horn rudolf rating 2010 08

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Service Quality in the Private Banking Business

Carsten Horn and Markus Rudolf

First Version: June 2009, this version: August 2010

Abstract

This paper addresses the service quality in private banking theoretically

and empirically and identies factors which contribute to service quality. A

multidimensional and hierarchical model is developed based on the work of

Brady & Cronin (2001). The model is then empirically tested among private

banking providers with the partial least squares method. Furthermore, the

developed model is compared to other approaches of Grnroos (1984) and a

model with direct effects on service quality. Finally, an analysis of various

provider groups is conducted so that differences between private bankingproviders in Germany, Switzerland, Austria and Liechtenstein and between

providers with various minimum investment requirements can be identied.

Key Words: Service Quality, Private Banking, Rating, Partial Least Squares

WHU - Otto Beisheim Graduate School of Management, Center of Private Banking, Burg-platz 2, 56179 Vallendar, Germany, Tel.: +49-(0)261-6509-421, e-mail: [email protected].

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1 Introduction

The subject of service quality has received attention from many researchers, no-

tably Grnroos (1984), Parasuraman, Zeithaml & Berry (1985) and Parasuraman,

Zeithaml & Berry (1988), Rust & Oliver (1994) and Brady & Cronin (2001) who

develop and analyze different models of service quality in various industries. How-

ever, for high net worth individuals (HNWI) as private banking customers, the

aspect of service quality has not yet been analyzed. The Private Banking industry

is especially interesting since private banking is a "high contact" service environ-

ment (Lassar, Manolis & Winsor (2000)). According to Chase (1981) and Mittal

& Lassar (1998), customers have difficulties in evaluating the quality of the service

and primarily focus on an evaluation of the person delivering the service. An ex-

ception for an analysis of service quality in private banking is the work of Lassar,

Manolis & Winsor (2000), who compare the SERVQUAL model of Parasuraman,

Zeithaml & Berry (1988) with the technical/functional model of Grnroos (1984)

in the private banking industry. However, the authors focus on a comparison of

existing models and their impact on customer satisfaction and do not intend to

nd particular factors which inuence service quality in Private Banking.

Private banking - different to retail banking which is much more standardized -

comprises a set of services which are individually adapted to the clients needs

(Tilmes (2002), Howald (2007)). HNWIs are typically dened according to differ-

ent lower boundaries in liquid assets. These boundaries lie between US $ 250.000

and US $ 1.000.000 (see Capgemini & Merrill Lynch (2007), PricewaterhouseCoop-

ers (2007), IBM Corporation (2005), Datamonitor (2003), or Meiers & Schilling

(2007)). We will dene private banking for our analysis as follows:

Private banking is an integrated, individual, needs oriented nancial

and risk planning service for HNWIs, whose wealth requires individ-

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ual advice. The minimum investment requirement is usually around

250,000 Euro. The client relationship is generally a long term rela-

tionship which is based on trust and discretion.

The paper is structures as follows. Section 2 lays the theoretical foundations of

the paper. Section 3 introduces the data for the empirical study. Section 4 shows

the results and section 5 discusses these results. Section 6 summarizes the paper.

2 Model

Three service quality models, have received particular research attention:

The "Nordic Model" invented by Grnroos (1994) and Brady & Cronin

(2001).

The SERVQUAL approach of Parasuraman, Zeithaml & Berry (1985) and

Parasuraman, Zeithaml & Berry (1988) and the SERVPERF approach of

Cronin & Taylor (1992). Due to the disconrmation paradigm and the di-

mensionality, the SERVQUAL model is criticized by various authors, among

them Asubonteng, McCleary & Swan (1996) or Cronin & Taylor (1992)).

Consequently, in the SERVPERF model service quality is measured on an

absolute scale instead of a difference between expectations and performance.

In a direct comparison both Cronin & Taylor (1992) and Brady, Cronin &

Brand (2002) nd better results for the SERVPERF scale.

The hierarchical, multidimensional model of Brady & Cronin (2001) based

on the work of Rust & Oliver (1994). Rust & Oliver (1994) present a three

dimensional model which is based on the Grnroos (1984) model with one

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additional dimension which describes the environment in which the service

is delivered.

We will proceed according to Brady & Cronin (2001) and Fassnacht & Kse (2006)

and develop a three dimensional model of service quality in private banking with

the three dimensions (i) service environment quality, (ii) interaction quality, and

(iii) service product quality as main dimensions with various subdimensions which

have to be further examined. The subdimensions will be developed based on

literature as well as on open qualitative interviews with 13 relationship managers

of three different private banking providers. Their answers are ranked according

to the number of responses which a specic dimension generated.

As rst dimension we consider service environment. This dimension and its subdi-mensions is covered in many literature sources, among them Bitner (1992), Brady

& Cronin (2001), Zeithaml & Bitner (2003), Parasuraman, Zeithaml & Berry

(1988), Bitner (1990), Bahia & Nantel (2000), and Bitner (1992). The factor se-

curity as a subdimension has been proposed by Parasuraman, Zeithaml & Berry

(1985), Johnston (1995) and Bahia & Nantel (2000). Financial stability as a

subdimension of the service environment is included by Lepak (1998). The sub-

dimensions access, branch locations or geographic presence are discussed in Para-suraman, Zeithaml & Berry (1985), Johnston (1995), Lepak (1998), Jun & Cai

(2001), Oppewal & Vriens (2000). Interviews with relationship managers conrm

these subdimensions and adds the subdimensions corporate identity of a company,

its ambient conditions, and its international presence. In sum, these results let us

conclude that the dimension service environment in private banking consists of four

subdimensions: Ambient conditions, nancial security of the provider, geographic

presence and the corporate identity.

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The second dimension is the interaction quality which has already been described

by Grnroos (1984). Brady & Cronin (2001) analyze the subdimensions attitude,

behavior, and expertise as describing factors of the interaction quality. Also the

remaining SERVQUAL dimensions of Parasuraman, Zeithaml & Berry (1988),

reliability, responsiveness assurance, and empathy would mostly fall under the

interaction quality dimension. In the banking sector, Lepak (1998) includes fur-

thermore the dimensions friendliness, professionalism, and experience of the client

relationship manager. Jun & Cai (2001) also analyze the factors understanding the

customer, collaboration, continuous improvement and credibility. Interviews with

relationship managers deliver additional insights for the interaction qualitys sub-

dimensions in the private banking industry. Besides job satisfaction and employee

training, the factors continuity of the relationship between customer and relation-

ship manager, the accessibility of the relationship manager and the competence of

employees in nancial aspects were considered important. Relationship managers

also highlighted the importance of the employees emotional competence, the way

how a customer is addressed individually in the investment process and the quality

of the investment proposal. In sum, both the literature review and the interviews

with relationship managers lead us to the following ve subdimensions: The conti-

nuity of the relationship with the customer, the job satisfaction and competence of

employees, the emotional competence, and the quality of the investment proposal.

Dimension three is the service product quality as proposed by Grnroos (1984).

Brady & Cronin (2001) nd the subdimensions tangibles, waiting time, valence,

and social factors. In addition to that, interviews with relationship managers

provide the subdimensions performance of the clients assets as the most important

factor, then the breadth of the product, and nally the service range of the service

provider. Moreover, the quality of the reporting mentioned (see also Viebahn(2005)). Based on this, we will test three subdimensions: The performance of the

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Service Quality

Serviceenvironment

quality Interaction quality

Service productquality

Ambientconditions

Financialsecurity

Continuity Jobsatisfaction Competence

Emotionalcompetence

Investmentproposal

Performance Product and

Service rangeReportingGeographic

presenceCorporate

Identity

Model 1: Proposed model Model 2: Grnroos (1984) mode l Mode l 3: Direct effects

Figure 1: Model overview

investment, product and service scope and the quality of the reporting.

We therefore propose a model for the evaluation of service quality in private bank-

ing based on the works of Rust & Oliver (1994) and Brady & Cronin (2001) with

the private banking specic subdimensions proposed in gure 1. The proposed

model will then be compared to two other models: A model based on Grnroos

(1984) and a model with direct effects between all subdimensions and the service

quality dimension. The Grnroos (1984) model will be tested by eliminating the

service environment dimension and by linking all subdimensions of the service en-

vironment to the functional quality or interaction quality dimension. The model

with direct effects will be tested by simply eliminating all three main dimensions

service environment, interaction quality and product quality and by consequently

testing direct effects between service quality and all subdimensions with the same

methodology.

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3 Methodology and Data description

We design a questionnaire inspired by Churchill (1979), Gerbing & Anderson

(1988), and Churchill & Iacobucci (2005). The questionnaire consisted of 137

questions subdivided in sections as it is indicated in table 1. All items of the

measurement model are reective items, which reect the dimension instead of

forming it 1 . All items of the latent variables are furthermore examined thoroughly

with the criteria set of Jarvis, MacKenzie & Podsakoff (2003) in order to prevent a

misspecication of formative and reective indicators which is a common source of

misspecication of service quality models (Jarvis, MacKenzie & Podsakoff (2003)).

Furthermore, items are operationalized purely performance based as proposed by

Cronin & Taylor (1992) and measured on a 5 point likert scale (Miller (1956) and

Devlin, Dong & Brown (2003)). Content validity is ensured by seven researchers

and three practitioners in the private banking sector. Their responses and sugges-

tions led to a number of item eliminations until a consensus about the validity of

each item was reached.

In contrast to the measurement model, the structural model is operationalized in

a formative way so that subdimensions form the main dimensions instead of re-

ecting it. The criteria set of Jarvis, MacKenzie & Podsakoff (2003) also suggests

that the present subdimensions are in fact formative dimensions. This specica-

tion is in line with early specications of the SERVQUAL model (Parasuraman,

Zeithaml & Berry (1988)), where the items of the latent variables are specied

in a reective way, whereas the relationship between the variables is modeled for-

matively. Also Dagger, Sweeney & Johnson (2007) and Dabholkar, Shepherd &

Thorpe (2000) conclude that service quality is best specied formatively as it does

not make sense that e.g. the service product quality is caused by a high overall1 The difference between reective and formative indicators is described in detail by Bagozzi(1994), Chin (1998), Jarvis, MacKenzie & Podsakoff (2003) and Ringle (2004 b ).

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Questionnaire section Number of questionsCompany information 4Importance of quality 13Behavior of relationship manager 13Attitude of relationship manager 19Emotional competence 4Competence 8Ambient conditions 6Financial security 3Geographical presence 6Corporate Identity 5Investment proposal and investment strategy 9Return gures 4Products 6Reporting 7General service quality 4Customer satisfaction 4Assets under Management, prots, and net new assets 20Recommendation of other private banking services providers 1Total 137

Table 1: Sections of the questionnaire and number of questions per section

service quality. Consequently, the proposed model is a type II model of marketing

research according to Jarvis, MacKenzie & Podsakoff (2003).

The questionnaire has been mailed to 502 private banking service providers in

Germany, Austria, Switzerland, Luxembourg and Liechtenstein either by phone,

email, or mail. In each company, the head of private banking department was

contacted. All companies furthermore received an individual and anonymizedbenchmark report to prevent positive response biases. A screening of the dataset

led to the elimination of two responses. Both revealed a strong yea saying bias

and a high number of missing values. Other than that no response showed a

strong bias in either direction and the number of missing values was very low. The

net response rate was 24.7 % with Luxembourg having the highest response rate of

50 % and Switzerland having the lowest response rate of 15.6 %. The difference can

be explained by the fact that most of the Luxembourg companies already took partin a previous study of Meiers, Schilling & Baedorf (2008) and were thus familiar

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Country contacted replied response rate in %Germany 214 57 26.6 %Switzerland 224 35 15.6 %Austria 32 19 59.4 %Luxembourg 20 10 50.0 %Liechtenstein 12 3 25.0 %Total 502 124 24.7 %

Table 2: Response rate by country

Contact contacted replied response rate in %Telephone 290 96 33.1 %Letter 164 18 11.0 %Email 48 10 20.8 %

502 124 24.7 %

Table 3: Response rate according to contact

with the research project. The Swiss sample consisted of many companies which

were only contacted by mail where the response rate was lower. Tables 2 and 3

show the response rates by country and by way of contact. In total, 84 respondents

replied online and 40 responded by mail or by fax. A screening of the dataset shows

a very low amount of missing values of 1.4 %. For the further analysis, missing

values were replaced by sample means, which is also recommended by Roth (1994)

if the number of missing values is less than 10 %. The median minimum deposit

sums required from the companies is 250,000 Euro with 53 companies having a

minimum investment requirement of less than 250,000 Euro and 64 companies

with a minimum requirement of 250,000 Euro or more. 7 companies did not reply

to this question and are excluded from this sample as a replacement of this variable

does not make sense.

Generally, there are two commonly used approaches for an analysis of structural

equation models: The covariance based approaches LISREL, Amos, and EQS

which are also used by Cronin & Taylor (1992) and by Brady & Cronin (2001), and

the variance based partial least squares (PLS) approach, which is presently rarely

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Criteria Value ReferenceLoadings of Indicators > 0.7Indicator reliability > 0.5 Chin (1998)t- value one sided t-Test 95 % >

1.645Cronbachs Alpha > 0.7 Tenenhaus, Vinzi,

Chatelin & Lauro (2005)and Ringle & Spreen(2007)

Factor reliability > 0.6 Ringle (2004 a )Average variance extracted > 0.5Discriminant validity Fornell Larcker Criteria Fornell & Larcker (1981)

and Chin (1998)Predictive validity Stone-Geissers Q 2

(Communalities) > 0Unidimensionality Value and correlation of

residuals and cross load-ings

Table 4: Evaluation criteria for the reective measurement model

Criteria ValueR 2 0.15: weak, 0.35: moderate, 0.67 substantialf 2 0.02: weak effect, 0.15: moderate effect, 0.35 sub-

stantial effectSignicance of path weights twosided t-Test 90 %Multicollinearity VIF < 10Predictive validity Q 2 (Redundancies) > 0

Table 5: Evaluation criteria for the formative structural model

collinearity does not make sense in reectively measured measurement models, the

formatively measured dimensions still have to be controlled for multicollinearity

with the variance ination factor (Jarvis, MacKenzie & Podsakoff (2003)). The

evaluation criteria for the structural model can be found in table 5.

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4 Results

4.1 Model evaluation

The evaluation of the measurement model with SmartPLS 2.0 and SPSS 15.0 shows

a generally good t of the items and their respective dimensions with two excep-

tions. The service environment dimension generated only three subdimensions. A

closer analysis shows that the items of the proposed subdimensions ambient condi-

tions and corporate identity load on only one single dimension, which will be called

the outer appearance. For the subdimensions of the outcome quality dimensions,

the items of the proposed reporting subdimension load on two different subdimen-

sions. The items of these dimensions reect a reporting subdimension which can

be called "standard reporting" as it includes items such as the performance of

the investment and the asset weights in the portfolio of the customer. The second

subdimension can be called "other reporting" as it includes more sophisticated

items such as benchmarks and indices for a performance comparison.

Subsequently, the reliability of the extracted subdimensions is analyzed with SPSS.

Cronbachs Alpha, factor reliability and average variance extracted are estimated.

If the statistics dont show the required values, items are eliminated based on the

item-scale statistics until an acceptable level of reliability is achieved. Furthermore,

if item-scale correlation or indicator reliability of an item shows low values, this

item is also deleted in order to receive the best results for the reliability analysis

and in order to create a more parsimonious model. This procedure leads to the

elimination of 15 items of various subdimensions. An additional factor analysis

with all eliminated items did not show any additional subdimension. All reliability

criteria for the measurement model are fullled as can be seen in table 6.

The validity of the subdimensions is considered next. Content validity was al-

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ready established by seven researchers and three practitioners. As all subdimen-

sions show good values for their reliability statistics, it can be concluded that a

good convergent validity is given. For an assessment of unidimensionality, all cross

loadings of all items are analyzed with the result that all items show the highest

loading on their respective subdimension so that unidimensionality is conrmed.

This result could already be assumed because of the factor analysis where all

items loaded on their respective subdimension. Furthermore, the Fornell Larcker

criterion is fullled for all subdimensions so that discriminant validity is also con-

rmed. Finally, predictive validity is analyzed by the Stone-Geissers Q 2 , which

shows values higher than 0 for all subdimensions.

An assessment of measurement model invariance shows that in the present analy-

sis, there are no signicant differences among the various groups. A comparison of companies which answered by mail or by email shows that not one single indicator

is statistically different between the groups 3 . Also a comparison of different coun-

tries shows not one single statistically signicant difference among indicators 4 . The

differences in the minimum investment requirement is again insignicant 5 . Conse-

quently, measurement model invariance is given so that the dataset can be treated

as one data sample and differences between groups can be interpreted (Deng, Doll,

Al-Gahtani, Larsen, Pearson & Raghunathan (2008) and Carte & Russell (2003)).The evaluation of the proposed structural model shows adequate results. They

are depicted in gure 2. The R 2 value of 57 % for the overall service quality can

still be considered substantial according to Chin (1998). The service environment

dimension shows an R 2 of 50 %, the interaction quality dimension shows an R 2

of 46 % and the outcome quality dimension also shows an R 2 of 50 %. All these

R 2 values for the main dimensions of service quality are between moderate and3 The 2 value is 58.5 with 94 degrees of freedom which is not signicant.4 The 2 of 55.1 with 94 degrees of freedom is again not signicant.5 2 of 57.8 with 94 degrees of freedom.

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Dimension Indi-cator

Item-Scalecor.

Indi-cator-rel.

t-value

AVE Factor-relia-bility

Cron-bachsAlpha

Service QualityA01 0.739 0.798 42.8 0.7362 0.8932 0.8205A02 0.667 0.738 28.09A03 0.632 0.672 16.77

Serviceenvironment

C01 0.672 0.845 54.49 0.8357 0.9105 0.8035C02 0.672 0.826 76.72

OuterAppearance

CA1 0.689 0.704 25.53 0.5832 0.8743 0.8219CD1 0.626 0.575 12.73CD2 0.64 0.596 13.23CA2 0.586 0.608 21.4CA3 0.52 0.502 7.91

FinancialSecurity

CB1 0.679 0.785 12.35 0.6767 0.8622 0.7658CB2 0.622 0.624 6.45CB3 0.505 0.62 9.72

GeographicPresence

CC1 0.927 0.941 8.39 0.937 0.9781 0.9668CC2 0.915 0.911 7.92CC3 0.944 0.96 8.26

Interaction

Quality

B01 0.667 0.828 45.95 0.8336 0.9093 0.8005

B02 0.667 0.84 50.55Continuity BA1 0.563 0.821 10.89 0.7798 0.8762 0.72BA2 0.563 0.738 5.66

Job satisfactionBB1 0.708 0.802 35.64 0.6994 0.8733 0.779BB2 0.702 0.805 37.77BB3 0.516 0.572 10.17

Competence

BC1 0.689 0.707 10.2 0.6236 0.8685 0.7981BC2 0.633 0.651 9.13BC3 0.573 0.632 18.87BC4 0.531 0.505 5.42

EmotionalCompetence

BD1 0.885 0.903 51.2 0.8943 0.9621 0.9414BD2 0.878 0.91 73.09BD3 0.871 0.87 41.84

InvestmentProposal

DA1 0.633 0.758 23.38 0.6965 0.8729 0.7819DA2 0.637 0.739 12.63DA3 0.555 0.592 12.65

OutcomeQuality

D01 0.715 0.847 56.37 0.8576 0.9233 0.8341D02 0.715 0.868 85.65

Performanceand Risk

DB1 0.571 0.653 19.03 0.651 0.8483 0.7316DB2 0.595 0.685 28.32DB3 0.506 0.615 15.19

Product andService range

DC1 0.504 0.682 17.54 0.6674 0.857 0.7572DC2 0.602 0.556 6.93DC4 0.661 0.765 22.38

Standard

Reporting

DD1 0.634 0.604 8.25 0.6485 0.8469 0.732DD3 0.526 0.658 14.9DD4 0.474 0.683 8

OtherReporting

DD2 0.738 0.752 17.22 0.7274 0.8889 0.8158DD5 0.754 0.755 17.72DD6 0.527 0.676 13.89

Table 6: Analysis of the measurement model14


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Service quality

Serviceenvironment

quality Interaction quality

Service productquality

Outer appearance

Financialsecurity

Geographicpresence

Continuity Jobsatisfaction Competence

Emotionalcompetence

Investmentproposal

Performance Product andservice range

Other reporting

Standardreporting

R=0.566

R=0.501 R=0.504

R=0.455

0.397***0.315***0.230***

0.703*** -0.011 0.109*

-0.043 0.326*** 0.156** 0.166** 0.264**

0.509*** 0.137**0.0650.236***

0,296* Path coefficient significantat the 10% level

0,296** 0,296***Path coefficient significantat the 5% level

Path coefficient significantat the 1% level

P1 P2 P3

P11 P13P12

P21 P22 P23 P24 P25

P31 P32 P33 P34

Figure 2: Structural model evaluation

substantial, where only the interaction quality shows results closer to the moderateR 2 . Most of the path weights show signicant loadings on their proposed dimen-

sions. A rst analysis shows that the investment proposal subdimensions has only

signicant loadings on the interaction quality dimension and not on the outcome

quality dimension as was assumed in the previous section. The outcome quality

dimension shows the highest loadings of all three dimensions on the service quality,

whereas service environment ranks second and interaction quality has the weakest,

though strongly signicant loading overall service quality. Also the effect strengthsshow a similar result because the outcome quality has a substantial effect of 0.3,

the service environment has a moderate effect strengths of 0.2 and the interaction

quality only has an effect strengths of 0.1, which falls in the range between mod-

erate and weak according to Chin (1998). This is a surprising result because in

high contact services very strong relationships between the overall service quality

and the interaction quality dimension are expected according to Lassar, Manolis

& Winsor (2000).

In the service environment dimension, the outer appearance shows the strongest

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because of the geographic proximity of the other three countries. However it can

be said that whether Luxembourg is included or not has only a very small impact

and does not affect the interpretation of the results. Differences will be interpreted

according to the signicance of path weights in the groups or - if path weights are

signicant in both groups - a t-test will be conducted whether the strength of the

relationship is signicantly different.

The analysis shows several differences which are illustrated in table 8. First, R 2

values of the overall service quality abroad is higher than in Germany. The dimen-

sion service environment shows that abroad, the nancial security subdimension

is signicant, whereas this is not the case in Germany. This fact also results in a

higher R 2 of the service environment dimension abroad. The subdimension com-

petence of the dimension interaction quality is only signicant abroad, whereas inGermany, the subdimensions emotional competence and investment proposal are

signicant. The service product dimension signicantly inuences by the product

and service scope in Germany. This relationship is insignicant abroad.

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Germany Abroad Diff.Path name Path t-value R 2 Path t-value R 2 t-valueP21 -0.051 1.06 0.149 1.57 1.4P22 0.356*** 2.72 0.234* 1.74 0.58P23 -0.007 0.07 0.243* 1.81 1.51P24 0.202* 2.01 0.048 0.57 1.14P25 0.459*** 3.05 0.165 1.03 1.33

P11 0.748*** 6.82 0.653*** 7.1 0.66P12 -0.161 1.36 0.189* 1.74 2.18**P13 0.173* 1.92 0.134* 1.76 0.33P31 0.533*** 4.85 0.477*** 3.96 0.34P32 0.225** 2.15 0.151 1.39 0.48P33 0.117 1.27 0.099 1.08 0.14P34 0.142* 1.69 0.179** 2.03 0.2P1 (Env.) 0.327*** 3.75 0.474 0.292** 2.41 0.627 0.23P2 (Int.) 0.209** 2.05 0.557 0.306** 2.62 0.467 0.58P3 (Out.) 0.453*** 4.44 0.573 0.360*** 3.62 0.486 0.65SQ 0.545 0.643SQ: Service Quality; Env.: Environment; Int.: Interaction; Out.: Outcome; Abroad: Switzerland, Austriaand Liechtenstein *** / ** / * signicant at the 99 % / 95 % / 90 % level

Table 8: Analysis of group differences between countries

below 250T EUR min 250T EUR Diff.Path name Path t-value R 2 Path t-value R 2 t-valueP21 -0.059 1.09 0.185* 1.75 0.85P22 0.256* 1.91 0.288* 1.88 0.16P23 0.347** 2.09 0.147 1.06 0.99P24 0.053 0.76 0.219* 1.71 1.26P25 0.345** 2.14 0.104 0.88 1.31P11 0.742*** 5.26 0.692*** 8.1 0.3P12 -0.051 0.53 -0.076 0.8 0.22P13 -0.015 0.27 0.203*** 2.83 2.39**P31 0.589*** 5.71 0.491*** 4.22 0.65P32 0.226** 2.5 0.281** 2.22 0.37P33 0.131 1.58 0.003 0.02 1.09P34 0.068 0.83 0.151* 1.77 0.69P1 (Env.) 0.323*** 2.98 0.503 0.301*** 2.99 0.508 0.15P2 (Int.) 0.212** 2.02 0.592 0.455*** 4.97 0.393 1.76*P3 (Out.) 0.498*** 5.41 0.582 0.224** 2.44 0.463 2.19**SQ 0.682 0.562SQ: Service Quality; Env.: Environment; Int.: Interaction; Out.: Outcome; Abroad: Switzerland, Austriaand Liechtenstein *** / ** / * signicant at the 99 % / 95 % / 90 % level

Table 9: Analysis of group differences between minimum deposit sums

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Germany AbroadFactor-reliabili-ty

Cron-bachsAlpha

AVE Factor-reliabili-ty

Cron-bachsAlpha

AVE

Job satisfaction 0.881 0.793 0.715 0.872 0.778 0.696Investment proposal 0.877 0.792 0.705 0.871 0.781 0.693Outer appearance 0.842 0.779 0.519 0.899 0.858 0.641Service quality 0.886 0.805 0.724 0.92 0.87 0.794Emotional competence 0.971 0.955 0.918 0.949 0.922 0.862Outcome quality 0.914 0.813 0.841 0.942 0.877 0.891Competence 0.859 0.781 0.611 0.895 0.843 0.682Interaction quality 0.885 0.741 0.794 0.933 0.856 0.874Geographic presence 0.984 0.976 0.954 0.961 0.963 0.893Continuity of the relationship 0.811 0.718 0.691 0.88 0.739 0.786Performance 0.871 0.779 0.693 0.824 0.708 0.611Product and service scope 0.833 0.72 0.625 0.872 0.795 0.697Financial Security 0.864 0.816 0.681 0.84 0.708 0.641Other reporting 0.894 0.823 0.738 0.874 0.798 0.699Standard reporting 0.885 0.809 0.72 0.854 0.755 0.662Service environment quality 0.895 0.766 0.81 0.929 0.846 0.867

Table 10: Measurement models per country group

below 250,000 Euro min. 250,000 EuroFactor-reliabili-ty

Cron-bachsAlpha

AVE Factor-reliabili-ty

Cron-bachsAlpha

AVE

Job satisfaction 0.859 0.747 0.674 0.887 0.808 0.725Investment proposal 0.914 0.858 0.78 0.799 0.748 0.575Outer appearance 0.898 0.86 0.639 0.856 0.79 0.55Service quality 0.884 0.803 0.719 0.905 0.843 0.76

Emotional competence 0.972 0.956 0.919 0.954 0.928 0.873Outcome quality 0.913 0.809 0.84 0.944 0.882 0.894Competence 0.872 0.806 0.633 0.853 0.777 0.592Interaction quality 0.901 0.78 0.82 0.928 0.846 0.866Geographic presence 0.988 0.982 0.964 0.972 0.958 0.921Continuity of the relationship 0.85 0.751 0.739 0.9 0.784 0.818Performance 0.851 0.738 0.656 0.835 0.703 0.629Product and service scope 0.822 0.712 0.61 0.881 0.797 0.711Financial Security 0.876 0.792 0.702 0.844 0.728 0.644Other reporting 0.913 0.856 0.778 0.83 0.756 0.621Standard reporting 0.884 0.805 0.718 0.772 0.712 0.532Service environment quality 0.913 0.809 0.839 0.909 0.8 0.833

Table 11: Measurement models per minimum deposit group

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other two models. This nding is in line with Dabholkar, Shepherd & Thorpe

(2000) and Brady & Cronin (2001) who conclude that the complexity of service

quality can best be described by a hierarchical approach. Furthermore, the analysis

of the proposed model shows some insignicant relationships. Financial security,

continuity of the relationship, and other reporting aspects were not signicant. It

can be assumed that the nancial security subdimension affects customer loyalty

more than service quality, because if a customer feels that his bank is insecure, he

will most likely terminate the relationship. The signicance of the nancial security

subdimension for foreign companies shows that particularly the three analyzed

countries benet from their high reputation of security. For the continuity of the

relationship, low signicance can be explained by the fact that this factor could

rather inuence customer satisfaction or customer loyalty than service quality.

Although this factor is signicant in the subsample with higher lower boundaries,

signicance appears only at the 10 % level and the relationship is too weak to

be only explained by service quality. A previous analysis of Meiers, Schilling &

Baedorf (2008) showed that the relationship manager is a very important factor

for the generation of new customers. The subdimension other reporting turned

out to be insignicant, too. This result contradicts Viebahn (2005)s result.

Our study based on the views of the customer relationship managers shows thatthe outer appearance of the company is the most important factor of the service

environment quality dimension which is in line with existing research in the eld of

service quality. However, the fact that geographic or international presence of the

company was not considered to be important for the quality of the environment

implies that the private banking business is focused locally. All four remaining

subdimensions of interaction quality are considered to be relevant, which is also

in line with other studies (e.g. Meyer Goldstein (2003)). However, interactionquality turns out to reveal a high degree of complexity. It can be concluded that

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there are more subdimensions of interaction quality which have not been analyzed

here, but which might also contribute only little. Finally, it was not surprising

that performance was the most important subdimension of the dimension outcome

quality. Surprisingly however, the reporting subdimension does not receive much

attention from companies.

The analysis of the subgroups generated further important insights. Differences

between the countries are rather small but it becomes evident that companies out-

side Germany benet from their reputation of security more than German private

banking services providers. Security abroad loads positively on service environ-

ment. Product and service scope is not signicant for foreign private banking

service providers. Furthermore, companies abroad focus more on the competence

of their relationship managers where there are strong relationships with the interac-tion quality. German companies on the other hand consider emotional competence

of relationship managers as more important. These companies focus on the quality

of their background processes in form of the investment proposal.

It can be concluded, that the ndings in the segment with higher minimum assets

are in line with the conclusions of Lassar, Manolis & Winsor (2000), who consider

functional quality more important in a high contact service environment. Although

all participating companies offer private banking services, it seems as if the com-panies in the segment with lower minimum asset requirements are more similar to

the retail banking sector. Then the outcome quality is the most important factor,

followed by the environment, whereas interaction is by far less important. This

fact is particularly illustrated by the relationships between the interaction quality

and its subdimensions. In the segment with higher minimum asset boundaries,

emotional factors are important. Companies in the lower segment only consider

competence and the investment proposal important. Furthermore, the moderateR 2 of interaction quality in the higher sector shows that there are more subdimen-

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sions which were not analyzed in the present study and which inuence interaction

quality in the higher segment. Additionally, the present model could explain more

of the service quality in the lower segment, which can be attributed to the fact

that most of the subdimensions were elaborated based on works of other authors

which were tested in the retail sector. Therefore, further research should focus

on customer opinions on service quality in private banking and particularly an-

alyze the interaction quality dimension. Additionally, differences among various

provider groups should be analyzed in the form that different subgroups of real pri-

vately held institutions which focus exclusively on private banking are compared

with independent asset managers, government owned institutions and branches

of internationally present retail banks in order to gain further insights into the

heterogeneity of the business.

6 Conclusion

In total, the present study could generate new insights about services in the private

banking sector. It was shown both, theoretically and empirically, that the service

quality in a high contact service environment can best be explained by a mul-

tidimensional, hierarchical model. Furthermore, the heterogeneity of the privatebanking sector can be illustrated by a deeper analysis of group differences between

different provider groups. It can be seen that, although all service provider are

active in the private banking industry and call themselves private banking service

providers, the group of the lower sector has more in common with the retail sector

than with a high contact industry which the private banking industry belongs to.

A Cross loadings of the dimensions

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JS IP OA SQ EC Out. CO Int. GP CT PR PJS 1 0 0 0 0 0 0 0 0 0 0IP 0.54 1 0 0 0 0 0 0 0 0 0 OA 0.47 0.51 1 0 0 0 0 0 0 0 0 SQ 0.51 0.49 0.56 1 0 0 0 0 0 0 0 EC 0.16 0.15 0.36 0.23 1 0 0 0 0 0 0 Out. 0.5 0.43 0.48 0.63 0.3 1 0 0 0 0 0 CO 0.55 0.71 0.58 0.46 0.23 0.49 1 0 0 0 0 Int. 0.56 0.56 0.55 0.58 0.3 0.49 0.55 1 0 0 0 GP -0.11 -0.16 0 0.06 0.06 -0.03 -0.02 -0.01 1 0 0 CT 0.52 0.35 0.27 0.28 -0.02 0.26 0.31 0.26 -0.12 1 0 PR 0.38 0.41 0.26 0.43 0.12 0.63 0.45 0.36 -0.03 0.25 1 PS 0.34 0.35 0.38 0.44 0.27 0.4 0.44 0.41 0.31 0.08 0.16FS 0.5 0.43 0.58 0.47 0.38 0.45 0.59 0.5 0 0.16 0.47OR 0.21 0.3 0.44 0.35 0.35 0.4 0.42 0.29 0.12 0.01 0.36SR 0.48 0.64 0.55 0.47 0.18 0.46 0.67 0.49 -0.13 0.31 0.4Env. 0.38 0.42 0.7 0.58 0.09 0.38 0.44 0.5 0.11 0.26 0.22JS: job satisfaction; IP: investment proposal; OA: outer appearance; SQ: service qutional competence; Out.: outcome quality; Int: interaction quality; GP: geographiccontinuity; PR: performance; PS: product and service scope; FS: nancial securityporting; SR: standard reporting; Env.: service environment

Table 12: Cross loadings of latent variables

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