SERVICE QUALITY, CUSTOMER SATISFACTION AND CUSTOMER RETENTION: A 

CASE OF PRIVATE BANKING IN SOUTH AFRICA 

 

Nyameka Phakathi 

Student Number: 2508951 

 

SUPERVISOR: DR FANNY SARUCHERA 

 

 

A research project submitted to the Faculty of Commerce, Law and Management, 

University of the Witwatersrand, in partial fulfilment of the requirements for the Degree 

of Master of Management by Research (MMR). 

 

Johannesburg, 2022 

  



 

i 

 

DECLARATION 

 

I, Nyameka Phakathi, hereby declare that this research report is my own work except as 

indicated with references and acknowledgements. This report is submitted in partial 

fulfilment of the requirements of the Master of Management by Research at the University 

of Witwatersrand and has not been submitted before for any degree of examination in this 

or other universities. 

 

NI Phakathi 

_______________________________ 

Nyameka I Phakathi 

 

13 February 2023 

____________________________ 

Date 

 

 

______________________________ 

Supervisor 

 

 

______________________________ 

Date  



 

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DEDICATION 

 

This study is dedicated to my late parents, Betty and Dumezweni Building. Thank you for 

always encouraging me to continuously strive to be the best version of myself. My sister, 

Thandokazi Building and gogo Cynthia Ngwanya (Makazi) for being my greatest 

supporters and cheerleaders. My husband, family and colleagues for the support and 

immense understanding throughout this process. My PMO leads and sponsors; thank you 

and “do not grow weary in doing good, for you shall reap the rewards at the proper time”. 

  



 

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ACKNOWLEDGEMENTS 

 

I am grateful to my supervisor, Dr Fanny Saruchera, for the honest and robust feedback 

and guidance throughout this research project. Thank you for the encouragement and 

motivation not to tire when the journey was at its peak during the COVID-19 pandemic, 

the persistence paid off.  May God enlarge your territory and add to your wisdom, 

knowledge, and strength.  



 

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ABSTRACT 

 

While significant studies exist on service quality, customer satisfaction and customer 

retention in private banking, little focus has been placed on young professionals within 

private banking in South Africa. Using the SERVQUAL model, guided by the study’s 

objectives, the study aimed to assess the impact service quality has on customer 

satisfaction, examine the impact of service quality on customer retention and establish 

service quality perceptions held by customers in relation to the value of private banking. 

Furthermore, the study sought to examine the relationships between customer 

satisfaction and customer retention in the context of private banking in South Africa. The 

integrative nature of the research strategy, design and philosophy prompted using 

quantitative research methodologies, drawing theoretical constructs from extant literature 

on service quality, customer satisfaction and customer retention. Quantitative analysis 

was used to determine the impact of service quality on customer satisfaction and 

customer retention, collecting data through self-administered questionnaires distributed 

to 281 private bank customers. The study found that while service quality is a significant 

determinant of customer satisfaction, tangibles and empathy have the most negligible 

impact and that service experience positively impacts customer satisfaction. In addition, 

while digital adoption is highest amongst young professional customers, the study found 

that human factors linked to three service quality dimensions, i.e., responsiveness, 

reliability, and assurance, significantly affect customer satisfaction and require particular 

focus in private banking. The study’s findings have significant repercussions for re-

shaping service quality in private banking for young professionals. The study offers a 

framework that integrates three service quality theories that can be utilised as a guide for 

improving service quality in private banking in South Africa and other countries, thereby 

increasing the knowledge base in the area of young professional banking. Future 

research could focus on the impact of employee competency, loyalty and brand image on 

customer satisfaction and retention. 

Key words: Young Professionals, Private Banking, Service Quality, Customer 

Satisfaction, Customer Retention, Service Quality Perceptions, Service Experience, 

Customer Lifetime Value. 



 

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TABLE OF CONTENTS 

 

DECLARATION ............................................................................................................ i 

DEDICATION ............................................................................................................... ii 

ACKNOWLEDGEMENTS ............................................................................................ iii 

ABSTRACT ................................................................................................................. iv 

TABLE OF CONTENTS ............................................................................................... v 

1. CHAPTER ONE: BACKGROUND AND CONTEXTUALIZATION .......................... 1 

1.0 Introduction ............................................................................................................ 1 

1.1 Background to the Study ....................................................................................... 1 

1.1.1 Legislation governing banking ......................................................................... 2 

1.1.2 Competition in banking .................................................................................... 3 

1.1.3 Changes in customer preferences .................................................................. 5 

1.1.4 Responding to changing customer needs ....................................................... 6 

1.1.5 Service Quality, Customer satisfaction and customer retention ...................... 7 

1.1.6 Other challenges facing banks ........................................................................ 8 

1.2 Study Context ...................................................................................................... 12 

1.2.1 The Retail Banking landscape ....................................................................... 12 

1.2.2 Private Banking ............................................................................................. 13 

1.2.3 Young Professionals ..................................................................................... 14 

1.3 The Research Problem ........................................................................................ 16 

1.4 Research Objectives ............................................................................................ 18 

1.5 Research Hypotheses ......................................................................................... 18 

1.6 Rationale of the Study ......................................................................................... 18 

1.7 Delimitations and Scope of the research ............................................................. 19 

1.8 Key Assumptions ................................................................................................. 19 

1.9 Definition of key terms ......................................................................................... 20 



 

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1.10 Dissertation Structure ........................................................................................ 21 

1.10.1 Chapter One: Introduction and Background ................................................ 21 

1.10.2 Chapter Two: Literature Review .................................................................. 21 

1.10.3 Chapter Three: Research Methodology ...................................................... 22 

1.10.4 Chapter Four: Presentation of results, analysis, and discussion of findings 22 

1.10.5 Chapter six: Conclusion and recommendations .......................................... 22 

1.11 Chapter Summary .............................................................................................. 22 

2. CHAPTER TWO: LITERATURE REVIEW ............................................................ 23 

2.0 Introduction .......................................................................................................... 23 

2.1 Banks as service organisations ........................................................................... 23 

2.1.1 Characteristics of services ............................................................................ 24 

2.1.2 Categories of Service .................................................................................... 24 

2.2 Service Quality ..................................................................................................... 25 

2.2.1 Service Quality Dimensions .......................................................................... 26 

2.3. Measuring service quality perceptions ................................................................ 28 

2.4 Customer Satisfaction .......................................................................................... 29 

2.4.1 Measuring Customer Satisfaction ................................................................. 30 

2.4.2 The impact of service quality on customer satisfaction ................................. 31 

2.5 Customer retention .............................................................................................. 32 

2.5.1 The impact of service quality on customer retention ..................................... 33 

2.6 The relationship between customer satisfaction and customer retention ............. 34 

2.7 Customer Lifetime Value (CLV) ........................................................................... 35 

2.8 Service Experience .............................................................................................. 36 

2.8.1 Service Experience Dimensions .................................................................... 37 

2.8.2 The role of the Private Banker ....................................................................... 38 

2.8.3 The role of the Private Banking Customer Service Teams (CST) ................. 39 

2.9 Theoretical and conceptual framework ................................................................ 39 

2.9.1 Service quality theories ................................................................................. 39 



 

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2.9.2 Integration of theories into the current study ................................................. 42 

2.9.3 Conceptual framework .................................................................................. 45 

2.9.4 The Conceptual model .................................................................................. 46 

2.10 Chapter Summary .............................................................................................. 47 

3. CHAPTER THREE: RESEARCH METHODOLOGY AND DESIGN ...................... 48 

3.0 Introduction .......................................................................................................... 48 

3.1 Research Approach ............................................................................................. 48 

3.2 Research Philosophy ........................................................................................... 48 

3.3 The Research Design .......................................................................................... 49 

3.3.1 Questionnaire Design .................................................................................... 50 

3.3.2 The questionnaire ......................................................................................... 50 

3.4. Pilot Study .......................................................................................................... 52 

3.5 Population and Sample ........................................................................................ 53 

3.5.1 Population ..................................................................................................... 53 

3.5.2 Sample and Sampling procedure .................................................................. 54 

3.6 Procedure for data collection and response rate ................................................. 56 

3.6.1 Data collection procedure.............................................................................. 56 

3.7 Data Analysis and interpretation .......................................................................... 56 

3.8 Research Findings Validity and Reliability ........................................................... 57 

3.8.1 External validity ............................................................................................. 57 

3.8.2 Internal validity .............................................................................................. 57 

3.8.3 Reliability ....................................................................................................... 58 

3.9 Ethical Considerations ......................................................................................... 58 

3.10 Chapter Summary .............................................................................................. 59 

4. CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF 
FINDINGS ..................................................................................................................... 60 

4.0 Introduction .......................................................................................................... 60 

4.1 Response rate ..................................................................................................... 61 



 

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4.2. Descriptive Analysis ............................................................................................ 62 

4.2.1 Demographic Profile ...................................................................................... 62 

4.2.2 Gender .......................................................................................................... 63 

4.2.3 Age ................................................................................................................ 63 

4.2.4 Qualifications ................................................................................................. 64 

4.2.5 Employment status ........................................................................................ 64 

4. 2.6 Income levels ............................................................................................... 65 

4.2.7 Account type ................................................................................................. 66 

4.2.8 Length of relationship .................................................................................... 67 

4.2.9 Dedicated Banker .......................................................................................... 68 

4.2.10 Preferred method of communication ........................................................... 69 

4.3 Descriptive Statistics ............................................................................................ 70 

4.4 Inferential Statistics .............................................................................................. 73 

4.4 1 Reliability Test ............................................................................................... 73 

4.4.2 Cronbach’s alpha test ................................................................................... 74 

4.4.3 Correlations ................................................................................................... 75 

4.4.4 Convergent and Discriminant Validity Assessment ....................................... 76 

4.4.5 Discriminant validity ...................................................................................... 78 

4.4.6 Path Analysis ................................................................................................ 79 

4.5 SEM results for Service Quality, Customer Satisfaction and Retention ............... 79 

4.6 SEM results for Service quality and customer retention ...................................... 82 

4.7 Hypotheses Test Results ..................................................................................... 83 

4.7.1 Service quality and customer satisfaction (H1) ............................................. 85 

4.7.2 Service quality and customer retention (H2) ................................................. 86 

4.7.3 Customer Satisfaction and Customer Retention (H3) ................................... 87 

4.7.4 Service Experience and the value of private banking .................................... 88 

4.7.5 Customer lifetime value, customer satisfaction and customer retention ........ 89 

4.8 The initial model ................................................................................................... 90 

4.9 The revised model ............................................................................................... 90 

4.10 Chapter Summary .............................................................................................. 91 



 

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5. CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS ......................... 93 

5.0 Introduction .......................................................................................................... 93 

5.1 Conclusions ......................................................................................................... 93 

5.1.1 The impact service quality has on the satisfaction ........................................ 93 

5.1.2 The impact of service quality on customer retention ..................................... 94 

5.1.3 Service quality perceptions and the value of private banking ........................ 94 

5.1.4 The relationships between customer satisfaction and customer retention .... 95 

5.2 Recommendations and Managerial Implications ................................................. 95 

5.2.1 Solicit customer feedback in real-time ........................................................... 96 

5.2.2 Evaluating the quality of service rendered by employees ............................. 96 

5.2.3 Train and retain service employees .............................................................. 96 

5.2.4 Involve staff in solution design ...................................................................... 97 

5.2.5 Make service quality everyone’s responsibility .............................................. 97 

5.3 Contribution of the study ...................................................................................... 98 

5.4 Limitations ........................................................................................................... 98 

5.5 Future research ................................................................................................... 99 

6. REFERENCES..................................................................................................... 100 

7. APPENDICES ...................................................................................................... 107 

Appendix 1: Research Instrument............................................................................ 107 

Appendix 2: Research Permission Letter ................................................................. 111 

Appendix 3: Ethics Approval .................................................................................... 112 

Appendix 4: Language-editing Memorandum .......................................................... 113 

 

  



 

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List of Figures 

Figure 2.1: Proposed Research Model .......................................................................... 47 

Figure 4.1: Response rate ............................................................................................. 61 

Figure 4.2: Employment status ...................................................................................... 65 

Figure 4.3: Income levels .............................................................................................. 66 

Figure 4.4: Account Type .............................................................................................. 67 

Figure 4.5: Length of relationship .................................................................................. 68 

Figure 4.6: Dedicated Banker ........................................................................................ 69 

Figure 4.7: Communication preference ......................................................................... 70 

Figure 4.8: SEM results for Customer Satisfaction ........................................................ 81 

Figure 4.10: The revised Model ..................................................................................... 91 

 

List of Tables 

Table 2.1: Tax Table 2018 ............................................................................................ 11 

Table 3.1: Summary of Service Quality Models ............................................................ 44 

Table 4.1: Research Population ...................................... Error! Bookmark not defined. 

Table 5.1: Demographic profile of the respondents ....................................................... 62 

Table 5.2: Descriptive Statistics .................................................................................... 71 

Table 5.3: Reliability Test .............................................................................................. 73 

Table 5.4: Correlations .................................................................................................. 75 

Table 5.5: Factor loadings ............................................................................................. 77 

Table 5.6: Discriminant Validity Results ........................................................................ 78 

Table 5.7: Path Analysis Results ................................................................................... 79 

Table 5.8: Analysis of the Inner Model: Customer Satisfaction ..................................... 82 

Table 5.9: Analysis of the Inner Model: Customer retention .......................................... 83 

Table 5.10: Hypotheses Testing Results ....................................................................... 84 

 

 

  



 

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1. CHAPTER ONE: BACKGROUND AND CONTEXTUALIZATION 

  

1.0 Introduction 

The global economy is competitive as various sectors try to entice new prospects and 

keep existing customers. Financial institutions, particularly banks, are at the epicentre of 

the broader economy, making their performance closely linked with the economies in 

which they operate. The Financial Sector Regulations Act mandated financial services, 

including banks, to maintain the functioning of any financial system (South African 

Government Gazette, 2017). The hospitality, medical and telecommunications industries 

are equally critical service-driven industries that provide essential services. However, 

banks function as gatekeepers of a country’s wealth since effective banking systems 

influence the country’s economic growth (Islam, Ahmed, Rahman & Al Asheq, 2020).  

Numerous forces shape the Private banking industry itself - advancement in technology, 

innovation, the speed of digital adoption and heightened competition, which requires 

banks to focus on maintaining healthy customer relationships. According to Collardi 

(2012), it is crucial to understand customer expectations, fears, opportunities, and 

challenges, as key drivers to delivering on the promises that private banking customers 

expect.   

 

1.1 Background to the Study  

The primary function of banks is to provide financial services to customers. They must 

also maintain financial stability and viability, adhere to regulatory compliance, integrate 

digital technology, and manage risk. Many academics, researchers, and practitioners in 

the financial services fraternity maintain that providing quality and satisfactory services to 

customers and society is just as important (Gunawardane, 2021) in emerging and 

developing economies where banks function as the primary source of funding they serve 

as the engines that fuel rapid economic growth. Thus, understanding banks' immense 



 

2 

 

role and power could prove valuable, especially in countries lacking adequate and 

effective legal infrastructures, innovative financial instruments, and technological know-

how (Barua & Barua, 2021). 

The dominance of foreign banks in the 1990s presented various advantages specific to 

Africa. International banks brought much-needed technology and experience that 

amplified efficiency and intermediation and fostered good governance (Beck & Cull, 

2013). South Africa, a developing country, boasts an economically competitive and 

proactive banking system. This enabled South African banks such as Standard Bank and 

Absa to expand into the African continent at the end of the Apartheid era. However, the 

year 2020-21 proved to be a challenging period for businesses and financial institutions 

worldwide.  

Since the 2008-09 global financial crisis, the COVID-19 pandemic emerged as the most 

significant test of the global economy and financial sphere. Financial services 

organisations, specifically banks, operate centrally to the broader economic setting, 

connecting their financial performance closely to the economies where they function. As 

such, challenging economic conditions brought about by the COVID-19 lockdown altered 

the trajectory of many businesses and affected communities and livelihoods. Globally, 

economies across geographies were not spared from the damage to the real economy 

that is manifesting in different ways. The unexpected macroeconomic blow and cost 

impact on the financial sector, health systems, trade, production, employment, and 

economic activities had a slipover effect that will impact countries for years. Such damage 

threatened banks' survival, stability, growth, sustainability, and performance across the 

globe (Barua & Barua, 2021).  

1.1.1 Legislation governing banking  

Banks fulfil a vital role that supports the real economy and must evolve and adapt due to 

competitive and legislative pressures and changing customer demands. This involves 

putting measures in place to safeguard customer data, integrity and legitimacy from risk. 

As banks strive to build trusting relationships with customers, banks cannot ignore 

legislative requirements that protect customers. For this reason, South Africa pioneered 

the expansion of data privacy legislation just as other countries were starting to expand 



 

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their data privacy legislation. The Protection of Personal Information Act (POPIA) of 2013 

was enacted to prevent predatory data practices. POPIA regulates data privacy as 

endorsed by the parliament of South Africa to protect customer data from ill use. 

Organisations doing business in South Africa had until July 2020 to abide by and comply 

with the guidelines set in the regulation (Jones, 2022).  

The eight conditions provided by POPIA for the lawful processing of information need to 

be adequately understood to comply with POPIA. The first of the eight is accountability, 

a general requirement that requires organisations to appoint a responsible party to ensure 

full compliance with the other POPIA categories. Second is the processing information 

limitation, which ensures that the information processed complies with the laws. It also 

ensures that only relevant data is collected for a specific purpose, consent obtained, 

withdrawal possible where required, and data processed in a way that does not 

compromise participants' privacy. Other categories include purpose specification, further 

processing limitations, information quality, openness, security safeguards and data 

subject participation. This category emphasises the need for data processors to be 

transparent regarding the data's accuracy, purpose, storage, and utilisation. Privacy 

policies must be promulgated to safeguard data subjects, inform them, and enact 

mechanisms to protect data against unlawful dissemination, hacking or data breach (De 

Veiga et al., 2017).  

1.1.2 Competition in banking 

The Banking industry is naturally very competitive (Rootman, Tait & Sharp, 2011). Amidu 

(2021) identified six reasons why competition in banking is vital. Amongst other factors, 

he emphases the proper functioning of financial services, it enables stability in the 

financial system, improved monitory policy transmissions, and overall economic and 

industrial growth. Competition also ignites innovation, improved service quality, a product 

quality, and lower prices that enhance customer’s preference (Amidu, 2021). 

The African Banking system experienced significant changes over the past decades. This 

can be attributed to the dominance of foreign banks in several countries, resulting in 



 

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privatisation in Africa in the 1980s and 1990s. The end of the Apartheid era afforded the 

South African banks the opportunity to be expanded into the rest of Africa. Standard Bank, 

as well as ABSA, were able to expand and increase their footprint throughout the African 

continent. Similarly, Moroccan, West African and Nigerian banks expanded from West, 

South and East Africa to the rest of the continent (Beck & Cull, 2013).  

Retail banks in South Africa experienced an uptick in competition due to the emergence 

of digital players, such as Bank Zero, Discovery and Thyme Bank, which disrupted 

traditional banking. Thyme Bank heralded itself as the fastest-growing digital-only bank, 

boasting a base of three million customers with in its first two years (Chetty, 2021). 

Discovery Bank launched itself as the world’s first behavioural bank, while Bank Zero 

maintains its fresh new approach with no legacy systems. These digital players not only 

challenge the way traditional banking has been done. According to Nel and Boshoff 

(2021), these banks also drive price wars and increase competition with non-banks and 

other financial institutions (Hundre, Kumar & Kumar, 2013). The shift towards digitisation 

was elevated by the COVID-19 pandemic, forcing countries to undergo lockdown and 

encouraging digital banking. While banks benefited from the increased usage of digital 

banking channels, other challenges were brought about by the pandemic that banks must 

navigate.  

Competition, especially in the Private Banking market in Southern Africa, intensified 

significantly over the years. The five major banks in South Africa are measured by tier 1 

capital, reaching $10.38 trillion across all banks in 2021 (Writer, 2022). First National 

Bank, Absa, Nedbank, Standard Bank, and Investec must therefore respond to 

competition to retain their market share. This called for large-scale product and service 

quality differentiation strategies and innovation to enable them to leapfrog the traditional 

banking models and improve customer satisfaction and retention. Since banks offer 

similar products and services, it is near impossible to prevent customers from shopping 

around. This is especially true when the service quality standards do not meet their 

expectations. High Net-worth customers are accustomed to personalized, quick, and 

efficient services.  



 

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1.1.3 Changes in customer preferences 

Quick, agile practices and speed to market driven by committed employees have become 

a permanent phenomenon (Prinsloo & Roopnarain, 2021). Only prioritizing price, quality, 

delivery, and time are no longer adequate to attain the desired superiority and competitive 

advantage. To build sustainable business strategies and differentiation, customer 

experience has emerged as a more powerful tool to fulfil these requirements (Mosa, 

2022). To retain market share in a competitive market, banks concede the need to be 

genuinely attentive to how customers engage, transact, and interpret the value. This 

presented significant opportunities for banks to transform how they interact with their 

customers. Using more efficient communication tools incorporating technology and 

personalization over traditional one-way communication methods that have become 

redundant (Perwei, 2020). Thus, continuous refinement in private banking offerings, 

quality of services, focus on the satisfaction of customers, and retention is necessary to 

compete and survive. 

Banks segment customers according to income or wealth status, age (youth, 

professionals, and seniors) and education levels when addressing their banking needs 

(Akinci, Aksoy & Atilgan, 2003).  From the mass market with high-transactions but low-

value segment, the middle market and the high-end to low-transactions- high-value 

segment, the latter is most desirable and profitable. The South African banking market is 

filled with low-cost and zero-fee-based accounts to attract the unbanked. However, banks 

cannot afford to shift their focus away from the lucrative high net-worth segment as new 

entrants compete to win over the elite. The high entry barriers into private banking ensure 

that the services are reserved for top-tier income earners. The tax statistics from South 

African revenue Services (SARS) show that the elite base accounts for about 7.5% of 

taxpayers. They contribute nearly 50% of the overall personal income tax collected, 

making it the most desirable market to acquire and retain (Makina 2021).  

While marketing efforts focused mainly on acquisition strategies to attract new customers 

in the 1990s, there was no clear link to customer satisfaction or retention (Hundre et al., 

2013). This focus started to shift to maintaining existing customers as banks faced the 



 

6 

 

challenge of refining their retention strategies. The reformulated marketing strategies and 

the application of techniques to improve customer experience empower banks to cement 

their relationship with existing customers. The added complexities brought about by the 

rise in digital communication channels, resulting in more informed customers, require 

banks to adapt to changing customer behaviours and expectations (Mosa, 2022). 

Banks are cognisant of the factors that may impact customer retention or limit customer 

defection. The costs associated with getting new prospects are often greater than 

retaining current customers. Hundre et al. (2013) stress that a company’s ability to attract 

and retain customers extends beyond its product or service offering to how it services its 

existing customers. Furthermore, studies suggest that the core factors that impact 

customer retention start from the first time a customer interacts with the bank and 

continues throughout the entire relationship lifecycle. A combination of factors such as 

the primary offering, quality of services, customer satisfaction, auxiliary services, 

relationship length, the state of the marketplace and sharing in profits influence customer 

satisfaction and often lead to successful customer retention. 

1.1.4 Responding to changing customer needs 

From the above, it is evident that improved service quality involves maintaining high 

service standards and reducing the time to resolve customer issues. Increasing the speed 

of processing information and customers’ requests substantially affects customer 

satisfaction. Where customers experience dissatisfaction or discomfort, effective 

customer complaints handling systems are critical for customer relationship management 

and retention efforts. Banks may also achieve a distinct advantage through employees' 

genuine commitment and attentiveness. Listening to the voice of the customers is one 

way that organizations can gain distinct differentiation and achieve competitive advantage 

(Mosa, 2022). Hundre et al. (2013) support that having ancillary services such as 

appropriate sales and service skills contribute to customer satisfaction. Arora and Narula 

(2018) studied the linkages between service quality, customer satisfaction and customer 

loyalty. The study proposes using the SERVQUAL instrument to assess customer 

perceptions concerning service employee competencies. Five dimensions of service 



 

7 

 

quality, Tangibles, Assurance, Reliability, Responsiveness and Empathy, impact 

customer retention and satisfaction.  Combined, these attributes can position banks to 

deliver exceptional customer service, contributing to customer retention and satisfaction. 

 

1.1.5 Service Quality, Customer satisfaction and customer retention 

 

This research study explores the five key service quality dimensions and their impact on 

the satisfaction and retention of private banking customers in South Africa. Factors like 

customer demographics, i.e., customer age, employment, and perceptions regarding the 

value of private banking, were assessed in this study. The prevalence of these factors in 

private banking, specifically YP portfolios, was used as the baseline for further 

assessment of the effect service quality has on the retention and satisfaction of 

customers. Thus, the study integrates different theories to develop a comprehensive 

framework for the investigating the impact of service quality on customer satisfaction and 

customer retention. 

 

Researchers (2012) acknowledge the impact service quality has on customer satisfaction. 

Satisfied customers may not necessarily stay with the same bank, especially since the 

tendency of switching banks is higher amongst young customers in search of greater 

convenience (Molapo & Mukwanda, 2011). Thus, Macros and Coelho (2022) suggest that 

customer trust be increased though satisfaction, which will in turn influence customer 

behaviour. A wider adoption and re-evaluation of customer retention strategies to reduce 

customer defection may well be achieved through to technological innovations including 

internet banking and managing customer relationships (Molapo & Mukwanda, 2011). If 

banks were to retain their market share as new competitors enter the market, banks 

heighten their focus on becoming fully digital, competitive, and profitable to meet the 

changing customer demands. Accordingly, banks started to adjust to new preferences, 

behaviour shifts, and knowledge of their customers (Collardi, 2012) as one strategy to 

curb customer defection. This is done by providing a renewed and fresh approach to 

relationship banking. Efforts to sustain the gains made through enhancements to the 



 

8 

 

private banking offerings and replacing the ageing customer base led to the genesis of 

private banking for young professionals.  

As young professionals enter the world of work, they qualify for private banking offerings. 

They must tick off a few criteria to access a private banker to service their portfolio. The 

five major banks that are major players in the private banking space have a set criterion 

for professionals under the age of 30 (except for Absa and FNB, who cater up to age 35) 

and hold a four-year qualification. Generally, one cannot go wrong with any of their 

offerings, and it is essential to choose one that best suites the customer’s needs (Van 

Wyk, 2019). However, turning these young professional customers into life-long 

customers and maintaining profitable customers can be challenging (Rootman et al., 

2011). 

1.1.6 Other challenges facing banks 

1.1.6.1 Risk 

 

Banks face many risks compared to other financial institutions (Barua & Barua, 2021). 

Since banks are closely linked to the economy and everyday activities, banks face risks 

such as reputational and market risk, liquidity, credit, and interest rates risk (Stulz & 

Carey, 2006; Wilson, 2020). The COVID-19 pandemic increased the severity of these 

risks, resulting in increased default rates, non-performing loans, and reduced investment 

terms, triggering contagious bank-runs (Tyson, 2020). 

The slowdown in economic activity due to lockdowns led to the joblessness of millions of 

people. In 2019, over two million people lost their jobs between April to June 2020 in 

South Africa. About 876,000 went back to work by year-end, resulting in a total loss of 

one million four hundred thousand jobs compared to the previous year (PWC, 2020). With 

the easing of lockdown regulations, and economic activity starting to open up slowly, 

governments were instrumental in assisting businesses with much-needed relief funding. 

According to the South African Government Treasury (2022), the World Bank granted a 

750-Million-dollar loan to South Africa. This was to assist the government in accelerating 

its COVID-19 response to shield the poor and vulnerable from the adverse socio-



 

9 

 

economic impact of the pandemic. This supports and enables a resilient and sustainable 

economy. South Africa is Africa’s second-largest economy, whose economic 

performance has a spill-over effect on other African countries; hence, its economic 

development and recovery are critical in providing an economic boost to the broader 

African region (Ratshitanga & van Leggelo-Padilla, 2022).  

The unexpected changes in monetary policies and legislative relief from global economies 

enabled the Reserve Bank of South Africa to decrease the interest rate to the lowest 

degree (PWC, 2020). This relieved both personal and business customers whose 

livelihoods and earning ability were affected by COVID-19 lockdowns. Customers rely on 

their bankers to assist them in challenging economic conditions. Providing solutions such 

as payment holidays, debt relief, and fee waivers indicates that customers expect their 

banks to support them through unfavourable conditions. While this support may lead to 

customer retention and possibly an increased customer life value, banks must also gear 

themselves for a wide range of risks elevated by the pandemic. 

According to financial analysis reports by Price Waterhouse Coopers (PwC, 2021) on the 

2008 global financial crises, the re-regulation and legislative adjustments set banks in 

good stead as they entered the COVID-19 pandemic. Accordingly, banks in South Africa 

moved to a new IFRS accounting standard that ensured banks remained resilient to credit 

losses through increased credit loss provisions by 38%. Unlike households and 

businesses who were more susceptible to the economic shock due to being highly 

leveraged (Conradie, 2021). Lowering interest rates brought much-needed relief to 

individual customers and businesses but put pressure on the bank’s interest margins, 

possibly leading to losses across the banking industry (Perwej, 2020).  

The unsecured lending category grew by an average of 9.6% per year over the past 12 

years (Fintech, 2021). Overall business loans, susceptible to business interruption and 

company profitability, also increased by 49%. Banks also face liquidity risk, and their 

actions, together with the government and other financial institutions, play a vital role in 

the severity of the crisis (Conradie, 2021). While it may take other countries up to seven 

years after a crisis to recover, Ari et al. (2020) suggest that despite the risk of increasing 



 

10 

 

non-performing loans, valuable lessons can be drawn from the 2008 financial crisis. Some 

conducive factors to the NPL resolution include higher capitalised banks, no credit boo 

preceded the COVID-19 pandemic, and some countries may be able to recover rapidly 

from the impact of non-performing loans. 

1.1.6.2 Market share 

 

The South African Banking environment remains fiercely competitive, with the private 

banking market predominantly led by five main banks: Nedbank, First National Bank, 

Absa, Standard Bank, and Investec. These full-service banks account for 91% of all bank 

deposits and 94% of loans; hence, their resilience is critical in ensuring the resilience of 

South Africa’s banking system (Fintech, 2021). Discovery Bank is a relatively new player 

in the private bank space, with no entry-level banking but an exclusive purple account 

with the highest income requirement of the leading banks. These high entry barriers 

ensure that private banking services are reserved for the elite.  

High Net-Worth customers contribute nearly 50% of the overall personal income tax 

collected, as depicted in Table 1.1, making this market highly sought after (Makina, 2021). 

This lucrative market services high net-worth customers were earning R750,000 per 

annum (Fintech, 2021). This market accounts for nearly 7.5% of taxpayers. Annual Tax 

Statistics from the South African Revenue Services (SARS) show that of the 4.9 million 

taxpayers assessed in the 2018/2019 tax year, 365,800 people earn over the R750,000 

mark per annum (Fintech, 2021). About 148,000 taxpayers qualify for the one-million-

rand limit set by Standard Bank’s signature banking. Around 34,000 customers fall into 

the R2.5 million limit set by Discovery Bank, a new entrant in the private banking space. 



 

11 

 

Table 1.1: Tax Table 2018 

 

Source: Makina (2021) 

South Africa’s major banks have the core benefit of serving a substantial share of the 

country’s market. They are well geared to respond to, and address challenges posed by 

the fast-paced new entrants. The first South African Digital-only bank, Thyme bank, 

Discovery and Bank Zero, are entirely digital banks launched in South Africa. These 

banks challenge traditional banking systems and promising low-cost models. According 

to Camarate and Maritz (2018), globally, only a few banks deliver on the promises and 

expectations set during launch. Banks that create distinct and clear models of 

segmentation and differentiation can succeed in the highly competitive global banking 

markets. Although the number of customers using digital channels has increased, 

resulting in a more permanent shift in preferences, banks still have the task of educating 

customers. Since these channels appeal to YP, digital banking must be accessible to all 

customers (Beyers, 2021). 



 

12 

 

1.1.5.4 Digital Transformation 

 

Retail banks offer similar products and services, making it challenging to offer the unique 

services required by customers (Rootman et al., 2011). Digital transformation enables 

customers to be more aware of alternatives and has increased the extent to which they 

seek distinguished product offerings in banking (Mosa, 2022). The new way of banking 

offered by digital banks appeals to the youth and young professionals who demand better 

service quality. Banking services such as loans and account origination can easily be 

done digitally. Thus, banks had to strengthen their digital banking and authentication 

measures to ensure customers transact seamlessly on these channels. Self-service 

channels serve as an extension of the bank’s offering, and the main customer touch points 

need to be just as effective, with minimal or no human intervention. Banks, therefore, face 

the task of providing positive and memorable customer experiences tied to solid 

relationships and unique offerings or services (Deshwal, 2016). 

 

1.2 Study Context 

1.2.1 The Retail Banking landscape 

This section provides a synopsis profile of the 5 major retails banks with private banking 

in South Africa in no particular order. Standard Bank is a proudly South African integrated 

financial services group with a compelling competitive advantage. The bank provides 

personal, business banking and wealth management solutions, insurance, investment, 

and advisory capabilities and non- financial complementary solutions. These drive its 

financial wellbeing and those of their clients at every stage of their financial journey. 

Standard Bank is the largest bank ranked by assets and earnings amongst South African 

Banks (Standard Bank, 2023). Absa Bank is wholly owned subsidiary of the Absa group 

that offers a range of retail, business, wealth, and corporate investment solutions. The 

bank’s ambition includes creating value by playing an integral role in customer’s life 

journey. Investec; an Anglo-South African international banking and wealth management 

group. It provides a range of financial products and services clients across its core 

geographies, Southern Africa, Europe and Asia-Pacific. Investec’s footprint spans over 



 

13 

 

40 cities in five continents with over 8500 staff internationally (Investec, 2023). Nedbank 

is one of South Africa’s largest banks and boasts a wide range of wholesale and retail 

banking services. Its primary market is South Africa and continues to expand well into the 

rest of Africa. Nedbank is a market leader in digital innovations and boasts over 2.3 million 

digital customers in 2021 (Nedbank, 2022). 

1.2.2 Private Banking 

As customer demand increases and their needs change over time, banks have had to 

build solutions and enhance CVPs and self-service channel features. This was done to 

simplify how customers interact, obtain products, and receive services from their bank as 

banks transform from physical delivery to digital delivery (Makina, 2020). In the past, 

Private Banking and Wealth offered an attractive relationship-based value proposition, 

allowing high net worth customers to benefit from a personalized banking service linked 

to a personal banker. Eliminating the need to visit a branch and having one direct contact 

was the core selling strategy of the private bank offering. This was used to maintain and 

enhance profitable relationships with clients while ensuring benefits for both the bank and 

the customers (Rootman et al., 2011). Nowadays, customers can access their banking 

anywhere without bothering their bankers. The private banker could remain in the 

background if the digital channels fulfilled their needs. 

Banks want a profitable market-share hence the retention of profitable customers should 

be a non-negotiable, especially for niche markets such as private banking (Fraser & 

Lebcir, 2018). Older and high-income earners maybe more desirable and profitable. 

However, they may also have exhausted all private banking benefits and may no longer 

see the value of private banking. They are no longer looking to invest in property and 

have existing wealth or investment portfolios and, more importantly, may not have time 

on their side. Downgrading to more straightforward, low-cost accounts that cater for day-

to-day transactions ultimately leads to the exiting of the private banking relationship. 

Banks may be accused of charging high fees if they do not cater for these older customers 

and their changing needs.  

To gain access into the world of the elite without earning the required income allowed for 

relaxed entry barriers for young professionals. The flexible income criteria offered by 



 

14 

 

Nedbank, Absa, and Standard Bank for young professionals allow for a more extensive 

base to be eligible. The portfolio consists of a transactional bank account, often 

accompanied by a black card, aimed at reflecting the career ambitions of these 

customers. The Young Professionals CVP comprises discounted pricing, interest rate 

rebates, and exclusive YP-tailored offers. These include access to a dedicated private 

banker as the primary relationship owner and a suite of benefits like financial advice, 

tailored credit solutions, financial planning, customized online banking options, seed 

capital to start investing, customer loyalty rewards, and invitations to exclusive events. 

The package offers a range of financial solutions designed specifically to attract young 

professionals in careers that have a healthy near-future earning potential. The main 

benefit is that they enjoy private banking status and benefits without earning the required 

qualifying income to become a private bank client.  

 

As young people enter the world of work, the multitude of financial decisions that lie ahead 

for first- time job entrants can be very overwhelming. Young professional customers can 

therefore benefit from a private banker's services. In turn, the banker can influence the 

satisfaction, support, and retention of young professionals through superior relationship 

marketing (Rootman et al., 2011). According to Collardi (2012), customers expect their 

banker to be a reliable and trustworthy partner, dependable and appealing to their senses 

and emotions. Banks can support their financial needs and capture this lucrative market 

by appreciating the aspirations, preferences, and frustrations of YPs through the 

development of data and customer-driven experiences across all customer touch points 

(Deloitte, 2018). 

1.2.3 Young Professionals 

Seabury (2016) states that the generational gap also impacts customer service. This 

market consists of digitally savvy customers who value the convenience that comes with 

digital banking. So, unlike older customers, who may seem like better business prospects 

due to their high earnings and loyalty, YPs are not accustomed to traditional banking. 

They expect digital solutions catering to their need to be on the go. Banks must 



 

15 

 

acknowledge and adapt to the changing world (Collardi, 2012) by fulfilling this demand or 

risk losing them to competitors.  

 

The need for agile digitization and enhanced self-service options empowering customers 

with tools to manage their finances forces banks to re-think, re-engineer and improve their 

digital self-service offerings. Digital banking solutions that enable customers to do their 

banking anywhere at any time make handling finances easier. These empower customers 

with tools and products that are easy to navigate, user-friendly and appeal to young 

professionals. Electronic banking is a highly competitive and rapidly growing industry. 

Banks compete based on the latest technology, user-friendly websites and 'first to the 

market' product offerings. Therefore, self-service banking benefits both the bank and the 

customer. Banks benefit from reduced transactional costs and branch loads, while 

customers benefit from improved customer experience and convenience (Sindwani & 

Goel, 2014).  

 

The use of digital banking services was elevated by the COVID-19 pandemic that hit 

South Africa and the world in 2019 (Makina, 2020). According to Lightico's (2020) survey 

that assessed the effect COVID-19 had on banking, 63% of customers surveyed were 

now more motivated to use new online applications or websites than pre-pandemic. At 

first glance, the young professional’s customer base may be relatively unattractive due to 

their limited earnings. However, as they grow and their careers advance, they become 

more affluent and need financing for life projects such as homes, vehicles, student loans 

and other financial goals. Today’s young people are tomorrow’s profitable customers, 

even though banks have not given sufficient attention to this customer base. Banks can 

benefit from helping young professionals improve their lives at essential phases, thereby 

building long-term relationships and customer loyalty.  

Since most customers often stay with their first bank (Deloitte, 2018), it is imperative to 

forge enduring and rewarding relationships with young professionals. This can be done 

by designing products and services that appeal to them.  As young professionals move 

from being first-timers to becoming a profit-generating segment, so will their service 



 

16 

 

expectations from their bank and private bankers. Banks, therefore, need to adapt to 

changing demands by evaluating their products and services across all customer 

touchpoints, especially the youth market.  

The youth and student market require particular focus to capture a share of the next 

generation of young professionals before competitors grab them. This requires banks to 

move fast and be intentional with acquiring strategies before competitors get to them first. 

The banking sector already faces competition from no-bank rivals offering payment 

services and digital solutions such as loans, investments and other services traditionally 

carried out by banks only. The likes of Samsung Pay, SnapScan and iPhone Pay are 

some of the financial technical (fintech) solutions customers use to pay without a bank 

card. Providers such as Credit score and Hippo also offer customers a range of quotes 

from various financial institutions, suggesting what the customer might qualify for without 

actively seeking these services. As such, banks need to be more pro-active in capturing 

and keeping YPs. 

 

1.3 The Research Problem 

Young Professionals are on-boarded into private banking due to the low entry barriers 

and attractive value propositions. Banks offer attractive pricing and rebates to acquire 

YPs. These include interest rate rebates ranging for Prime less 2% for vehicle finance 

(Standard Bank, 2022), getting three times the monthly fee back in rewards (FNB, 2022), 

and free airport lounge access. Investec offers reduced monthly fee to young 

professionals until the age of 30 (Investec, 2023). While this market is less profitable in 

the early stages of the relationship, it promises future growth prospects based on healthy 

near-future earning potential. Since most customers tend to stay with their first bank 

(Deloitte, 2018), every effort is made to entrench YPs by increasing their product holding 

by an average of three products per customer at on-boarding, making it difficult for 

customers to defect (Hundre et al., 2013). However, the acquisition efforts and the 

promise of a seamless customer experience leading to loyalty and the creation of trusting 

long-term relationships (Subramanian, 2018) do not always translate into the desired 

customer behaviour. The rate of customer defection and customer attrition range from 



 

17 

 

7% in high exit industries such as banks (Mecha, Martin & Ondieki, 2015). Fraser and 

Lebcir (2018) emphasize that customer retention has multidimensional attitudinal and 

behavioural constructs. Customer loyalty is, therefore, a core antecedent of customer 

retention and should be prioritized as banks strive to protect their existing customer base 

through better-quality value propositions and differentiation. To serve better, intentional 

upskilling and reskilling of the employees that serve in these spaces need to be made. 

The need for speed and more sophisticated banking widens the gap between customer 

expectations and what the customers experience. Many contributing factors lead to 

customer dissatisfaction and low customer retention, but service quality is the most 

common. Many scholars studied service quality, customer retention, and the 

measurements employed to evaluate it in banking. Some focused on private banks 

(Islam, et al, 2020), commercial banks (Haripersad & Sookdeo, 2021) but limited focus 

placed on young professionals within the private banking segment. Banks must re-

imagine how services are delivered and improve their CVPs to meet the changing 

customer demands based on their life stages (Camarate & Maritz, 2018). This calls for 

large-scale service quality, product differentiation and innovative strategies to leapfrog 

traditional banking.  

Subramanian (2018) states that connected and engaged employees are crucial to 

delivering the superior customer experience that private banking customers seek. As 

customers find alternative ways to interact with their banks, the need for human-to-human 

interaction slowly diminishes (Ganguli & Roy 2011). To capture the young professional 

market, employees must align service quality standards with their CVPs. This will, in turn, 

drive the use of customized banking solutions and customer retention. Thus, the need to 

get, keep and grow young professionals into fully fledged profitable private banking 

customers has become essential. This paper explores the impact of service quality 

perceptions using five SERVQUAL dimensions by examining the inextricable relationship 

between customer satisfaction and retention using private banking data from retail banks 

in South Africa. This study further informed the creation of a framework for understanding 

the impact of service quality on customer satisfaction and retention while extending 

knowledge in the area of young professional banking. 



 

18 

 

1.4 Research Objectives 

• To assess the impact service quality has on the satisfaction of private banking 

customers in South Africa. 

• To examine the impact service quality has on customer retention of private banking 

customers in South Africa. 

• To examine the relationships between customer satisfaction and customer 

retention in the context of private banking in South Africa. 

• To establish how service experience perceptions impacts the customer 

satisfaction and retention in relation to the value of private banking in South Africa. 

• To establish a framework that banks in South Africa can adopt to extract maximum 

customer lifetime value in view of service quality perceptions. 

 

1.5 Research Hypotheses 

• H1: Service quality has a positive impact on customer satisfaction 

• H2: Service quality has a positive impact on customer retention  

• H3: Customer satisfaction has a positive impact in customer retention 

• H4: Service experience has an impact on customer satisfaction 

• H5: Service experience has a positive impact on customer retention 

1.6 Rationale of the Study 

Banks encounter relatively unique challenges compared to other financial institutions as 

their performance is linked to the economies in which they operate. Services, which are 

already intangible, make measuring customer satisfaction even more challenging as 

banks strive to retain their customer base. Serving high-net-worth customers present a 

particularly unique set of challenges calling for deliberate investments in the quality of 

service and product range. This research intended to contribute to the literature by 

investigating the impacts service quality has on the satisfaction of customers and the 

retention of customers within the sectors of private banks in South Africa. The study was 

also purposed to evoke discussions regarding customers' perceptions of the relevance 

and value of private banking by zoning in on service experience.  



 

19 

 

The study offers guidelines that could help banks improve overall service experience 

through effective service quality delivery.  Investigating the relationship between customer 

satisfaction and retention could enable banks to make informed decisions when designing 

customer value propositions for private banking customers. From a theoretical point of 

view, this study contributed by combining three service quality theories with the American 

Customer Satisfaction Index model in investigating the phenomenon of service quality, 

customer retention and customer satisfaction. The research findings provided empirical 

evidence that could enable banks to improve the quality of services, satisfaction of 

customers, private bank services and retention.  

1.7 Delimitations and Scope of the research 

This study was limited to only investigating service quality and its impact on customer 

satisfaction and retention. The research was restricted to integrating three service quality 

theories (the expectation and perception gap model, known as the SERVQUAL, 

SERVPEF and the Internet Banking (IB) model. It looked at service quality dimensions, 

i.e., reliability, responsiveness, assurance, empathy, and tangibles. Service experience 

and customer lifetime value were explored to discover how service quality perceptions 

judge the value of private banking. The study focused only on the portfolio of young 

professionals within private banking in South Africa. Customers who do not hold a private 

banking or professional banking account were excluded from the study. This was done to 

focus solely on the targeted segment.  

1.8 Key Assumptions 

The below assumptions were made in guiding the research: 

• The respondents participated voluntarily and were truthful and sincere in 

answering the research questions. 

• There existed no differences in respondent’s understanding, perceptions, and 

attitudes regarding the different bank’s private banking offerings for young 

professionals  

•  The assumption supported the generalization of customers’ perceptions and 

attitudes across the different private banks. 



 

20 

 

• Respondents understood the terms young professionals banking, private banking 

for professionals and or professional banking as being the same or used 

interchangeably. 

• The respondent’s age and length of relationship in private banking were used as 

the main differentiator for “normal” high net worth private customers versus 

professional banking customers (ages 35 and below) 

 

1.9 Definition of key terms 

• Private Banking customers: are individual or personal account holders at retail 

banks. They enjoy the unique lifestyle and travel benefits often tailored according 

to price and differentiated by card types based on their needs and portfolio within 

private banking (Molyneux & Omarini, 2005). They fall into specified income 

brackets as per set criteria. 

 

• Young Professionals (YPs): these are personal bank account holders who 

belong to a specific portfolio within private banking. Individuals under the age of 

35 hold specified qualifications per bank criteria and earn a minimum or no set 

minimum income in some instances (Standard Bank, 2018). 

 

• Customer Value Propositions (CVP): also referred to as service offerings 

designed and tailored for specific segments in banks. These are aligned to the 

bank’s segments, such as private banking. The services available to private 

bankers may not necessarily be available to customers outside of private banking. 

 

• Customer Lifetime Value (CLV):  the expected net worth or net revenue from a 

customer generated over the life of the customer-bank relationship and derived 

from the fees recovered or interest earned from the use of services and products 

obtainable at banks. 

 



 

21 

 

• Customer Service Teams (CST): the frontline team that supports the relationship 

manager by attending to day-to-day transactional queries and requests. In private 

banking, this team comprises transactional bankers with the knowledge, skill, and 

capability to assist high-net-worth customers with scores of applications and 

complete relevant forms. 

 

• Market: refers to prospects with similar banking-related needs, willing to offer and 

receive something of value in return for products or services from providers that 

satisfy their needs.  

 

1.10 Dissertation Structure 

1.10.1 Chapter One: Introduction and Background 

This chapter introduced the study as well as the background and contextualization for the 

study. This included the problem statement, research objectives and questions the study 

aimed to investigate, and the methodology employed. In line with the study's objectives 

to examine the impact of service quality on the satisfaction and retention of private bank 

customers, a particular focus was placed on young professionals. 

1.10.2 Chapter Two: Literature Review 

In the literature review chapter, a comprehensive review of past literature on service 

quality, customer satisfaction and customer retention is examined in line with objectives 

one and two of this study. The relationship between customer satisfaction and customer 

retention is explored in relation to the impact of service quality dimensions and the gaps 

existing in private banking as a service-driven sector. Chapter two also includes the 

Theoretical and Conceptual framework of the study that probes the underlying theories 

underpinning service quality, including the integration of three service quality theories, 

i.e., SERVQUAL, SERFPERF and the INTERNET BANKING model. Objective five is 

achieved through a framework proposed to capture customer lifetime value. The literature 

draws findings from different authors to answer research objectives three and four. 



 

22 

 

1.10.3 Chapter Three: Research Methodology 

Chapter three outlines the research's design, philosophy, strategy and procedure for 

collecting and analysing data. It also describes the chosen qualitative methodology 

utilized and addresses data quality and technical issues, i.e., validity, reliability, and 

generalizability. 

1.10.4 Chapter Four: Presentation of results, analysis, and discussion of findings 

This chapter presents the study's results, data, and conceptual framework. The data 

analysis and main research findings are described and presented. The study’s findings 

are discussed in this chapter based on research questions and hypotheses. The results 

are interpreted, and the academic and managerial implications are explained and linked 

to existing literature. 

1.10.5 Chapter Five: Conclusion and recommendations 

The chapter concludes with a summary of the study by emphasizing the major findings, 

recommendations drawn from the research, and suggestions for future research based 

on the conclusions. 

1.11 Chapter Summary 

Chapter one provided an overview of the research problem and a more in-depth problem 

review drawing form the legislative landscape governing banks and other challenges 

facing banks. The research objectives and questions were presented, seeking to address 

the gap in private banking for professionals. A synopsis of the conceptual framework, 

proposed hypotheses and research approach utilized by the researcher were showcased. 

A view of the study's limitations, scope and critical assumptions were presented together 

with the overall structure of the study. The following chapter presents an exposition of 

existing literature from different authors about service quality, customer satisfaction, 

retention, experience and CLV. 



 

23 

 

2. CHAPTER TWO: LITERATURE REVIEW 

 

2.0 Introduction 

In the previous section, a case for the study was built, reflecting the global landscape and 

competitive environment in which banks operate. Legislative requirements that the banks 

need to fulfil amid challenges and risks facing the economy were explored, along with the 

need for a more stringent focus on serving the elite or the risk of losing them. The 

emphasis on improved value propositions that suit the changing customer needs has 

become more apparent and requires banks to focus on young professionals within private 

banking. This section reviews the literature in line with the stated objectives. It entails 

theoretical fundamentals of service quality, service experience, customer satisfaction and 

customer retention and CLV to establish a conceptual framework for the study. The trends 

and views of different authors are discussed to build an academic case using the 

constructs that formed the basis of the problem statement. In the fast-paced world of 

digital evolution and fierce technological advancements, relying on traditional competitive 

mechanisms alone is insufficient to retain customers. Research shows that to attract new 

prospects and keep existing customers, banks must improve their ability to serve 

customers using modern technologies and methods to respond to customer demands 

(Mosa, 2021).  

2.1 Banks as service organisations  

Banks play a vital role in bolstering the economy, offering an array of products in the form 

of banking services to people from all walks of life. While banks cater to all customers 

requiring financial services, class banking has replaced mass banking (Gayathri & 

Rekhapriyadharshini, 2022). According to Abdul Rahuman, Mohamed Akram and Siraji 

(2022) businesses including banks experienced radical changes brought about by global 

industrialization. These include economic changes, advancements in technology, and 

customer preferences, prompting banks to evolve towards fulfilling the changing financial 

needs of their customers.  



 

24 

 

The unique characteristics of services call for a more customer-centric and hassle-free 

approach designed to meet customer expectations to satisfy and retain them. Offering 

quality core service alone is no longer adequate for achieving competitive advantage. 

Customers place a premium on the positive engagements and trustworthiness of service 

employees (Hundre et al., 2013). Therefore, rational, social, and emotional elements must 

frequently accompany core services (Paluch, Wirtz & Kunz, 2022). Services are intangible 

acts or performances offered by one party to another that do not result in ownership since 

they may or may not be linked to a physical product.  

2.1.1 Characteristics of services 

Gourida (2022) further unpacks service characteristics and how they impact service 

quality and the satisfaction of banking customers. The first characteristic is the intangible 

nature of services. Since services do not hold any form or shape, they cannot be 

experienced through the five senses; touched, seen, tasted, smelled, or heard. This 

makes decision-making complex and measuring quality or value difficult for customers; 

hence evidence is sought in quality and other service attributes. Secondly, services are 

inseparable from the person, making service employees imperative in delivering superior 

services. Services are also heterogeneous and nearly impossible to standardise due to 

the effort and pressure to satisfy customer needs. Dabestani et al. (2016) emphasise that 

many other factors influence how service quality is perceived or expected, making it 

imperative for banks to improve their efforts towards consistent service quality. Losing out 

on an opportunity to sell a service means the service cannot be recovered. This makes 

services highly perishable compelling banks to make every effort to recover service 

breakdowns to retain their customers. Lastly, one of the service's primary features is the 

lack of ownership when services are delivered; customers only have access to utilise the 

service or facility. 

2.1.2 Categories of Service 

Services components can be major or minor and thus categorised into five offerings. 

Kotler and Kevin (2011) outline these categories as, pure tangible goods, tangible with 

accompanying services, hybrid, major and lastly pure services. Gourida (2022) further 

expatiated the categories of service; firstly, the pure tangible goods refer to tangible or 



 

25 

 

physical goods with no accompanying services. Second, tangible goods with 

accompanying physical or tangible services such as cars, cell phones or computers are 

accompanied by supporting services with varying qualities depending on the technology 

linked to the goods. Gourida (2022) explained the third category as hybrid services 

involving tangible goods such as food services in restaurants. The preparation and 

delivery thereof usually judge these. Fourth; major services are accompanied by minor 

goods, and the services require capital-intensive goods for effective delivery; typically, 

travelling by flight requires an aeroplane with significant services. Finally, pure services 

are primarily intangible such as psychotherapy (Gourida, 2022). Services offered by 

banks fall into the hybrid category. The bank card or internet banking is used to access 

the funds in a bank account or a financed facility like an overdraft or home loan. In the 

case of private banking, the black card could be seen as a status symbol, especially 

amongst young professionals. The intangible nature of banking services makes it hard to 

measure the quality and value of services; thus, customers look for other characteristics 

and evidence of quality. Hence, service quality is one of the widely used measures of 

service through the SERVQUAL scale (Parasuraman, Zeithaml & Berry, 1988).  

2.2 Service Quality 

Soni (2018) defines service quality as a process aimed at providing a solution to a 

customer’s problem through a series of less elusive activities. These occur between a 

customer and the service provider’s employees, physical resources, or systems. It further 

describes service quality as a cognitive judgement, indicating customers' global 

judgements on a particular service relative to its inferiority or superiority. Service quality 

is defined as the comparison between perceived and expected service. In other words, 

where the service received is expected, service quality is said to be excellent and 

satisfying. When customer expectations are exceeded, then service quality is perceived 

to be very good and of quality. Consequently, where the service received is lower than 

expected, the service quality is perceived to be poor. When customers receive superior 

service quality, their perceptions of a brand increase and lead to repurchases and 

recommendations to others. Customers, therefore, judge product excellence based on 

perceptions of what they consume and what they are given (Marcellia et al., 2021). 



 

26 

 

Service experience is one of the cornerstones of private banking and a crucial driver of 

customer loyalty and profitability. Customer satisfaction and loyalty underpin service 

quality and cannot exist isolated, particularly in private banking. However, scholars found 

quality to be a key feature of strategic management that drives satisfaction and loyalty 

and is critical for any business's long-term survival and success (Kyriazopoulos, 2011).  

On the other hand, Mukupa and Jere (2018) believe that service excellence contributes 

to customer retention and loyalty and provides a foundation for differentiation.  The study 

thus proposes that service quality dimensions positively impact customer satisfaction and 

retention. 

2.2.1 Service Quality Dimensions 

Customers consider various factors when evaluating service. Empirical studies 

conducted by Zeithaml and Berry in 1988 in numerous sectors developed and defined 

SERVQUAL as a multiple-item instrument that quantifies the service expectation and 

perception gap along five generic dimensions as outlined by literature (Ahmed, Tarique 

& Arif, 2017; Rahman et al., 2019). According to Zeithaml and Berry (1988), the most 

enduring measure is the five-dimensional model comprising reliability, responsiveness, 

assurance, empathy, and tangibles. The dimensions can be applied to various service 

sectors, from banking, hospitality, airlines, restaurants, and construction to professional 

services. Soni (2018) explains service quality dimensions as customer judgements during 

service delivery. These judgements consist of some intangibles and output quality, 

measured after the services have been delivered and consumed. 

2.2.1.1 Tangibles  

Tangibles refer to the service quality model representing a service provider’s physical 

appearance of facilities and visible structures (Hamilton-Ibama & Ihunwo, 2022). These 

include equipment, staff, marketing collateral, and ambient, conducive, and comfortable 

conditions for customer interaction (Gourida, 2022). The physical amenities, layout, 

equipment utilized for services, and how employees appear. Customers often trust the 

noticeable symbols surrounding services since no physical elements exist to evaluate 

services (Tarkang, Yunji, Asongu & Alola, 2021).  While services are characterized by 

intangibility, they are also inseparable from the service provider’s facilities and staff; thus, 



 

27 

 

tangibles are essential in delivering quality services. Consistent with study results from 

Bhatta and Durgapal (2016), who found tangibles amongst others to have strong 

correlations to customer satisfaction and statistically significant predictor of customer 

satisfaction. 

2.2.1.2 Reliability  

Reliability entails delivering services dependently and correctly in a consistent and timely 

manner to influence customer satisfaction (Boateng, Adesi, Yeboah, Oduro & Sackey, 

2021). Companies that deliver on their promises increase customer satisfaction and 

confidence in their services and ultimately improve performance (Ahmed et al., 2017). 

Reliability is also ranked as the first dimension of service quality, enabling the delivery of 

services dependently and accurately in a manner that is sound and reliable (Gayathri & 

Rekhapriyadharshini, 2022).  

2.2.1.3 Responsiveness 

This dimension entails preparedness and willingness to serve customers by providing 

rapid services. Banks' responsiveness to their customers' needs positively impacts 

customer satisfaction and validates the quality of banking services offered (Boateng et 

al., 2021). The readiness and willingness of staff to assist customers, making them feel 

safe and secure, demonstrates care and personalized attention (Gourida, 2022). These 

attributes are critical in the satisfaction and retention of private bank customers. 

2.2.1.4 Assurance  

Courteous and knowledgeable staff that stimulates trust and confidence is called 

assurance. This also entails the employee’s ability to transmit validity and reliability 

(Gayathri & Rekhapriyadharshini, 2022). According to Kitapci, Akdogan and Dortyol 

(2014), employees should possess the required skills and knowledge to deliver excellent 

customer service. As demonstrated by employee commitment, traits such as courtesy, 

respect, consideration, and friendliness inspire trust and confidence in the service 

provider. Therefore, assurance positively influences customer satisfaction (Ahmed et al., 

2017) and should be given greater attention over other attributes (Abdul Rahuman, 

Mohamed Akram, & Siraji, 2022). 



 

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2.2.1.5 Empathy  

Empathy refers to care given to customers through individualized attention and 

personalized services based on their demands. Employees’ capacity to comprehend, 

recognize regular customer behaviour, expressed needs and preferences, and pick up 

on trends or anomalies is vital (Tarkang et al., 2021). This is a process employed by banks 

through customer due diligence. Bankers in the relationship banking segment must hold 

close relationships with customers to recognize regular transacting habits and learn their 

specific requirements. While digital and self-service banking may limit human contact, 

customers still want to be made to feel unique and special (Gourida, 2022) in their 

interactions with their bankers. 

2.3. Measuring service quality perceptions  

Given the need to maintain development and sustainability in the current competitive 

environment, businesses understand the need to constantly meet customer expectations. 

Past research echoes the importance of examining customers' perceptions of service 

quality and how businesses deliver on customer expectations. Service quality received 

increased focus and acknowledgement since high service quality produces growth in 

market share, profitability, and positive customer behavioural intentions (Dagger & 

Sweeney, 2007). More recently, researchers have acknowledged that the quality of 

services is heterogeneous, owing to the many factors that influence how service quality 

is perceived or expected (Dabestani, Shahin, Saljoughian & Shirouyehzad, 2016). New 

generation customers evaluate service quality from different aspects and are prepared to 

consume the latest technology in pursuit of speedy and effective service (Malik, Akhtar, 

Raziq, & Ahmad, 2018). Therefore, attention must be paid to how customer perceptions 

unfold during the service experience to maintain high service quality throughout the entire 

relationship life cycle (Dagger & Sweeney, 2007).  

In banking, service quality has been used to measure customer perceptions relating to 

services in branches, contact centres, products offered and against competitors. Service 

quality measurements have also been applied to commercial banks and public banks. 

Service quality scales are adopted in retail banking to measure customer satisfaction and 

loyalty. One of the most common service measurement instruments amongst banks is 



 

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mystery shopping and Net Promoter Score (Eger & Micik, 2017). Fred Reichheld 

developed this instrument in 2003 to measure customer experience after service 

consumption and the likelihood that the customer will recommend the company 

(Potomac, 2014). The also instrument evaluated the banker and gave a good indication 

of customer retention or defection rates. The critical attributes are communication, 

accessibility, staff disposition, service excellence and convenience. These attributes link 

with service quality dimensions that require people to execute.  

On the other hand, Wirtz et al. (2018) contend that automation and robotics are 

considered the future of service industrialization. This is especially true since employee 

skill and effort inform the level of customization and personalization. Service employees 

also present unintended bias, need to be trained, and always act as individuals, not part 

of a connected system. They further concede that service employees have genuine 

emotions and engage deeply and creatively in problem-solving. They think out of the box 

and prove to be a valuable source of competitive advantage. 

The SERVQUAL model explains service quality based on the gap between the expected 

service level and customer perceptions regarding the level of service received. From the 

above, it can be deduced that perceived service and expected service are influenced by 

service quality, including employees, making them critical in measuring perceived service 

quality. Thus, knowing how customers perceive products and services and assess their 

quality is critical for banks and marketers.   

2.4 Customer Satisfaction 

Many researchers have highlighted the positive impact service quality dimensions have 

on customer satisfaction and desired behavioural outcomes like customer retention. 

Some pointed out the significance or insignificant effect of some dimensions on customer 

satisfaction and retention. The relationship between service quality and customer 

satisfaction and retention is evident, which cannot exist in isolation. Customers of all 

types, whether corporate or retail, remain vital in banking (Islam et al., 2020). Hence, 

satisfying customers is closely linked to service quality which lies at the core of banking. 

Customer satisfaction arises from satisfaction towards goods or services that exceed the 

customer’s expectations regarding quality and service. According to Manorselvi (2021), 



 

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the difference between what is expected and what is received determines a customer’s 

attitudes or behaviours towards a service provider. This then gives rise to an emotional 

reaction towards the satisfaction of their needs. 

Boateng et al. (2021) describe customer satisfaction as the starting point of performance 

and an achievable standard of excellence for any organization. Customer satisfaction 

considers product performance attributes such as technical sophistication, durability; 

user-friendliness; and judgments. These are essential attributes private bankers should 

possess to satisfy customers. This then extends to interpersonal interactions between the 

employees and customers to meet a customer’s needs. The complexity of customer 

satisfaction definitions makes it difficult for organizations to understand the essential 

requirement of customer satisfaction, which is underpinned by feelings and customer 

emotions. Hence, it is crucial to focus on a person’s feelings of pleasure, disappointment 

or indifference that affect the purchase when measuring customer satisfaction.  

In marketing literature, service quality and customer satisfaction have been closely 

related. These two constructs have a positive relationship (Rahman et al., 2019). 

According to Nguyen et al. (2018), some mediating factors between customer loyalty and 

satisfaction include perceived switching costs and the absence of attractive alternatives. 

Research focusing on factors like quality, image, and price may be necessary to assess 

the perceived value that will result in customer satisfaction. 

2.4.1 Measuring Customer Satisfaction 

In the 1990s, marketing research focused on perceived value and compromises between 

value and sacrifice for an offering. Numerous empirical studies also examined the 

importance and effects of perceived value on customer satisfaction in services but yielded 

mixed results. It can, however, be concluded that customer satisfaction is less price-

driven and more quality-driven (Nguyen et al., 2018). The American Customer 

Satisfaction Index is a model that is widely used to measure customer satisfaction across 

various sectors. The model contains service quality constructs, expectations and 

perceptions that influence perceived value, leading to satisfaction or dissatisfaction. 

These ultimately determine repurchase, turning loyal customers into lifelong customers 



 

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who can be retained. Therefore, this study proposes that service quality dimensions 

positively impact customer satisfaction (H1-H5). 

2.4.2 The impact of service quality on customer satisfaction 

Customers evaluate the quality of services based on services consumed, and then 

judgements are made. Service quality reveals perceptions held for reliability, assurance, 

responsiveness, empathy, and tangibility. On the other hand, satisfaction can be 

influenced by perception relating to service, product quality, and cost and considers 

personal and situational factors (Nguyen et al., 2021). Therefore, the relationship between 

service quality and customer satisfaction is essential. The result is customer satisfaction 

when service or product quality meets customer expectations. If not, it leads to 

dissatisfaction. Furthermore, customers are less likely to be satisfied without improving 

service quality based on the customer need. Thus, product and service quality are critical 

to achieving customer satisfaction. Thus, the study hypothesized that: 

H1: Service Quality (SQ) positively impacts customer satisfaction in private banking 

This hypothesis (H1) is therefore supported by the five items namely the service quality 

dimensions outlined below. 

2.4.2.1 Tangibles and customer satisfaction 

Tangibles impact customer satisfaction as customers tend to trust noticeable symbols 

surrounding services and gain confidence in service employees since no physical 

elements exist to evaluate services; this sets the tone for meeting their expectations 

(Tarkang et al., 2021). Thus, the study hypothesized that: 

2.4.2.2 Reliability and customer satisfaction 

Reliability influences customer satisfaction where the delivery of services is consistent, 

timely, dependent, and correct (Tarkang et al., 2021).  

2.4.2.3 Responsiveness and customer satisfaction 

Responsiveness affects customer satisfaction positively, where banks respond quickly 

and willingly to the needs of their customers and validate the quality of banking services 

provided (Boateng et al., 2021).  



 

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2.4.2.4 Assurance and customer satisfaction  

Assurance significantly impacts customer satisfaction, where courteous and 

knowledgeable staff stimulate trust and confidence and are therefore geared to deliver 

excellent customer experiences (Kitapci, Akdogan & Dortyol, 2014).  

2.4.2.5 Empathy and customer satisfaction 

Empathy enables staff to serve with care, recognize and comprehend regular customer 

behaviour, needs and preferences, and pick up on customer trends (Tarkang et al., 2021). 

This leads to personalized service and customer satisfaction.  

2.5 Customer retention 

Lainamngern and Sawmong (2019) describe customer retention as the process by which 

an organization identifies and preserves a relationship with its major customers. Banks 

are constantly looking at factors that influence customer retention. These include price, 

loyalty, quality, trust, value, switching barriers, satisfaction, and time. Research indicates 

that nearly 70% of companies lost customers because of poor customer service, while 

less than 15% can be attributed to poor product quality (Eger & Micik, 2017).  

Banks may benefit from negative customer feedback and use it to diagnose and assess 

defects in their complaints handling processes and enhance their retention capabilities. 

The most prominent customer complaints are aspects of delays in sending customer 

statements, service breakdowns and errors, and exaggerated or exorbitant bank fees. 

However, how banks respond to recover service breakdowns and handle these 

complaints is vital for customer retention and acquisition. 

A company's first interaction with its customers is the starting point for effective customer 

retention and proceeds through the relationship lifecycle. This involves exceeding 

customer expectations and turning them into long-term customers and brand advocates 

(Hundre et al., 2013). Businesses can use data to navigate customer expectations where 

the business performance landscape requires an integrated view of customer experience 

(Mosa, 2021). Thus, customer retention entails recognising when customers are at risk 

of leaving, determining reasons for loss of interest, and keeping them from wandering off 

through data. 



 

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2.5.1 The impact of service quality on customer retention  

In the 1990’s most marketing activities focused on acquiring new customers. It focused 

on customer loyalty and satisfaction with no link to customer retention. However, in recent 

years, focus on maintaining existing customers has become vital for organizational 

survival. Today’s customers are more knowledgeable and do not accept the first offer 

they receive. Customers compare offers and choose one that best suits their needs or 

switch to competitors. Customer retention strategies exist to reduce defection (Hundre et 

al., 2013). Molapo and Mukwanda (2011) suggest that re-evaluating customer retention 

strategies can help limit defection through enhanced professionalism; hence, 

understanding customers is vital.  

People are key to the success of any business. Most service quality dimensions rely on 

bank employees to deliver on brand promises. Responsiveness, Assurance and Empathy 

are all attributes that employees need to delight customers and retain them. One of the 

benefits of customer retention is employee satisfaction, which is derived from satisfied 

customers. Satisfied customers tend to stay and be retained. However, retaining the right 

customers call for proper client segmentation, which is an essential issue for customer 

retention and acquisition (Molyneux & Omarini, 2005). Just as banks try to retain 

customers through loyalty rewards programs, Mecha et al. (2015) suggest that the 

salesforce should be rewarded for retaining customers. This will motivate employees to 

act quickly to recover from service failures while building good relationships with 

customers.  

According to Rahman et al. (2019), there is a positive relationship between customer 

satisfaction and loyalty and the link to behavioural intentions such as customer retention. 

Some researchers concede that total customer satisfaction is a pre-condition of proper 

customer retention. Hence, the researchers deduce that customer satisfaction positively 

affects customer retention. Therefore, this study proposes that service quality perceptions 

significantly impact the customer retention of private bank customers. 

• H2: Service Quality perceptions (SQ) have a positive impact on customer retention 

in private banking.  



 

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Hypothesis H2 is thus supported by the five items namely the service quality dimensions 

outlined below: 

2.5.1.1 Tangibility and Customer Retention  

Tangibles impact customer retention as customers identify with brand elements over time 

and associate with the noticeable symbols surrounding services.  

2.5.1.2 Reliability and Customer Retention 

Reliability influences customer retention: where customers experience consistency, they 

tend to form perceptions about the dependability of the services they receive and stay 

with the bank.  

2.5.1.3 Responsiveness and Customer retention 

Responsiveness affects customer retention significantly as customers expect to be 

served with a sense of urgency, and the willingness of banks to attend to their needs 

validates the quality of banking services provided (Boateng et al., 2021).  

2.5.1.4 Assurance and Customer Retention 

Assurance results in a significant impact on customer retention where customers are 

served by courteous and knowledgeable staff. Customer trust and confidence get 

stimulated as they experience excellent service delivery; they not only stay but also 

recommend the bank to others.  

2.5.1.5 Empathy and Customer Retention 

Customers feel valued and cared for by staff who demonstrate empathy. This entails 

recognizing and comprehending customer behaviour and responding to their needs and 

preferences with care (Tarkang et al., 2021). The customization of services, therefore, 

leads to customer retention.  

2.6 The relationship between customer satisfaction and customer retention 

Many researchers often describe service quality as the antecedent of customer 

satisfaction, while other researchers have confirmed the opposite. Rahman et al. (2019) 

confirm that service quality and customer satisfaction are closely related.  While service 



 

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quality emphasizes the global judgements relating to service superiority, customer 

satisfaction relates to a specific transaction that may lead to repurchase and retention. 

Service excellence and quality are essential differentiators if banks are to survive in the 

competitive environments, they operate in. According to Hundre et al. (2013), customer 

satisfaction and systematic but proactive customer management are two components of 

customer retention that need to be pursued. When a customer is loyal to a company, 

expressing long-term commitment and refusing offers from other banks is when customer 

retention occurs. However, only loyal customers can be retained since merely satisfied 

customers may still walk away. Evidently, without customer retention, it near possible to 

be successful in the long term. It is thus, hypothesised that: 

• H3: Customer Satisfaction (CS) positively impacts Customer Retention (CR) 

Service quality and customer satisfaction are closely linked. Service quality is key in 

helping organizations gain a competitive advantage and satisfy customers. Where the 

quality of services received is excellent, it will lead to high customer satisfaction. 

Customers, however, consider various factors when evaluating service. According to 

Zeithaml and Berry (1988), the most enduring measure of service quality is the five-

dimensional model. Hypotheses founded upon this m