If you are reading this article, it is very likely that you are immersed in some type of contracting process with your bank or the possibility of strengthening your relations with it has been raised. Now, what does bank linkage really consist of and what are its advantages and disadvantages?
The linking of a client with his bank is, in reality, a very old mechanism within banking practice. In the past, this was known as a “relationship of trust” and was based on the set of products that the client had contracted with his bank.
The point is that, currently, the amount of has skyrocketed and continues to grow: checking accounts, cards, mortgages, loans, lines of credit, deposits, investment funds, pension plans, brokers and securities portfolios, insurance, direct debit of receipts, renting, leasing, billing services, POS terminals, as well as the rest of services for shops and companies are just a summary of the enormous range of services provided by banks.
It is for this reason that rather than talking about customer trust, a terminology is chosen that reveals the level of commitment that the customer has acquired with his bank.
Linkage levels and types<
private clients
Individuals are usually linked by direct debit of payroll or pension, credit card issuance, application for a loan or mortgage, contracting life, home and/or car insurance, as well as contracting multiple savings and investment products. such as deposits and investment funds. Depending on the customer profile, the type of link will be different.
A worker who is employed by someone else and who also has a family to look after will have different needs than a 25-year-old single who has just become independent and has only been in the labor market for a few years. At the other extreme, we can find pensioners, whose basic needs are practically covered and who only aspire to the greatest possible economic stability.
All these customers can achieve a high level of linkage with their bank. However, the products and services they have contracted will be considerably different, at least in part.
Companies and freelancers
Companies and self-employed workers, for their part, will need complementary services related to their economic activity. The level of linkage will be determined much more by this type of product.
In short, it is not possible to define exactly what the relationship of a client with his bank means, without first analyzing what type of client it is.
Why do banks encourage customer loyalty?
Higher economic margins
First of all, it must be taken into account that customer acquisition is much more complex than retention and loyalty. There are many more chances of getting a client of one entity to contract a complementary service, than of attracting a new client from another entity. In this sense, linkage strategies tend to be much more profitable than acquisition strategies.
Better forecasts and risk management
On the other hand, the linking of clients makes it possible to guarantee their permanence within the entity or, at least, increase the probabilities that they will remain as a client for a longer time. Having strongly linked customers makes banks carry out much more reliable forecasts of their economic results, as well as the availability of resources to carry out their activity. This predictability offers a greater level of maneuver to the bank, which has greater control over the risks it assumes with its operations.
Customers who easily switch from one entity to another do not offer the level of stability so appreciated by bank managers.
What are the advantages of linking with a bank?
Greater bargaining power
The advantages of connecting with a bank are closely related to the level of supervision that you are willing to carry out of your accounts. The fact of having contracted many products gives you a certain level of power or authority in your bank, since your profile as a client is more important. The fact that you decide to leave the entity and hire the services of another bank would mean greater economic damage than that generated by a client with hardly any connection.
This situation should be able to grant you a greater level of maneuver when it comes to negotiating the cost and commissions of certain services. Unfortunately, the level of attachment can also mean that you have made a series of commitments that are difficult to get rid of. Mortgages and credits are usually the main responsible for this situation. In these cases, the attitude that your bank has regarding your relationship will depend a lot on the manager that has been assigned to you, as well as on the fulfillment of objectives by the branch in particular.
Synergies in contracting services
Frequently, the contracting of multiple related services allows obtaining certain economic advantages. There are many possible combinations. These are some of the most frequent:
* The direct debit of payroll and receipts usually allows the opening of a checking account free of commissions.
*The contracting of multiple insurances allows to obtain better prices in the premiums than if insurances are contracted in an isolated way.
* Contracting home insurance together with a mortgage means a lower APR
What are the disadvantages of linking with a bank?
The damages of linking with a bank are related to the obligations acquired and the difficulties to cancel the services.
Acquired obligations
When we apply for loans and mortgages from our bank, we are acquiring not only a higher level of connection, but also a series of financial obligations that often bind us in the medium and long term.
This type of link does not imply advantages, quite the contrary. It limits our room for maneuver in future negotiations.
Difficulties in canceling or replacing services
There is no service that cannot be canceled and replaced by that of another entity. The problem is that these procedures can become expensive, both for the money and the time invested. Frequently, canceling a product and contracting it with another entity can generate large commissions. In addition, the time required can also be quite long.
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