During recent years, several research projects have been launched on commercial banking quality. Sadly, there still is no cohesive economic model presenting the relationships between the quality of services and the resulting financial performance. This paper shows an attempt to build such a micro-economic model working in conditions of imperfect competition, asymmetrical information and the existence of transaction costs. The model presented clearly explains many phenomena characteristic of the varied levels of service quality in the sector.

What is being stressed is the impact of the higher quality on revenues. Basically, the benefit of offering quality service lies mainly in building a monopolistic power that may be exploited in the form of tougher, but still acceptable pricing conditions. The relationship changes depending on whether we are looking at data from a static or a dynamic point of view. In the latter case, the level of quality changes the competitive price conditions to favour banks offering higher quality. On the other hand, profits can be increased on the cost side by service standardisation, which, however, only makes sense for smaller customers; larger customers will continue to demand a more individual approach.