Wirtschaftsthemen

Do you know one of the most important questions which a customer consultant asks himself before he meets you? The answer of “Are we house bank or how can we become it?” is essential for the following advice because thereof depends how much your consultant will do for you. But what is a house bank or better what is relationship banking and what are your benefits?

A simple definition
Relationship banking means a long-term partnership between customer and bank for mutual benefit (house bank principle). Its major purpose is obtaining a competitive advantage compared to other banks by utilization of information which competitors don’t have (e.g. cross selling). In return, customers get attractive terms, valuable information and often assistance in financial distresses. Customers can be private persons, companies or public authorities.

Understanding the advantages can help to appraise the value of a relationship:

Benefits for relationship banks are

• increasing market power through customer loyalty,
• competitive advantage by information gain,
• calculable revenue during a long-term partnership, and
• lower credit risks because of better information and priority collaterals.

In brief, if you buy more than one product and if you generate in total a good revenue over a long time then a bank is able to do more for you than for its other clients and it will do it. It’s like in real life if you buy daily 10 rolls as only one then you get discount and a friendly service. Right?

This results in your benefits

• Better conditions for savings, loans, and investments means attractive interests and lower fees.
• Better service includes cup of coffee or glass of champagne, individual solutions as well as reliable and prompt decisions, e.g. important for home financing, because your credit officer got any information about your finance already.
• Assistance if you’re in financial mess.
• Easier access to useful information, e.g. introduction in the rating process, balance analysis, customer contacts or industry evaluations for investment decisions.

You can use one-night stands for each financial problem, maintain your anonymity and get no more than others have or you enter in a trustfully business connection with all its advantages. And the best, you keep your independence and affairs with other institutions are allowed.

Photo: © Miroslav Sárička / SXC

How much time do you spend on monitoring your budget?

One way to monitor your income and expenses is to write disciplined down each of your financial transactions every day.

Another way is to define pools of your cash streams because your get an overview in few minutes and updates are necessary only one-time or two times per month.

Income and expenses are fixed or variable. Usually your monthly income should be fix but your yearly bonus is variable. On the other hand costs of your apartment, home, phone, insurance, or car are fix but your living expenses for foot, drinks, cinema, or restaurant visits are variable. This is not quite correct because you have to buy foot and drinks daily. Such costs are relative fix too. So you can define:

• Fixed income is your monthly salary.
• Variable income is your yearly bonus.
• Fixed expenses are your periodically payments for your home or apartment including energy, water, heating, TV, phone, loans and others.
• Quasi fixed expenses are your payments for your living.
• Really variable expenses are all unexpected costs, like purchasing a new ice box, restaurant visits with friends or car repairs.

You see there are few loopholes for your money. Only unexpected costs may be beyond the scope. This problem should be solved by a buffer. If you schedule your income and expenses including a defined pool of daily living expenses over 12 months then you get a good overview about your budget and its development.

The Family Budget Planner from Vertex42 is a nice example including a How To and it’s free for personal use.

Try it and your family will never run out of money in the future. Your benefits: You’re able to monitor your liquidity plus you get a simple tool to plan your affords for purchases, loans, investments, and your retirement arrangement.

Photo: © Markus Hein / PIXELIO

What’s the most sensible part to avert your financial collapse before you begin to act?

Just imagine how surprised you’d be if your bank cancels your credit card apparently out of a blue sky. Can this be true? Sure, banks are monitoring all account activities and analyze them for identification of risky developments because listen to early warnings enlarges the scope to take appropriate measures. This could mean for you that your credit officer has to decide about “Go!” or “No Go!” for your credit lines including credit cards when your name appears on a internal watch list. Why you don’t use this simple strategy for your private finances too? On this way you reduce costs and avoid trouble with your creditors.

Let’s take a look at the early warnings of consumer bankruptcy:

1. Slumping Revenue – Exploding Expenses
Decreasing income with increasing expenses is one of the important but hidden warnings. Whether or not you’re running into illiquidity already, pay attention of this progress. Check your stream of cash (cash flow) periodically. May be it’s time to reduce your expenses or you’re going to reach your credit limits combined with higher credit costs.

2. Filled up Credit Lines
If you use your credit lines permanently then ask yourself: Why? May be you underestimate the risk of exceeding limits through unexpected purchases. Further you waste money because you have to pay a lot for higher interests. No need to say that your credit history is a part of your credit score.

3. Ignoring Mails and Phone Calls
Do you ignore statements of account, bills, and duns already? That could be an evidence that you shut off your money problem. Avoiding phone calls from your bank could be a result of your remorse. It’s time to act. Be sure your creditors are not passive.

4. Friends as Creditors
Are your friends a part of your creditors? This could be a further warning. Friends are most often the last help before people run out of money because in this time banks have stopped their lending activities already.

5. Repayment of Overdraft by Credit Card
Do you repay your overdraft by credit card? May be you have a liquidity gap temporarily. Nevertheless it’s time to check your income and expenses because you have to get information about your liquidity in the future.

6. Return of direct debits
Return of direct debits by your bank should leave at you all the warning lights illuminate.

7. Reduction of Living Expenses for Repayments
Do you believe that you are able to pay off your debts by reduction of your living expenses? My opinion about this: Don’t try this at home! Because it’s difficult and few people are able to handle it. If you want to check it out although, test your financial power via an investment plan. So you can save money, build up your equity and completely without risk.

If you find yourself in one or more of this points then it’s time to act before your creditors wake up.

Photo: © N.Schmitz / PIXELIO

• Buy on credit as much as you can.
• Pull out all the stops for liquidity improvement (e.g. overdraft, credit card, trade credit).
• Spread your debts.
• Calculate without buffers.
• Protect your investments by borrowing.
• Trust your employer.
• Believe in your health.
• Don’t consider fluctuations of interest rates.
• Believe in increasing markets.
• Ignore any outstanding accounts.
• Important: Don’t talk about your money problems with creditors!

You should combine several points with each other for better impact.

Photo: © Rike / PIXELIO

1. Pay.
2. Pay more.
3. Pay even more.
4. Pay even more than that.
5. Pay when you don’t want to.
6. Pay when you do.
7. Pay if something is due.
8. Pay if don’t.
9. Pay every day.
10. Keep paying.

Inspired by Copyblogger – “10 Steps to Becoming a Better Writer”.

Some national surveys (e.g. FSA figures) prove a growth of complaints about customer service of banks over the last years. Complaints to get an appropriate attention are one way. Alternative could customers consider to change their bank. May be such surveys illustrate that many banks neglect the relevance of relationship banking. And may be we see a global trend to more anonymity through automation of services. But which financial institution is the best today? A little check list could help to organize your thoughts:

As much banking as you need
Otherwise you run into danger to subsidize unused business divisions. Further you increase the possibility that your bank deals in high risks. Are you sure that you really need a small retail bank with a very large and high risky investment department? For special products like home loans or investments you should ask an expert.

Which financial products are essential for you?
Each product costs money. Free offers are paid by hidden costs – e.g. lower interest, profit margin. Writing a list of your preferred requirements should help to identify your financial products.

Consulting a financial adviser
Sure a financial adviser could help to find a right financial institution for you. But he should be independent. That means you pay for him directly not via hidden fees for any products.

Recommendations
Recommendations from friends or any customers are very useful. Nobody else is able to talk open about strengths and weaknesses of banking service or products. Look at the internet but avoid testimonials published at homepages of banks. Banks have a tendency to publish positive statements only.

Direct banking or branch banking
Direct banking is a cheap option for experienced clients. Though I see a combination of financial centers with direct banking service very critical. Mostly such institutions load their work onto it’s clients but charge large fees. However well-heeled clients use private banking.

Interest and Fees
Many people compare interest and fees but forget terms and conditions and service. Most finance comparison sites are a good source to compare figures. Though they tell us nothing about service quality not to mention customer ratings.

Are you satisfied with your bank? Please add briefly how did you found it.

Graphic: © Barbara Eckholdt / PIXELIO

The latest RSA Online Fraud Report (FRARPT) from August 2009 displays a significant growth of password fishing (phishing) attacks. Compared to July 2008 phishing attacks increase over 40 percent to 13,212 attacks in July 2009. During standard attacks dropped down fast-flux attacks are en vogue. How to protect your internet banking against phishing, viruses, trojan and spyware?

Most people believe their computers are protected by firewall and anti-virus software. That’s it. But what will happen if you open some ports or download infected files with unknown new viruses? For this reason some people spend a lot of money into the security industry to protect their PC or network. I think security is a multi-part concept. There are some simple options partially for free:

Router with restricted MAC addresses
You can close your network via router. A restricted list including MAC addresses of your network computers only are able to defend your internet connection against external access. Additional an external access via wlan routers should be blocked by encrypted connection.

Separated PC
A separate – may be older – computer used for online banking only works like a service terminal at home. Password protected with firewall and anti-virus software should it be a safe option.

Dynamic IP-Addresses
Bot networks love static IP-addresses. If your internet service provider offers dynamic IP-addresses your will minimize the risk of attacks.

Second Operating System Linux
MS Windows for games and Linux for work and online activities? Try Linux as your second operating system. Today it’s easy to use. You can test your hardware by a Live-CD without installation. Your benefits: Linux is open source, it comes for free, it’s safer than MS and it’s not the main target for hackers.

Anti-Virus Software
Using anti-virus software is a further step to more online security. It’s standard. Keep it up to date and run system checks periodically.

Software Updates
Periodically updates of your operating system and anti-virus software minimize security gaps.

Firewall
Using a firewall is standard. One of it should be enough. Keep it active.

Email Attachments
Open trustworthy files only. Attachments with extensions like *.exe, *.pif or combinations like *.pdf.exe should be a warning.

Hyperlinks In Emails
Phishing emails offer hyperlinks connected to phishing websites. Such hyperlinks appear like normal internet addresses but includes invisible links to phishing sites. This sites look like banking homepages e.g.. But you have to login with your account data and TAN for verification of something and someone is able to access to your banking account already. For this reason don’t use copy & paste or mouse click. Always type manually your banking URL into the browser bar.

Downloads
Download, save and open trustworthy files only. E.g. some homepages lead you to believe in checking your operating system for viruses, trojan and spyware. After checking they offer a cleaning software (*.exe). It’s funny if a Linux system will be online verified with display a MS layout. Such pages are a clear case for leave and forget.

Strong Password
To crack a password you need much computer power. The stronger a password the better. Your password should contain a sufficient number of letters, figures and additional characters. Change your password periodically and don’t write it anywhere. Keep it confidential.

Many security gaps exist to attacking computers and networks. Please ask your bank and your internet service provider for a guide to protect your online connection. Did I forget anything? What’s your security concept?

Screenshot: adria.richards

Did you know that pessimists are able to save a lot of money? Jim Wang wrote about it.

How does it work for depositors?
Do you agree that credit bankers are very pessimistic? They always ask for the “worst case”. What will happen if a customer can’t pay back his debts? Conversely customers could ask, what will happen if my bank is unable to pay interest or my money back in the “worst case”. If customers think like critical investors they could save much money.

Here are my pessimistic banking rules to prevent trouble and losses:

• Financial institutions are friendly to money, not to customers.
• Don’t decide at a moment’s notice for or against a financial product.
• Buy only understandable and reasonable products.
• Buy and forget is a bad investment strategy. Credit ratings of banks and firms will change over time.
• Emotions are poor consultants.
• Use your common sense.
• Most consultants are better vendors without know how.
• Write down a briefly journal of your consultation and let it sign by your consultant.
• Witnesses could help to resolve later conflicts.
• Always consider what will happen with your money in the “worst case”.

This list could be a never ending story. Feel free to add a comment with your pessimistic rules.

Photo: cjc4454

In the Financial Times on July 30, 2009: Josef Ackermann – CEO of Deutsche Bank argues for protection of larger banks. The background: Deutsche Bank is partially an investment bank with small retail banking, big operating loss in the last quarter and Ackermann’s target is still 25 percent return on equity, impossible with classic banking. What does it mean for markets?

In the United States we see nearly each week a bankruptcy of a smaller bank. It seems, Ackermann is right. But was Lehman Brothers a small bank? Little or big has nothing to do whether we loose a bank or not. The key is its equity to prevent declining business.

Do we really need large banks?
Most people need an account, investment products, credit card, some credits for car and travel or mortgages. That’s it! Do we need in our daily life large investment banks with 25 percent return on equity?

How is it with companies?
Sure large banks are able to manage a lot of money, but a network of banks too. If a company is looking for a big deal, then it doesn’t matter whether the money comes from one big bank or five smaller banks. The single different will be, large banks get all profit on its own.

Bigger banks and high risk for economy and customers
How we learnt from Lehman are big banks a very high risk for markets. Many other financial institutes and companies are economically dependent on it. Additional, if large banks operating in retail business many people will lose their money too if such institute goes down the tube.

Finally, I can’t see the economical sense for big banks.

Photo: swisscan