purely salesoriented customer advice.

The following quote, attributed to Henry Ford, could once again gain currency: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning” (Borsenweisheiten 2013).

Therefore, the future-oriented business models of banks will have to place effective customer needs at the centre of their business activities if they want to survive. This presents two main questions: What are the effective customer needs, and which price are customers willing to pay for the fulfilment of these needs by an intermediary in the digital age.

  • [1] The issue of negotiable securities on the basis of loans.
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