Relationship Banking
What Is Relationship Banking?
Relationship banking is a strategy utilized by banks to reinforce customer loyalty and give a single point of service for a scope of various products and services. A customer of a bank might begin with a simple checking or savings account, however relationship banking includes a personal or business banker offering products intended to assist customers with accomplishing financial objectives while expanding revenue for the financial institution.
Understanding Relationship Banking
Banks that practice relationship banking adopt a consultative strategy with customers, getting to know their specific situation and needs, and adjusting to changes in their financial or business lives. The relationship banking approach is effectively observable in a small-town bank, yet it is likewise practiced in the retail parts of the large money center banks.
Whether for an individual or small business, relationship bankers will participate in high-contact service to try to make their banks the 'all in one resource' for their customer's start to finish needs. Instances of products offered in the banking world incorporate certificates of deposit, safe deposit boxes, insurance plans, investments, credit cards, a wide range of loans, and business services (e.g., credit card or payroll processing). Relationship bankers may likewise incorporate particular financial products intended for specific demographics, like understudies, seniors, and high net worth individuals.
Strategically pitching is the modus operandi of relationship bankers, however they must watch out. Federal enemy of tying laws laid out by the Bank Holding Company Act Amendments of 1970 keep banks from making the provision of one product or service contingent on another (for certain special cases).
Advantages and Disadvantages of Relationship Banking
Customers might have the option to exploit a bank's longing to foster relationship banking by getting better terms or treatment with respect to rates and fees, as well as to get a higher level of customer service, which is particularly true in a smaller bank, for example, a community bank.
For instance, on the off chance that a customer takes out a mortgage loan at a bank, the customer might have the option to open up a checking account that isn't subject to fees below a base balance. As another illustration, on the off chance that a small business takes out a revolving credit extension, it would be in a favorable position to arrange a lower fee for merchant processing fees.
In any case, relationship management presents some downside for clients —, for example, being held captive by one bank for most financial services and the risk of becoming careless as opposed to looking at services and cost among financial institutions. Privacy and data security are another client risk, since the bank approaches integrated financial data about the client and could involve it for the benefit of the bank and as an arranging switch. In the event that there is a data breach at the bank, client accounts are uncovered in a large way. From the bank's side, relationship management could increase bank's risk exposure with specific clients in case of default
Client endorsement is mandatory while strategically pitching bank services in the course of relationship banking. As the 2018 Wells Fargo scandal illustrated, such trust can be abused. An imperfect and aggressive incentive (and discipline) system that the bank carried out for relationship bankers at a number of retail branches from around 2011 to 2016 prompted great many new account openings. The problem was that customers didn't approve the bankers to open them. Trust is the foundation of fruitful relationship banking, yet Wells Fargo broke that trust for a large number of customers. A bank must have a culture of ethical service to practice relationship banking for the mutual benefit of bank and customer.
Highlights
- Relationship banking can be driven too far, likewise with the Wells Fargo scandal when bankers opened accounts without permission from customers.
- Relationship banking is strategy utilized by banks to offer a wide range of products, reinforce customer loyalty, and create extra revenue.
- Relationship bankers frequently approach customers with offerings like insurance, investments, and certificates of deposit.
- Small, medium sized, and large money center banks all utilization relationship banking strategies.
