Private Banking Performance and Customer Relationship Management: An exploratory study comparing Switzerland and India

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1 Private Banking Performance and Customer Relationship Management: An exploratory study comparing Switzerland and India DISSERTATION of the University of St. Gallen, Graduate School of Business Administration, Economics, Law and Social Sciences (HSG) to obtain the title of Doctor of Political Sciences submitted by Olena Kos Kalia from Ukraine Approved on the application of Prof. Dr. Li Choy Chong and Prof. Dr. Hans Peter Fagagnini Dissertation no Difo-Druck GmbH, Bamberg 2008

Gallen, Graduate School of Business Administration, Economics, Law and Social Sciences (HSG) to obtain the title of

2 Table of Contents TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF FIGURES LIST OF TABLES ABSTRACT I VIII XI XIV XV 2 INTRODUCTION PROBLEM DEFINITION The academic relevance of the research subject 5, Deficits in current research Empirical relevance of the research subject Research objectives Research questions SCOPE OF THE STUDY RESEARCH CONCEPT Research approach Research methodology Research process overview Choice of research strategy Reliability and validity STRUCTURE OF THE DISSERTATION DEFINITION OF TERMS Customers, clients Relationship Customer Relationship Management (CRM) Customer service Commitment Customer loyalty ' Customer satisfaction ' Private Banking (PB) \ Wealth Management (WM) 29 2 INDUSTRY CONTEXT: THE PRIVATE BANKING MARKET 30

3.2 Research methodology 17 1.3.2.1 Research process overview 17 1.3.2.2 Choice of research strategy 20 1.3.2.3 Reliability and validity 22 1.4 STRUCTURE OF THE DISSERTATION 24 1.

3 2.1 GENERAL CHARACTERISTICS OF THE PRIVATE BANKING MARKET Private Banking providers The traditional Private Banks The universal banks Family offices The expanded Private Banks The operational landscape Roles and responsibilities in Private Banking Challenges faced by Private Banking Services offered by the Private Banking industry THE PRIVATE BANKING MARKET IN SWITZERLAND The Swiss Private Banking market: The history and importance of the Financial Centre of Switzerland The three pillars of success of Swiss Private Banking THE PRIVATE BANKING SECTOR IN INDIA The evolution of Indian Banking: A paradigm shift from traditional banking to Private Banking The characteristics of Indian Private Banking 50 3 SEGMENTATION IN THE PRIVATE BANKING MARKET SEGMENT-ORIENTED ANALYSIS OF THE CUSTOMER BASE Traditional methods of customer segmentation Modern approaches to bank customer segmentation THE MASS AFFLUENT/CORE AFFLUENT SEGMENT BROAD HIGH NET WORTH INDIVIDUALS (HNWIS) CATEGORIES 66 4 THE BASIC CONCEPTS OF CUSTOMER RELATIONSHIP MANAGEMENT ECONOMIC CONCEPTS IN PRIVATE BANKING The Customer Relationship Management (CRM) Concept The Customer Relationship Management (CRM) Tool and Process The Total Quality Service (TQS) paradigm in the banking industry Understanding client needs ; Category of needs' Bank commitment : The importance of the customer acquisition and retention process The concept of customer loyalty 87 II

2 THE PRIVATE BANKING MARKET IN SWITZERLAND 39 2.2.1 The Swiss Private Banking market: The history and importance of the Financial Centre of Switzerland. 39 2.2.1.1 The three pillars of success of Swiss Private Banking 41 2.

4 Defection of behaviourally loyal customers The concept of customer satisfaction and customer behaviour The relationship between customer satisfaction, customer loyalty and profitability BANKING REGULATION AND SUPERVISION POLICY Bank regulation in general (Basel Accords: Basel I and Basel II) Regulatory initiatives concerning Private Banking A national comparison The Private Banking supervision principles and framework in Switzerland The Private Banking supervision principles and framework in India Differences and similarities The Subprime Crisis: International financial and regulatory impact A SUMMARY OF BASIC CONCEPTS OF CUSTOMER RELATIONSHIP MANAGEMENT A CONCEPTUAL FRAMEWORK: THE RATIONAL INTEGRATED CRM MODEL SWISS PRACTICE UBS AG (UBS WEALTH MANAGEMENT) Introduction to UBS Wealth Management Customer advisory process Customer centric culture: client approach/philosophy Customer segmentation approach CRM tool and process: strategy and objectives Customer service and complaints management Bank customer relational commitment Customer satisfaction measurement Customer acquisition strategy and retention process Regulatory compliance CREDIT SUISSE Introduction to Credit Suisse Customer advisory process Customer centric culture: client approach/philosophy Customer segmentation approach CRM tool and process: strategy and objectives Customer service and complaints management 188 III

2.3.1 The Private Banking supervision principles and framework in Switzerland 120 4.2.3.2 The Private Banking supervision principles and framework in India 125 4.2.3.3 Differences and similarities 128 4.

5 5.2.7 Bank customer relational commitment Customer satisfaction measurement Customer acquisition strategy and retention process Regulatory compliance BANK JULIUS BAER Introduction to Bank Julius Baer Customer advisory process : Customer centric culture: client approach/philosophy Customer segmentation approach CRM tool and process: strategy and objectives Customer service and complaints management Bank customer relational commitment Customer satisfaction measurement Customer acquisition strategy and retention process Regulatory compliance PICTET & CiE BANQUIERS Introduction to Pictet & Cie Banquiers Customer advisory process Customer centric culture: client approach/philosophy.: Customer segmentation approach CRM tool and process: strategy and objectives Customer service and complaints management Bank customer relational commitment Customer satisfaction measurement Customer acquisition and retention process Regulatory compliance BANK SARASIN & Co. LTD Introduction to Bank Sarasin & Co. Ltd Customer advisory process Customer centric culture: client approach/philosophy Customer segmentation approach CRM tool and process: strategy and objectives Customer service and complaints management Bank customer relational commitment Customer satisfaction measurement Customer acquisition and retention process 223 IV

3.5 CRM tool and process: strategy and objectives 200 5.3.6 Customer service and complaints management 207 5.3.7 Bank customer relational commitment 204 5.3.8 Customer satisfaction measurement 204 5.

6 Regulatory compliance INDIAN PRACTICE Axis BANK (PREVIOUSLY CALLED UTI BANK) Introduction to Axis Bank Customer advisory process Customer centric culture: client approach/philosophy Customer segmentation approach CRM tool and process: strategy and objectives Customer service and complaints management Bank customer relational commitment Customer satisfaction measurement Customer acquisition and retention process Regulatory compliance ICICI BANK (FORMERLY INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA) Introduction to ICICI Bank Customer advisory process Customer centric culture: client approach/philosophy Customer segmentation approach CRM tool and process: strategy and objectives Customer service and complaints management Bank customer relational commitment Customer satisfaction measurement Customer acquisition and retention process Regulatory compliance HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC) Introduction to HDFC i Customer advisory process Customer centric culture: client approach/philosophy Customer segmentation approach CRM tool and process: strategy and objectives Customer service and complaints management Bank customer relational commitment Customer satisfaction measurement Customer acquisition and retention process Regulatory compliance 249 V

1.9 Customer acquisition and retention process 237 6.1.10 Regulatory compliance 237 6.2 ICICI BANK (FORMERLY INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA) 232 6.2.7 Introduction to ICICI Bank 232 6.

7 7 FINDINGS AND ANALYSIS ADAPTATION OF THE RATIONAL INTEGRATED CRM MODEL THE CLIENT SERVICE STRATEGY IN PRIVATE BANKING IN SWITZERLAND AND INDIA Analysis of the findings Differences and similarities THE CLIENT ADVISORY PROCESS IN PRIVATE BANKING IN SWITZERLAND AND INDIA Analysis of the findings Differences and similarities THE CUSTOMER SEGMENTATION APPROACH IN PRIVATE BANKING IN SWITZERLAND AND INDIA Analysis of the findings Differences and similarities THE CRM TOOL STRATEGY IN PRIVATE BANKING IN SWITZERLAND AND INDIA Analysis of the findings Differences and similarities THE CLIENT ACQUISITION AND RETENTION PROCESS IN SWITZERLAND AND INDIA Analysis of the findings Differences and similarities GENERAL CRITIQUE AND KEY LEARNINGS Swiss Private Banking Indian Private Banking CONCLUSIONS v THE CRM MATURITY CONTINUUM: A Swiss AND INDIAN COMPARISON IMPLICATIONS FOR MANAGEMENT PRACTICE RECOMMENDATIONS FORFUTURE RESEARCH LIMITATIONS OF THE STUDY 282! 9 REFERENCES APPENDICES 323 APPENDIX 1. LIST OF INTERVIEW PARTNERS 313 APPENDIX 2. CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS 316 VI

4 THE CUSTOMER SEGMENTATION APPROACH IN PRIVATE BANKING IN SWITZERLAND AND INDIA 261 7.4.1 Analysis of the findings 267 7.4.2 Differences and similarities 262 7.

8 APPENDIX 3. THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: UBS AG 319 APPENDIX 4. THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: CREDIT SUISSE 322 APPENDIX 5. THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: BANK JULIUS BAER 325 APPENDIX 6. THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: PICTET & CIE BANQUIERS 328 APPENDIX 7. THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: BANK SARASIN & Co LTD 331 APPENDIX 8. Swiss PRACTICE - SELECTED AGGREGATED RESULTS FOR KEY CRM QUESTIONNAIRE QUESTIONS 334 APPENDIX 9. THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: Axis BANK (PREVIOUSLY CALLED UTI BANK) 335 APPENDIX 10. THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: ICICI BANK 338 APPENDIX 11. THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: HDFC BANK 341 APPENDIX 12. INDIAN PRACTICE - SELECTED AGGREGATED RESULTS FOR KEY CRM QUESTIONNAIRE QUESTIONS 344 CURRICULUM VITAE 345 VII

THE AGGREGATED RESULTS OF THE CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS: BANK JULIUS BAER 325 APPENDIX 6.

Nearshore IT Sourcing for Small- and Medium-Sized Enterprises: An Exploratory Study of Swiss SMEs Sourcing from Russia and Ukraine

Nearshore IT Sourcing for Small- and Medium-Sized Enterprises: An Exploratory Study of Swiss SMEs Sourcing from Russia and Ukraine DISSERTATION of the University of St. Gallen, Graduate School of Business