Private banks’ tech transformation gathers pace

Private banks are finally starting to embrace the digital revolution, painfully conscious of the risk they run otherwise of fast becoming obsolete, and losing both clients and staff. 

In particular, the focus is on making advisers’ interactions with clients more effective with the support of digital tools, in the belief that the combination of human and machine is the winning value proposition in wealth management. 

Improving the client experience is at the heart of their journey towards digitisation, driven by clients’ expectations for a seamless digital or omnichannel relationship, which they find in other areas of their lives.

 “Client experience is a new concept born of online shopping, facilitated by vehicle-agnostic operating platforms accessed at any time from any place, all in simple language that is at once engaging and informative,” says Amin Rajan, CEO, Create-Research, author of a newly released report on digitisation in asset and wealth management.

In wealth management, offering a satisfactory client experience blends personalisation, convenience, instant access to documents and information processing, and also includes portfolio reviews, investment insights, self-service tools, real time dashboard and networking with other clients, adds Mr Rajan.

More than 80 per cent of the 40 global and regional private banks, contacted by PWM for the Create-Research study, believe the ability to communicate and engage better with end investors will be the most relevant impact of digital innovations over time, as clients become overly demanding and self-directed, and social acceptance of digital innovations grows (see Fig 1).

“What really drives us in our digitisation process is the desire to improve the quality of service for our clients and meet their expectations,” confirms Thierry Derungs, digital officer at BNP Paribas Wealth Management.

Two years ago, the French bank decided to “accelerate its client experience programme,” launching innovation labs, or ‘factories’, in Singapore, Luxembourg and Geneva, where digital solutions are co-designed with fintech companies, and clients get significantly involved in the designing and testing phase. 

The most successful innovations have been those improving clients’ and private bankers’ mobility, reports Mr Derungs. Giving wealthy investors access to reporting and portfolio analysis through mobile devices – smartphones and tablets – enables them to liaise securely with their relationship manager, through video conference, chat or email. 

In that respect, ‘biometrics’ – allowing clients to securely access their portfolios via smartphone using fingerprint, face and voice recognition technology – is the new buzzword. The French bank is currently deploying the technology in Luxembourg, planning a roll-out across other markets. 

“Biometrics has two main advantages: it is easy to use – as you cannot forget your finger, face or voice – and it is secure. Digital cannot survive if it is not secure,” says Mr Derungs.

Private bankers, who can access documents, data and financial proposals about clients by tablet, are now able to conduct more relevant and efficient meetings. By the end of the year BNP Paribas plans to deploy “an advisory engine in a robo-advisory fashion”, starting from its Swiss testing ground. 

The service, not available for “very complex” portfolios, aims to meet client desire for being more autonomous and accessing portfolios anywhere, anytime, explains Mr Derungs. But private bankers’ advice will continue to be available for service users. 

“Private banking clients expect a level of digital interaction comparable with other aspects of their lives, and failure to deliver these expectations will result in declining client satisfaction,” acknowledges Tim Tate, head of digital wealth management at JP Morgan Private Bank. 

In the international private banking space, the global bank has made a “significant investment in digital” over the past two years – creating a digital wealth management team headed by former Charles Schwab executive Kelli Keough in New York and Mr Tate, formerly head of Citi Private Bank’s digital strategy, driving the private bank’s efforts globally from London. 

Recently, it has launched a digital web platform for clients across Europe, Asia and Latam. A pilot has allowed the institution to acquire client input, through working sessions with family offices and principals, and in some cases co-create solutions with clients. 

“The key driver for implementation has been client feedback, which has helped us evolve the platform quickly – gathering feedback is important but reacting to it is critical,” says Mr Tate, explaining that a new mobile platform will follow. 

To illustrate its belief in and aspiration towards a more interactive world, Brazilian bank Itaú has created the DigItaú brand, to market its digital initiatives to clients, including a pilot project allowing video meetings with a few hundred Brazilian families. 

“We were concerned about our older clients, but even those aged 65 or more have been enjoying the experience of interacting with the bank through video,” reports Luiz Severiano, head of Itaú Private Bank. 

Following the video meeting, clients can validate decisions reached with private bankers by logging into their online bank accounts.

“The video conferencing system will help us be more efficient, as it increases private bankers’ productivity, reduces costs, and helps grow the business,” he states. “It brings us closer to the client and enables us to serve them better.”

The Brazilian bank is now focusing on making the most of existing client data, to connect with them more effectively. 

“What we are trying to do is consolidate information we have about the client, not just on our CRM system, but also within the bank, through the credit card or bank account statement, in order to build a more complete profile of the client, to serve them better,” he says. 

The idea is to depend less on bankers to offer ideas and products and make it easier for clients to receive information and buy into these product ideas, he adds. This requires significant IT investment, with outsourcing the best solution, believes Mr Severiano. 

“Big data is an issue banks are grappling with and struggling to use it properly,” explains Philip Faure, global head of wealth advisory and philanthropy at Standard Bank Wealth and Investment in South Africa. 

One key challenge is poor quality of existing data held in different legacy systems, with the bank embarking on a major data clean-up, to make sure each client corresponds to one ID or customer number across all systems. This enables advisers to pull information related to any specific clients into one single view, detailing where money is invested for most popular products. Having this type of instantaneous client information on dashboards will be very helpful to drive quick business decisions, explains Mr Faure. 

Challenges

Using digital systems not only improves quality of client advice, but reduces human error and compliance risk, cutting back the administrative burden and time to implementation, improving client experience.

Standard Bank’s digital platform for both clients and advisers, currently under construction, includes an app consolidating client assets held in-house and managed by third parties. This data can be fed into an adviser portal to generate scenario modelling, used in conjunction with the bank’s goals-based investment tool. 

Although private banks are mainly investing in the front office, “the biggest friction is in the back office,” says Mr Faure. “That is where automation, digitisation and straight through processing is going to be key.” 

One of the biggest challenge is facing “existing thinking, processes and decision making, as well as budget issues and willingness to do it.” Introducing disruptive innovations within a bank means wrestling with internal compliance risk and legal structures, designed specifically to look for and avoid risk. 

Many banks have been looking for a clear trade-off between potentially positive, but unpredictable, long-term gains from technology investments and lower short-term profitability, which is hard to accept, particularly for listed companies. Banks’ margins have also been shrinking dramatically, running on costly, anachronistic infrastructure. 

One effective answer is working in partnership with external fintechs, enabling a faster time to market at lower cost than internal solutions, explains Mr Faure. This formula has allowed Standard Bank to launch three technology initiatives, including a payment solution, a foreign exchange app and a ‘card funding platform’ for philanthropy causes. 

Partnering with fintechs

Many fintech companies focus on solutions for single “pain points”, says JP Morgan’s Mr Tate. After initially perceiving them as a threat, banks have recognised fintechs as aggregators, creating “one stop” experiences for clients. This has led to a rising number of partnerships “which have often helped banks expedite the delivery of client solutions”. 

JP Morgan announced late last year a partnership with California-based InvestCloud, aimed at “accelerating” development of digital capabilities for investors, both at the JP Morgan and Chase franchises.

With new regulations expected in 2018, obliging banks to give third-party providers access to customer accounts through open APIs (application programming interfaces), banks will be competing not just against peers, but with any firm offering financial services, as customers can use Facebook or Google to pay bills, make transfers and analyse spending, while still have money safely saved in their bank account. 

Third parties’ ability to build financial services on top of banks’ data and infrastructure is a major source of worry for wealth managers and an accelerator of digital innovation. “The PSD2 (Revised Payment Service Directive) is coming soon, will change the competitive scenario and we need to respond,” says Jesper Rye Enggaard, head of digitalisation, wealth management at Nordea. 

“There will be more competition from fintech companies, and that is why we must work closely with them,” he explains, adding that the fintechs’ inspiring, “highly customer centric approach” gives the impression that “everything is possible”.

“Competing with fintechs on technology alone is not a sustainable strategy. This is why our focus is on improving client advice, which is a key component of our value propositions,” states Mr Enggaard.

But if they want to succeed in the machine-led future world of wealth management, it is crucial private bankers strengthen certain soft skills. In the past, training was centred on how to sell newly launched products to clients, says Dirk Klee, chief operating officer at UBS Wealth Management. But today, with more information becoming available, information asymmetry fades. Clients can educate themselves online, using a variety of sources, and the adviser’s role is more about helping clients “sort their ideas”, introducing specialist advice. 

As a result, the ability to handle interpersonal relationships judiciously and empathetically, becomes crucial. “The emotional intelligence of the private banker will become very, very important and more training is needed there,” believes Mr Klee.

Integrated platform

“Digitisation has impacted the entire value chain of wealth management, starting with client interaction, feeding through all our processes, into the back-end,” he says. “It is really a holistic journey.”

As part of its $1bn investment into system integration and digitisation, the global bank is creating a new, global digital platform, serving as the backbone and operational infrastructure of the business. Following onboarding of the Asian business later this year, more than 80 per cent of client assets will sit on UBS’s “one wealth management platform”. 

“It is very hard to fast-forward digitisation, which ultimately means harvesting client data and bringing them better services and products, without an integrated infrastructure. It is patchwork, in most cases, very superficial,” says Mr Klee, referring to legacy infrastructure.

Through the new digital platform, the bank aims to provide a consistent client experience across countries, equipping advisers with “state of the art tools.” 

The UK launch earlier this year of SmartWealth, a robo-advisory service, which the bank will soon roll out globally, is part of UBS’ long term wealth management vision, allowing clients to choose how to interact with the bank.

“We want to give clients a more integrated and seamless way of dealing with us, a better integrated online and offline experience, so that at any point in time they can decide whether they want human-led advisory, still our main proposition, or be led by a co-pilot, through a more automated way of investing.”

The future client experience will be increasingly driven by voice and virtual reality technology, believes Mr Klee. UBS, which has innovation labs in London, Zurich and Singapore, has started a partnership with Amazon’s Alexa, the speech technology, with pilot initiatives allowing clients to obtain CIO’s answers to financial, economic and portfolio queries, through the Echo voice-controlled speaker.

This innovation also extends to the virtual reality space. By wearing VR glasses, clients of the UBS Optimus Foundation can see what impact their donation will have on the ground in Africa, exploring the “emotional side of investing,” explains Mr Klee.

As social media pervades their daily lives, wealthy clients are increasingly opening up to share their interests, passions, goals or investment ideas with peers. Digital tools provide a private bank multiple ways to cater to this demand, as trusted adviser and facilitator, he states.  

In private banking, digitisation, or automation, is all about providing better fine-tuned, bespoke services and products to clients, says Mr Klee. “A bank that does not invest heavily in digitisation, could become obsolete very soon.”