Platformization of Banking — Part 5 — Power of Relationship

Chris Shayan
7 min readFeb 22, 2024


Chris Shayan, a CVP to boost Total Relationship Value in Banking using Digital Channels

Interactions and on-going relationships over digital channels are crucial for banks to create satisfactory customer value propositions. Understanding the behavioral and temporal aspects of value creation from a customer’s perspective is crucial as customer perceived value (CPV), Total Relationship Value (TRV) and Customer Lifetime Value (CLV) are dynamic and contextual, and evolves over time. This enables banks to develop customer offerings and bind customers through interdependent relationships.

In this post in series of Platformization of Banking, we go through some of the above concepts and an example of a CVP on how to build a bank that can deepen the TRV and maximize the CLV.

Digital Banking = ∑ (Execution + Generate Data + Learn + Experiment)

What is Relationship Banking?

Relationship banking is a strategy used by banks to strengthen customer loyalty and provide a single point of service for a range of different products and services. A customer of a bank may start out with a simple checking or savings account, but relationship banking involves a personal or business banker or a digital channel offering products designed to help customers attain financial goals while increasing revenue for the financial institution.

  • Relationship banking is strategy used by banks to offer a variety of different products, strengthen customer loyalty, and generate additional revenue.
  • Small, mid-sized, and large money center banks all use relationship banking strategies.
  • Relationship bankers or digital channels often approach customers with offerings such as insurance, investments, and certificates of deposit.
  • Relationship banking can be pushed too far if no proper governance, as with the Wells Fargo scandal when bankers opened accounts without permission from customers.

What is Customer Lifetime Value (CLV)?

Customer lifetime value (CLV) is a measure of the total income a bank can expect to bring in from a typical customer for as long as that person or account remains a client. When measuring CLV, it’s best to look at the total average revenue generated by a customer and the total average profit. Each provides important insights into how customers interact with your business and if your overall marketing plan is working as expected.

To state it more simply, CLV is the financial value of a customer relationship over the lifetime of your relationship with that customer.

What is Episodal Value (EV)?

According to Oliver (1996, 1999), (customer perceived) value is a comparative operation, which customers apply in satisfaction responses. Value is a super ordinate concept subsuming quality and value becomes an input for satisfaction. According to Juttner and Wehrli (1994), value is a pre-condition and foundation for maintaining durable relations, and relationships arise from multiple transactions, and relational attributes are antecedents to relationship value creation. In a relationship, product/service attributes lead to episodal value, leading to repurchase intentions. Over multiple transactions mediated by relational attributes, episodal value is transformed into relationship value.

Emerald Article: A multistage behavioural and temporal analysis of CPV in RM

To summarize, CPV is a multi attribute higher order construct, where meeting customer expectations result in value, if the perceived benefit is higher than costs in comparison to alternate products and services in a use situation. Relational attributes emerge as key antecedents when customers are satisfied with attribute-based value, in order to build relationships. Feedback from previous experience influence future perceptions (Sweeney and Soutar, 2001). A temporal model with multiple value adding interactions fosters and strengthens relationship.

What is Total Relationship Value (TRV)?

Relationship quality may be conceptualised as a higher order latent construct with multiple first order factors like trust, commitment, exchange efficiency etc (Palmatier, 2008). Crosby et al. (1990), posit that salesperson expertise, contact intensity (interaction frequency), similarity (consultative role), mutual disclosure of information and cooperative intentions elevates the relationship to realize total relationship value (TRV).

Emerald Article: A multistage behavioural and temporal analysis of CPV in RM

The idea that the information problems caused by adverse selection and the moral hazard present in the relationships between lenders and borrowers can be reduced if the lending is done by a bank is an old one in the banking literature (Diamond, 1984, Fama, 1985). Banks are able to produce substantial information about borrowing firms that can be useful in the credit decision process. There are several ways for lenders to obtain information about the credit-worthiness of borrowers, such as the development of long-term relationships with customers. Boot (2000) suggests that relationship banking involves customer-specific information obtained over time through repeated interactions on digital channels. If this information is costly to produce and is reusable, lending to a past borrower is likely to reduce a lender’s adverse selection concerns, as prior transactions will have produced proprietary inside information about that borrower.

Continuous contact between lenders and borrowers on digital channels in the provision of funds or other financial services can generate valuable information for the lender when making decisions about whether to extend credit, the price, the requirement for collateral, or other conditions attached to the loan.

The dependent variables are the price and non-price terms of the loans: (1) the interest rate spread of the loan (LN_SPREAD), measured as the natural logarithm of the basis points spread of the loan interest over the London Interbank Offered Rate (LIBOR) or LIBOR equivalent; (2) the collateral requirement (COLLAT), measured as a dummy variable that equals 1 if the loan was secured and zero otherwise; and (3) the maturity of the loan measured as the natural logarithm of the maturity of the loan (in months) (LN_MAT). Please read the full article here.

The value of relationship banking: International evidence

Relationship satisfaction would enable loyalty formation intentions through commitment and trust. Trustworthy behavior in terms of operational competence, operational benevolence and problem solving orientation by frontline employees, and through management policies and practices [of sellers], fosters trust in a relationship (Sirdeshmukh et al., 2002). An enduring desire to maintain the relationship including affect and obligation leads to commitment.

Relationship value subsumes attribute related values (Sirdeshmukh et al., 2002) and through trust enables loyalty. Exchange partners at this stage have achieved a level of satisfaction from the exchange process that virtually precludes other similar options (Dwyer et al., 1987).

Emerald Article: A multistage behavioural and temporal analysis of CPV in RM

Conflict is relevant even at this stage, and affects value negatively. From the above, the following propositions emerge:

  • Customer perceived relationship value is realized when evolving needs and expectations of customers formed out of transactions are fulfilled through value added services by sellers.
  • Relationship value leads to relationship satisfaction and loyalty mediated by commitment and trust.
  • Conflict negatively influences value added service and relationship value.

How to Deliver Total Relationship Value?

Customer Perceived Value (CPV) comprising of EV, RV and TRV is holistic and develops over time. Understanding the behavioral and temporal aspects of value creation and relationship formation is crucial for CVP & Product development to retain customers.

Relationship value focuses on long term costs and benefits associated with a customer’s relationship with suppliers (Harmon and Griffiths, 2008). Relationship quality is important and a mature relationship enhances organizational learning and facilitates innovation and customization. Such innovation and customization exceeding consumer expectations, lead to interdependent relationships and partnering to the mutual benefit of both the seller and buyer, which is beyond mere loyalty. Focusing on exchange construct conceals the importance of value creation and focuses on short term benefits. When value creation is the goal, customer value is viewed as value-in-use and interactions on digital channels become a key concept (Gronroos, 2008). To this end, the model is consistent with the emerging service dominant logic.

The figure below shows an example of how to build a holistic relationship value in banking utilizing Platformization of Banking in a digital world (special thanks to Soe Hla Win Minh Tran, MBA, PSPO II Woan Huey Ooi Khuong D. Le, MBA Duc Dung Nguyen, CFA and Bui Thanh Tu for helping me on completing the picture below). Perhaps in another post we can describe the details of such CVP and how it helps to boost the TRV as well as CLV.

Chris Shayan, a CVP to boost Total Relationship Value in Banking using Digital Channels