Banking of the future will be characterized by the trend towards more transparency, fairness and service and price positioning specifically focused on target groups. The trend is already being put into practice at the LLB Group.
One of the most important and simultaneously most difficult tasks for any bank is price setting. While clients have to make payments in return for the use of a bank’s full services, the price has a decisive influence on the amount of the bank’s revenue and profit. This does not, however, mean that the price always has to be low.
Nobody would contend that new Porsche cars or Nespresso coffee capsules are “cheap”, and yet many customers are prepared to pay a correspondingly high price for these products since they get corresponding value for money. Client benefits and price are therefore inevitably linked. Only those enterprises that consistently focus their activities on client benefits will be successful in the long term.
“When purchasing a product, the customer’s subjective perception of the product’s value is decisive.”
The subjective value is decisive
One important factor in linking prices and client benefits is transparency on the level of both benefits and price. The reason for this is that a customer’s subjective perception of a product’s value is decisive for the purchase. However, in the case of services, in particular, it is often quite difficult to judge services prior to payment and equally difficult to figure out the pricing prior to the first invoice. We all know how important transparency is as does anyone who has ever fallen for promising, but faked, photographs of their next holiday hotel in a travel brochure or who has been in for a bad surprise after their vacation when confronted with a bill for their mobile network operator’s high roaming fees.
The topic of transparency is becoming increasingly important for banks as well. Last year, LLB decided to take a pioneering step to become one of the first banks in Switzerland and Liechtenstein to abolish the mainly hidden retrocessions or to systematically pass them on to their clients. In this way, clients will know exactly which costs to expect. Bank Linth, LLB’s subsidiary, as well as LLB Austria have also pursued this option.
In the same boat as investors
Another important factor in linking price and client benefits is fairness. When fixing the level of fees it is necessary to remain client-oriented too so that clients consider services fair. LLB has positioned itself in the market as an innovative provider in this respect too. It developed, for example, a model for its own funds that links fund costs with fund performance. In contrast to market-based performance models, clients are waived part of the fund costs in the case that expectations regarding the anticipated return are not met. Both LLB and its clients are therefore in the same boat, and the risks are fairly distributed.
The last important factor in linking price and client benefits is to target services at individual client needs. Many banks are, however, still known for their wasteland of service and price variants. As a result, all their clients are always offered the same thing regardless of their having different needs. This would be inconceivable in many other lines of business. Just imagine the uproar if BMW offered just one type of engine or if SBB trains had only one travel class. Gradually, however, banks have also started to introduce the principle of service and price differentiation.
Clients can choose
LLB has initiated a pioneering development in this area too. In future, clients who invest in securities can choose from various services in investment counselling. These are characterized, according to client needs, by different levels of client advisor support or varying grades of client portfolio monitoring. In asset management, clients can already choose from three different pricing models to suit their individual needs: a single rate allowing clients to pay separately for each service they utilize; an all-inclusive rate that covers all services; and a performance-dependent rate, which means that clients first pay a basic price. An additional fee will only apply if the portfolio return is positive.
Banking of the future will be characterized by the trend towards more transparency, fairness and service and price positioning specifically focused on target groups. Five years ago, there were hardly any banks providing differentiated services. Today, more than half of all Swiss banks offer their clients different service packages at different prices for basic products (account, card, payments). These developments have also recently affected the area of investments. If the phase of low interest rates continues, these changes will also impact the areas of savings and financing. History has shown that through declining margins and the increased intensity of competition companies are forced to offer their clients customized solutions in order to remain successful in the market. The LLB Group has contributed to shaping this trend through its latest developments and as a result has set the basis for future-oriented service design and price setting.
The LLB Group has set the basis
These developments have also recently affected the area of investments. If the phase of low interest rates continues, these changes will also impact the areas of savings and financing. History has shown that through declining margins and the increased intensity of competition companies are forced to offer their clients customized solutions in order to remain successful in the market. The LLB Group has contributed to shaping this trend through its latest developments and as a result has set the basis for future-oriented service design and price setting.