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. 3514 Difo-Druck GmbH, Bamberg 2008
Table of Contents TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF FIGURES LIST OF TABLES ABSTRACT I VIII XI XIV XV 2 INTRODUCTION 2 1.1 PROBLEM DEFINITION 1 1.1.1 The academic relevance of the research subject 5, 1.1.2 Deficits in current research 6 1.1.3 Empirical relevance of the research subject 7 1.1.4 Research objectives 11 1.1.5 Research questions 12 1.2 SCOPE OF THE STUDY 13 1.3 RESEARCH CONCEPT 15 1.3.1 Research approach 15 1.3.2 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 1.5 DEFINITION OF TERMS 26 1.5.1 Customers, clients 26 1.5.2 Relationship 26 1.5.3 Customer Relationship Management (CRM) 26 1.5.4 Customer service 26 1.5.5 Commitment 27 1.5.6 Customer loyalty 27 7.5.7' Customer satisfaction 27 1.5.8' Private Banking (PB) 27 1.5.9\ Wealth Management (WM) 29 2 INDUSTRY CONTEXT: THE PRIVATE BANKING MARKET 30
2.1 GENERAL CHARACTERISTICS OF THE PRIVATE BANKING MARKET 30 2.1.1 Private Banking providers 30 2.1.1.1 The traditional Private Banks 30 2.1.1.2 The universal banks 31 2.1.1.3 Family offices 32 2.1.1.4 The expanded Private Banks 33 2.7.2 The operational landscape 34 2.1.3 Roles and responsibilities in Private Banking 55 2.1.4 Challenges faced by Private Banking 35 2.1.5 Services offered by the Private Banking industry 36 2.2 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 2.3 THE PRIVATE BANKING SECTOR IN INDIA 43 2.3.1 The evolution of Indian Banking: A paradigm shift from traditional banking to Private Banking 43 2.3.1.1 The characteristics of Indian Private Banking 50 3 SEGMENTATION IN THE PRIVATE BANKING MARKET 53 3.1 SEGMENT-ORIENTED ANALYSIS OF THE CUSTOMER BASE 53 3.7.7 Traditional methods of customer segmentation 53 3.7.2 Modern approaches to bank customer segmentation 57 3.2 THE MASS AFFLUENT/CORE AFFLUENT SEGMENT 62 3.3 BROAD HIGH NET WORTH INDIVIDUALS (HNWIS) CATEGORIES 66 4 THE BASIC CONCEPTS OF CUSTOMER RELATIONSHIP MANAGEMENT 68 4.1 ECONOMIC CONCEPTS IN PRIVATE BANKING 68 4.1.1 The Customer Relationship Management (CRM) Concept 68.- 4.1.2 The Customer Relationship Management (CRM) Tool and Process 72 4.1.3 The Total Quality Service (TQS) paradigm in the banking industry 74 4.1.3.1 Understanding client needs ; 78 4.1.3.1.1 Category of needs' 79 4.1.4 Bank commitment : 82 4.1.5 The importance of the customer acquisition and retention process 84 4.1.6 The concept of customer loyalty 87 II
4.1.6.1 Defection of behaviourally loyal customers 91 4.1.7 The concept of customer satisfaction and customer behaviour 92 4.1.8 The relationship between customer satisfaction, customer loyalty and profitability 94 4.2 BANKING REGULATION AND SUPERVISION POLICY 98 4.2.1 Bank regulation in general (Basel Accords: Basel I and Basel II) 98 4.2.2 Regulatory initiatives concerning Private Banking 774 4.2.3 A national comparison 120 4.2.3.1 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 4.2.4 The Subprime Crisis: International financial and regulatory impact 136 4.3 A SUMMARY OF BASIC CONCEPTS OF CUSTOMER RELATIONSHIP MANAGEMENT 140 4.4 A CONCEPTUAL FRAMEWORK: THE RATIONAL INTEGRATED CRM MODEL 143 5 SWISS PRACTICE 252 5.1 UBS AG (UBS WEALTH MANAGEMENT) 153 5.7.7 Introduction to UBS Wealth Management 753 5.7.2 Customer advisory process 156 5.1.3 Customer centric culture: client approach/philosophy 160 5.1.4 Customer segmentation approach 162 5.1.5 CRM tool and process: strategy and objectives 164 5.1.6 Customer service and complaints management 166 5.1.7 Bank customer relational commitment 772 5.1.8 Customer satisfaction measurement 773 5.7.9 Customer acquisition strategy and retention process 174 5.1.10 Regulatory compliance 775 5.2 CREDIT SUISSE 177 5.2.7 Introduction to Credit Suisse 777 5.2.2 Customer advisory process 180 5.2.3 Customer centric culture: client approach/philosophy 183 5.2.4 Customer segmentation approach 185 5.2.5 CRM tool and process: strategy and objectives 186 5.2.6 Customer service and complaints management 188 III
5.2.7 Bank customer relational commitment 797 5.2.8 Customer satisfaction measurement 793 5.2.9 Customer acquisition strategy and retention process 194 5.2.10 Regulatory compliance 194 5.3 BANK JULIUS BAER 195 5.3.7 Introduction to Bank Julius Baer 795 5.3.2 Customer advisory process : 198 5.3.3 Customer centric culture: client approach/philosophy 799 5.3.4 Customer segmentation approach 200 5.3.5 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 5.3.9 Customer acquisition strategy and retention process 205 5.3.10 Regulatory compliance 205 5.4 PICTET & CiE BANQUIERS 206 5.4.1 Introduction to Pictet & Cie Banquiers 206 5.4.2 Customer advisory process 207 5.4.3 Customer centric culture: client approach/philosophy.: 208 5.4.4 Customer segmentation approach 208 5.4.5 CRM tool and process: strategy and objectives 209 5.4.6 Customer service and complaints management 209 5.4.7 Bank customer relational commitment 277 5.4.8 Customer satisfaction measurement 277 5.4.9 Customer acquisition and retention process 272 5.4.10 Regulatory compliance 272 5.5 BANK SARASIN & Co. LTD 213 5.5.7 Introduction to Bank Sarasin & Co. Ltd 273 5.5.2 Customer advisory process 274. 5.5.3 Customer centric culture: client approach/philosophy 218 5.5.4 Customer segmentation approach 279 5.5.5 CRM tool and process: strategy and objectives 220 5.5.6 Customer service and complaints management 227 5.5.7 Bank customer relational commitment 222 5.5.8 Customer satisfaction measurement 223 5.5.9 Customer acquisition and retention process 223 IV
5.5.10 Regulatory compliance 223 6 INDIAN PRACTICE 224 6.1 Axis BANK (PREVIOUSLY CALLED UTI BANK) 225 6.1.1 Introduction to Axis Bank 225 6.1.2 Customer advisory process 225 6.1.3 Customer centric culture: client approach/philosophy 226 6.1.4 Customer segmentation approach 226 6.1.5 CRM tool and process: strategy and objectives 227 6.1.6 Customer service and complaints management 227 6.1.7 Bank customer relational commitment 229 6.1.8 Customer satisfaction measurement 230 6.1.9 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 6.2.2 Customer advisory process 233 6.2.3 Customer centric culture: client approach/philosophy 234 6.2.4 Customer segmentation approach 236 6.2.5 CRM tool and process: strategy and objectives 237 6.2.6 Customer service and complaints management 239 6.2.7 Bank customer relational commitment 243 6.2.8 Customer satisfaction measurement 244 6.2.9 Customer acquisition and retention process 244 6.2.10 Regulatory compliance 245 6.3 HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC) 246 6.3.7 Introduction to HDFC i. 246 6.3.2 Customer advisory process 246 6.3.3 Customer centric culture: client approach/philosophy 247 6.3.4 Customer segmentation approach 247 6.3.5 CRM tool and process: strategy and objectives 248 6.3.6 Customer service and complaints management 248 6.3.7 Bank customer relational commitment 249 6.3.8 Customer satisfaction measurement 249 6.3.9 Customer acquisition and retention process 249 6.3.10 Regulatory compliance 249 V
7 FINDINGS AND ANALYSIS 250 7.1 ADAPTATION OF THE RATIONAL INTEGRATED CRM MODEL 251 7.2 THE CLIENT SERVICE STRATEGY IN PRIVATE BANKING IN SWITZERLAND AND INDIA 257 7.2.7 Analysis of the findings 257 7.2.2 Differences and similarities 257 7.3 THE CLIENT ADVISORY PROCESS IN PRIVATE BANKING IN SWITZERLAND AND INDIA 259 7.3.7 Analysis of the findings 259 7.3.2 Differences and similarities 259 7.4 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 7.5 THE CRM TOOL STRATEGY IN PRIVATE BANKING IN SWITZERLAND AND INDIA 263 7.5.7 Analysis of the findings 263 7.5.2 Differences and similarities 264 7.6 THE CLIENT ACQUISITION AND RETENTION PROCESS IN SWITZERLAND AND INDIA 265 7.6.7 Analysis of the findings 265 7.6.2 Differences and similarities 265 1.1 GENERAL CRITIQUE AND KEY LEARNINGS 266 7.7.7 Swiss Private Banking 266 7.7.2 Indian Private Banking 270 8 CONCLUSIONS 273 8.1 v THE CRM MATURITY CONTINUUM: A Swiss AND INDIAN COMPARISON... 273 8.2 IMPLICATIONS FOR MANAGEMENT PRACTICE 278 8.3 RECOMMENDATIONS FORFUTURE RESEARCH 281 8.4 LIMITATIONS OF THE STUDY 282! 9 REFERENCES 284 20 APPENDICES 323 APPENDIX 1. LIST OF INTERVIEW PARTNERS 313 APPENDIX 2. CRM QUESTIONNAIRE FOR EMPIRICAL ANALYSIS 316 VI
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