What is Relationship Banking?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 August 2019
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Relationship banking is a process that involves proactively anticipating the needs of individual bank customers and taking steps to satisfy those needs before the client presents them. The underlying concept of this approach has to do with developing more comprehensive working relationships with each client, assessing his or her individual situation, and making suggestions for various services offered by the bank to help improve the financial well-being of the customer. This approach is often associated with smaller banks that utilize a more personal approach with customers, although an increasing number of large bank corporations are beginning to encourage similar strategies in their local branches.


At the root of relationship banking is the idea that the institution and the individual customer are partners with a common goal: improving the financial security of the customer. For this reason, the client support representatives within the bank are constantly seeking to understand what customers do and don’t like about the services offered by the bank, how they are presented, and how to identify which of those services are likely to be beneficial to each customer. This type of proactive approach is very different from the reactive approach of utilized by many banks over the years, in which the bank essentially establishes its suite of services and the qualifications for obtaining them, then waits passively for customers to approach them. With relationship banking, the representatives of the institution don’t wait for customers to come to them; they go to the customers with a plan of action.

Traditionally, smaller banking institutions have made efficient use of relationship banking as a means of competing with large banking corporations. By focusing on personalized service, encouraging employees and officers to recognize customers when they enter the establishment, and taking the time to recommend services that are highly likely to be helpful for the individual customer, a locally owned bank can often maintain a solid clientele even if the large conglomerate down the street is offering what appears on the surface to be competitive rates and great deals on mortgages and other types of loans. In fact, the local bank may be able to match those rates, and without some of the hidden fees and requirements found with the larger concern.

There are advantages and drawbacks to a relationship banking approach. One benefit has to do with getting information into the hands of customers that is highly likely to result in a better financial outlook for each of those customers. Since the bank brought this information to the client instead of waiting for the client to ask for it, there is an increased chance that the customer will feel more like an individual and less like a statistic to the bank. At the same time, some customers resist relationship banking, feeling that this more personalized approach is nothing more than a selling tactic, designed to entice clients to open accounts they don’t need and commit to paying for services they don’t want. When this is the case, the relationship-driven approach can actually cause a customer to leave, rather than strengthening the relationship.


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