Private Banking Is a Growing Part of Consumer Strategies

By Shostack, G. Lynn | American Banker, June 25, 1986 | Go to article overview

Private Banking Is a Growing Part of Consumer Strategies


Shostack, G. Lynn, American Banker


Private Banking Is a Growing Part of Consumer Strategies

A RECENT WHARTON graduate thesis survey reports that 72% of the top 300 commercial banks now offer "private banking" programs. The concept behind private banking -- customized services for the best customers -- seems so obvious as to require little thought. Yet the term private banking did not even exist until Citibank launched its private banking division in 1977. And it was not until five years ago that private banking became a widespread phenomenon.

To some, it may seem that private banking is nothing new. After all, banks have always had connections with the affluent individual. Trust departments have always catered to the wealthy. Commercial bankers have always handled the entrepreneur/business owner. Branches have always given important customers special attention. These services have always been available, so it's understandable that a bank might say, "We've always done that."

But from the customer's viewpoint, the picture is different. For decades, the burden has fallen on him or her to find out about all the things a bank can do, and then to manage and coordinate these capabilities and the people who provide them. But no customer can possibly know the entire bank. People change, products change, and the customer's needs change. If a customer wants to buy bankers acceptances, execute a wire transfer, and trigger a margin loan, how many places and people must he deal with? Who coordinates these activities? Who is responsible for knowing the customer? Whose job is it to tell the customer about what the bank can do?

To the person who is worth a million dollars or earning a healthy six-digit income, the way banks are organized seems senseless Companies fall over themselves to provide premium products and premium service in every other area of his or her life. General Motors doesn't force everyone to buy Chevrolets; it makes Cadillacs too. There is club soda, and there is Perrier. There are cookies in a box, and there is Mrs. Fields. Some customers can and will pay for "the high priced spread."

Private banking is a concept that recognizes what a relationship with the upscale consumer can be worth. The customer who has or can be sold not only high balance deposit accounts, but also loans, portfolio management, custody, money market trading, municipal bond purchases, and trusts is also the customer who might own or control corporations, have needs in corporate finance, venture capital, mergers and acquisitions, pension management, or cash management. Clearly, this is a customer you want to know. He or she is the person upon whom the entire philosophy of free enterprise rests -- the American wealthmaker. He uses and spends more for financial services by far than any other segment of the consumer population.

Private banking is also a concept that says it is the bank's job, not the customer's, to make it as easy and as efficient as possible for the customer to tap the bank's total capability. This marketing view is why private banking is becoming a mainstream part of consumer service strategies.

Organizational Structure

The American Bankers Association has taken note of the growing interest in private banking. I was privileged to chair a task force, formed last year at the ABA's request, to report on the needs of private bankers and how the ABA could meet them.

Several areas emerged as high priorities. One of these was organizational structure. Many banks are grappling with trying to decide the most appropriate "home" for private banking within their organizations. Some banks have established fully integrated private banks, others have combined only one or two product families, still others have made their private banking effort an adjunct to an existing business line such as retail, commercial, or trust. No matter which organizational umbrella private banking is placed under, there is a high need for effective interfaces with many other areas of the bank. …

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