Agile platforms essential to banks’ digital strategies

During the most recent of his fortnight-long midsummer trips to Europe, Alois Pirker, research director at the wealth management practice of Boston’s Aite Group, could sense something in the air.

The atmosphere at the private banks he visits each year had changed markedly with excitement mounting as part of the ongoing technological transformation.

“The commitment to technology is getting bigger and bigger as wealth management firms are starting to get their strategy together,” says Mr Pirker.

The trigger to the latest wave of digitisation, he says, is a tendency of the finance houses to look for real expertise when hiring, rather than promoting from within. “The big banks, the likes of Credit Suisse, Barclays and HSBC, are now bringing in execs from Silicon Valley with a real tech background,” he says.

This allows banks to take a step back and rather than building systems in the traditional way the finance industry is used to, by introducing a brand new financial structure every 10 years or so, to adopt a new strategy driven by other sectors of commerce, integrating tools from the application programming interface (API) school of computing. 

This enables construction of many different building blocks, which can be easily assembled and then re-assembled once bank and client requirements change. “The new way of thinking is about plugging things together and is much more flexible,” reflects Mr Pirker, the spring in his step renewed by the innovation he has witnessed during his latest visit. But only a handful of institutions in the vanguard are playing to the changing rules, he believes.

“Most banks are still built with a monolithic infrastructure and change can be lengthy and slow.”

Many new technology initiatives, while appearing to be ground-breaking on the drawing board, are “still a work in progress,” he says, referring to one well-known private bank which has taken three years to roll out a digital front-end for its business, leaving frustrated customers, who were promised change, and “want things introduced on an ongoing basis”.

Banks are not yet up to date with the changing mindset of their clients, he believes. “We are no longer in an era where you have a one-off back office migration and then stability for five to 10 years. Clients want agile development.”

This means a constant monitoring of the market by banks, identifying the most efficient and client-friendly solutions being phased in by competitor institutions.

“Let’s take the example of stale marketing literature – banks just can’t get away with that any more,” states Mr Pirker. “You need to be fresh and content is increasingly important,” leading banks to hire journalists to deliver information digests and articles, based on data, for their web-delivery services.

“Nobody can do this really well today,” he says. “But products are a commodity and banks need to move the discussion away from product and pricing to value.”

A trend among US banks such as Merrill Lynch, plus some players in Latin American innovation hubs is to postpone conversations on risk appetite and asset allocation, rather then incorporating them early into a high-tech onboarding process, until recently seen as the best moment to hook the client into the bank’s preferred investment strategies.

“The interaction will focus on things which are relevant to the client. Discussion on lifestyle, travel and health can come first. The investment conversation now happens much later in the process,” says Mr Pirker. “The adviser is becoming more of a life coach than an investment jockey.”

Yet the advisers can no longer be relied on to deliver, as they will undoubtedly move on to the next, higher-paying competitor. The intelligence, including the lifestyle, but in particular the investment expertise, must now be embedded in and generated by the system itself.

Technology is no longer just an enabler, but a shaper of client interactions, relationships and investment decisions, says Mr Pirker, giving the example of the IBM Watson technology system, implemented by Singapore’s DBS, as blueprint for the development of private banking.

“You need news, research and data which can be analysed by the system,” he says. “You combine structured and unstructured data and you marry it to create a proposition.”

But the relationship manager “still makes the decision of what is good or bad advice,” after assessing recommendations generated by the technology system. “How do you make advice more reliable, standardised and scaleable? That is where Watson comes in,” says Mr Pirker, believing the latest technology, road-tested in Singapore, is one of the most ground-breaking developments yet seen in the private banking world.

“You have hundreds of advisers who all need to come up with solutions over and over again. With information overflow, there is no longer the time to make the decisions.” Each RM must digest 40,000 pages per quarter, with no previous efficient mechanism for this, meaning that two advisers in the same company could potentially arrive at opposing solutions for similar clients.

“All eyes are currently on DBS. If this works out well, it will be very good news for IBM,” with more providers, including Amazon, already entering this predictive advice space.

“This is about saving money as well as supporting advisers,” says Francisco Fernandez, Group CEO of banking software solutions provider Avaloq, speaking at a recent Private Banker International Forum in London.

“This technology is not yet ready to replace the adviser, but it can support the adviser to handle 40,000 customers instead of 40, but using the same knowledge,” says Mr Fernandez. 

“Many banks are a little bit disorientated. They all know they need a digital strategy, but nobody is really sure what that means.”

Central to introduction of pioneering technologies is mastery and dominance over data. Spain’s BBVA made the decision to digitalise and introduce this way of thinking five years ago, says Mr Pirker, leading to a “rollercoaster effect” across Spanish private banking with competitor banks fast following the leader’s example. 

The Spanish bank is a “leader in digital transformation,” claims BBVA’s private banking boss, Alberto Calvo, who cites the development of client communities and new apps as part of the latest digital proposition.

The web-based tools BBVA has developed are not just for communication, but to determine and evaluate the level of real risk attached to client portfolios. “Our financial tools based on Monte Carlo simulation help decide the risk comfort level for each client,” says Mr Calvo.

An online community created for clients allows them to debate issues including geopolitical risk, markets and regulation. “This is an active and real debate, very well received by our clients and a real differentiator,” says Mr Calvo. “It allows clients to exchange opinions on any major issues.”

This community goes hand in hand in hand with a series of portfolio evaluation tools, which are “very expensive but offer a clear benefit for all,” he says. “This information has been available for 24 hours, seven days a week and the offer is now part of our DNA.” 

These “agile platforms” allow banks to engage with their clients to a much greater extent and more speedily than before, flying in the face of any bank fears of disintermediation or lack of direct contact with clients. “Once you have these platforms, you can tailor service to clients’ appetite,” says Aite’s Mr Pirker. “You can scale it back, or make it richer,” with the need for innovation having once again risen swiftly up most bank agendas, spurred on primarily by regulatory concerns.

Private banking has fallen well behind retail banking in terms of technological innovation, believes Simon Cadbury, head of strategy and innovation at financial services software provider Intelligent Environments, with banks fearing clients may be lost if they are not contacting them personally.

But it is vital for the wealth managers to catch up, he believes. “When customers use digital channels, their overall value, measured through touchpoints with the brand, only increases,” offering more exposure, despite worries around “less facetime”.

At last, the industry has woken up to financial technology, with more than half of private banks now pursuing a digital strategy, compared to much smaller numbers two years ago, according to Tim Tate, director of client experience and innovation at Citi Private Bank.

The key catalyst, he believes, is client expectation, rather than regulation. “Clients are now expecting private banks to deliver the same experience they get from every other aspect of their lives in terms of digital engagement,” he says. “It has to be delivered now. The choice to take two to three years to do something is just not there. By the time you have delivered it, the world has moved on. Even if private banking has not moved on, digital interaction has.”