Wealth Tech Awards 2018: Banks must prepare to grasp transformative power of technology

During a time of disruption from new technology, regulation and the changing Next Generation mindset, there is much internal discussion going on within private banks about how much they need to change to keep up with client needs and what the private bank of the future will look like. Many, even the biggest, are worried that if they do not make the transformation quickly enough, they will be replaced by rising institutions which are innovating faster and may even leave a gap for new-style, digitalised entrants to the market.

Despite the fact that private banks claim to have embarked on a “digital journey”, the inaugural Wealth Tech Awards process reveals one truth above all else: that there is only really a tightly knit vanguard among the banks who are serious players in digitalisation. Our judges estimate that despite the demise of the analogue environment, only around 20 per cent of the private banking industry is seriously grasping the transformative effect that digitalisation can potentially have on their operating models.

Looking at the award winners, which stand out in these clusters of excellence, the giants of UBS, Credit Suisse and Citi are represented, as are the rising cross-border hopefuls such as BNP Paribas and ABN Amro. The French bank is probably among the institutions to be furthest down the digital conversion path.

The national champions, the likes of Spain’s Caixa and BBVA and Coutts in the UK, have also been impressive. We must not forget also that much innovation in this sphere has been coming from Asia, where the likes of regional powerhouse DBS and Korea’s KEB Hana Bank have long been prime movers.

In addition to BNP Paribas and ABN Amro, technology consultant Urs Bolt, a former Swiss banker, particulary commends the approach of the Spanish, Scandinavian and Czech banks. “We can clearly see that size is not the most important feature of the leading innovators,” he suggests, with plenty of room for collaboration between small and mid-sized banks and the fintechs, wealthtechs and regtechs.

But in the traditional banking heartlands of Switzerland, for instance, once we have mentioned the top two Zurich houses, technological innovation has never been seen as part of the industry’s fabric or major selling points. Certainly, post the US Department of Justice actions and the introduction of Common Reporting Standards, CEOs have returned to talking about the old stalwarts of discretion and quality of service, perhaps mentioning expertise in working with families and even portfolio management, or investment skills. 

Technological platforms and applications rarely, if ever, enter this broader conversation. While commercial pressure means this is soon likely to change, today only a handful of banking leaders are brave enough to put their heads above the parapet to discuss digital transformation, for fear of being exposed or caught out of step with their peer group.

“Industry leaders in private banking typically fall into one of two camps,” comments awards judge and wealth consultant, April Rudin. “Either they haven’t got much to show for digitalisation, or they lack the confidence to show anything for fear that their first ‘digital steps’ are insufficient to withstand scrutiny.”

As we can see from submissions to our awards, many private banks have hopped gingerly onto the digital bandwagon by creating “innovation departments”, or worse still simply by appointing “chief digital officers”, expected to anoint all the other bankers they see with a sprinkle of all-curing digital elixir. This narrow silo-led approach – even involving the creation of new silos – is one of the ills private banks and asset managers have suffered from for many years. Instead of seizing this new opportunity to rebuild, with a digital focus, most are treading down the same path along which they sleep-walked straight into the financial crisis and out the other side.

Instead of narrowing the digital gap, private banks run the risk of widening it, with Ms Rudin detecting a growing cultural divide between the “suits” and the “hoodies”, often reluctant to work with each other.

Rather than appointing one individual or creating a special ops unit to digitialise the people and processes of an entire bank, wealth management firms are faced with a huge opportunity to transform their practices and people, believes Ms Rudin.“Banks that marry the best of what they were to the best of what they can be will be best positioned to grow profitably,” she says.

The general feeling among the judges is that most banks have a long way to go in terms of digital development. Mr Bolt describes the behaviour of most private banks as “quite helpless” in their traditional approaches and structures, which do little to address clients’ 21st century needs. Most innovations, he believes are often little more than “showcases” used for marketing stunts.

What banks need to look at, agree the judges, is using digital technology productively for both their clients’ and their own commercial needs in order to boost numbers and KPIs.

This commercialisation of the digital landscape is a key theme for independent consultant Seb Dovey, who has worked on digital transformation projects with a number of banks. A move towards the digital model, he believes, is not just about cutting costs and making processes more efficient, but about creating opportunities to sell more products and generate more fees through targeted advice. “Too many initiatives around digital are essentially defensive efforts to address a much broader issue of declining fee schedules,” calculates Mr Dovey. “Digital initiatives are seen as a way of mitigating costs on processes that were previously delivered manually.”

The market, he feels, is chasing an end-game which minimises human input rather than using technology to highlight, enhance it and make it commercially more valuable. This new direction, he insists, must come from board members, currently focused purely on regulation, compliance and compensation, rather than the skills and culture needed for a new digital landscape.

Indeed our panel sees a challenging landscape ahead, but one full of opportunities nevertheless, particularly for those banks able to co-operate with fintechs and technology vendors, and able to learn from the work of external platforms prevalent in China, such as Alibaba, Tencent, Baidu and the Ping An Group. Cyber-security and data privacy are seen as particular challenges to overcome. But major innovations such as facial recognition and progress in data storage, analysis and manipulation, with the increased use of blockchain concepts, are all expected to take root within the next two years.

Progress in use of big data and artificial intelligence has perhaps been slower than expected, but the fruits of experiments being cooked up in the US are expected to soon be with us.

The interplay between technological and commercial factors, with a cautiously optimistic outlook for the industry, is summed up by Sydney, Australia-based consultant Mario Bassi. “The fourth industrial revolution – similar to previous industrial revolutions – will create a lot of good outcomes for the customer,” he says. “However, these major investments are made – like in the past – to increase profits.”