Private banks slow to unleash transformative power of tech

To coincide with the recent PWM Wealth Tech Awards in London, we invited two of Europe’s leading private banks in the digitalisation field to accompany three of our awards judges for an in-depth discussion on how technology is transforming the industry. Our aim was to discuss the current state of the private banking technology market and to plot a future road map for the industry’s digitalisation journey.

Rising to the challenge 

It very quickly became clear from our panel participants that much digitalisation is driven by costs and business model optimisation – basically saving money and staff resources while improving profits – rather than the so-called “client experience” or “customer journey”, which many private banks pride themselves on. “The influence of the client experience has not been as radical as I had expected,” confirms wealth adviser and former Zurich private banker Urs Bolt. “It has mostly been driven by costs and shareholder value.”

This cost-driven digitalisation strategy is one key reason why few chief executives are proud of their efforts in this sphere. Many of these efforts are piecemeal and disjointed, with genuine innovation much scarcer than expected.

“We see some very interesting initiatives, but they are often on-offs,” says Alois Pirker, research director for wealth management at the Aite Group in Boston. 

“I think it’s a tricky thing to take your organisation with you on the ride, because KPIs [key performance indicators] are very often structured around maximising your current business and being very silo-driven.”

The outcome many private bank bosses would like to see in an ideal world, he says, is an atmosphere of firm-wide innovation, that pushes both the bank’s customer relations and its business model to the next level, rather than just pure technology implementation, but the restrictive nature of most financial services organisations makes this incredibly difficult to achieve.

Incremental changes which most banks introduce will not really make much of a dent into digital transformation requirements, believes Victor Allende, head of private banking at Caixa in Barcelona, one of Spain’s fastest innovators and consolidators in the country’s banking sector.

“You don’t just change your bank because you have a huge digital programme,” says Mr Allende. “You change your bank because you introduce the changes into your DNA and your culture and that is something you have to do in the long term; it is not something you can do from one day to another.”

Yet there were also dissenting voices about cost-cutting being the key influence towards digitalisation. There are banks, believes Mohammad Kamal Syed of Coutts, that fundamentally focus on clients rather than costs when introducing digital transformation programmes. 

The key to this process, adds April Rudin, founder of The Rudin Group, a New York-based wealth consultancy, is to avoid a “one size fits all model” and to be able to deliver services to clients, regardless of their generation or world view.

The bank of the future

Our panelists agreed that many private banks and wealth managers must find a new USP now the traditional tax and secrecy advantages previously enjoyed by many offshore centres, and the banks that congregated in them, have largely evaporated. Knowledge, expertise and intelligence are becoming much more sought after as differentiators in the new reality, says Mr Bolt.

This does not mean, however, that only the newcomers, the tech-led institutions, can survive in this battleground. Far from it, believes Mr Allende of Caixa. Leveraging a deep, traditional heritage can still be beneficial in contemporary times and is respected by clients in the relationship with their banker. 

“How we digitise that experience, how we bring that whole heritage to life is incredibly important,” he says.

Transforming wealth firms means integrating staff, rather than allowing them to be divided into competing teams, believes Ms Rudin. “You walk into a meeting and on one side of the table you have the ‘hoodies’, the guys with no ties, and on the other you see the bankers. So the real challenge is to take all these influences and combine them into one brand.”

The next challenge is modernising this brand and keeping it relevant to the ongoing experience of clients. Much of this will be down to more progressive recruitment. 

“It depends on your ability to bring on talent that’s not just financial service-oriented, but recruiting people who come from some of the big tech companies and have had successful digitalisation programmes,” suggests Ms Rudin.

Banks must also look at other industries, such as the luxury goods sector, she says, and infuse these diverse experiences into a single bank brand, which can bring together a variety of influences.

Private banks are also struggling with the pace and velocity of change, believes Aite’s Mr Pirker. 

“It’s not that they don’t want to do it,” he explains. “I think everyone wants to say they are agile and they are digitalising all of this, but when you have very big scale institutions which are highly regulated, you have certain issues which mean you cannot move as fast some of the smaller players.”

The customer journey

Analysing customer relationships in private banking can be much more complex than a black and white distinction between face-to-face and digital-first clients, believes Mr Allende at Caixa Bank. Most banks, he says, are still at a very early stage in the learning process when it comes to deciphering how the banks’ initiatives, behaviours and products affect their customers’ preferences and loyalty, especially in the digital age.

The opportunity is tremendous, believe our panellists, to inform clients about a bank’s expertise, although care must be taken so this does not appear as another product-push exercise, the like of which has traditionally alienated many clients.

Digital channels in particular can be used to amplify strategies and opportunities in investment management, says Coutts’ Mr Syed. The bank has long faced the challenge of how to communicate information around its highly progressive and well-resourced investment operation to a traditional clientele more interested in pure banking and borrowing.

“How can we bring to life some of the thinking that goes behind our portfolio?” asks Mr Syed. He has a feeling that while digitalisation marks a huge challenge for Coutts, it provides an opportunity for this type of communication and will work much more efficiently than a banker having to pick up the phone and try to convince each wealthy client that some strategic investments of their assets may be in their long-term interests.

Many assumptions which banks make about which groups prefer a particular communication channel often need to be re-thought during the digitalisation process, he says. 

“We had certain assumptions about who uses our call centre most, but it was actually the younger generation that was using it more than we expected and definitely much more than the slightly older generation,” says Mr Syed. “This concept of millennials being completely digital was turned on its head.”

The notion of banks escaping from commoditisation and using digital channels to expand their services was again stressed by Ms Rudin. 

“Digital allows people to come up with different products and services to differentiate themselves,” she says. “That’s something we have not seen in a long time.”

External partners

Working with a greater range of external partners gives a huge opportunity for private banks to move away from standardised service solutions for their clients, agree our roundtable participants.

“I think when it comes to front office processes, you want to be unique and build for your clients something that may be different from the next firm,” says Aite’s Mr Pirker. 

But liasing with more external firms should not muddy the waters, rather it allows banks to choose the most appropriate technological solutions. 

“It doesn’t mean having everybody’s standard solution. It just means you can have smart partners that can get you where you need to be,” says Mr Pirker. 

“What we are also seeing is a separation of front office innovation that is much more agile, and back office that is much more stable.”

The notion of banks combining their platforms to achieve scale also finds favour in wealth management circles. “Automation can enable client facing processes to be extremely smooth,” says Mr Bolt, advocating the combining of forces to bring this to bear.

Financial technology companies will have a strong role to play in the process of digitalisation, believes Mr Syed at Coutts. 

“We work with financial technology companies all the time across our entire propositions. Some will dovetail into our investment management functions, some into our banking functions and some into our balance sheet,” he says. “But each one will bring something new, so we are always looking for the best partners in the market.”