Private banking moves into the age of digital platforms
By Julie Durban - 29 July 2021
The world of private banking has remained on the sidelines of the banking sector’s technological transformation over the last ten years. But the emergence of fintech, of which wealthtech is a part, is changing the face of wealth and asset management. Private banking players are facing strong challenges in maintaining their income levels and must jump on the digitisation bandwagon. Private banking is moving into the age of digital platforms. How can new technologies enable private banks to reinvent themselves?
The challenges of digitisation in private banking
With the emergence of challenger banks, online services and real-time data, customer expectations have changed. Users now expect to have access to fast, effective tools and services at all times, while still being able to interact with their banker in a highly secure environment.
Private banking is therefore forced to reinvent its positioning concerning technology. Until now, private banking was designed to sell a service, not a product. Its highly personalised nature seemed to be at odds with the impersonal aspect of digital products, designed to be suitable for a wide audience.
Sowing the seeds of a transformation
In this landscape, several fintech and wealthtech startups are emerging. These are eager to capitalise on technologies such as artificial intelligence (blockchain, NLP, machine learning, etc.) to offer new services. Indeed, customers now demand easy access to information.
Traditional banks already offer applications and websites for users to check their accounts at any time. The challenge for private banks is to go further by leveraging the power of advanced techs, such as robo-advisors. These new technologies entail development time and require significant advisory capacity, but they will provide a competitive edge.
Robo-advisors – such as the rated startups Fundvisory, Nalo and Highwave Capital – are now the most represented category in wealthtech, ahead of software or data analysis. Digitisation and process automation also present cost optimisation challenges. Wealthtechs aim to fill gaps in the market, offering greater speed, efficiency or transparency within the pricing and delivery of existing services.
Today’s wealth managers have no choice but to adopt digital tools to assess the market. To overcome revenue growth challenges, they must provide an adequate response to increasing regulatory constraints and client demands.
Private banks face new challengers
In the banking sector, many players will manage to keep prices low thanks to their digital platforms. Digital products allow banks to limit the need for infrastructure while giving customers access to a personalised dashboard. This trend is ongoing and is also changing the landscape of private banking. However, private banking’s transition to digital platforms is not without its hurdles.
In recent years, the private banking sector has experienced a decline in profitability due to regulations on transparency and pricing (MiFID II…) but also to low interest rates. Indeed, regulatory constraints are weighing on investments and client relationships.
Added to this is the pressure from challenger banks and fintechs which are gaining ground on incumbent private banks. The emergence of new wealthtech competitors is influencing client expectations. These challengers threaten the main players by offering innovative solutions, adapted to the needs of different types of clients. Moreover, GAFA and BATX are pushing the platformisation of financial services, mainly via payments. But these tech giants could go further by becoming the entry point for new banking clients thanks to a communication and “social media” approach that traditional players do not have.
Why transform private banks into digital platforms?
Customers expect more and more digital services, especially since the Covid-19 pandemic made in-person interactions impossible. They expect minimal physical interactions and a seamless onboarding experience.
Private banks, on the other hand, have a vested interest in technologies that would have a real impact on their business models (real-time settlement models, smart contracts, SPOT, automated investment vehicles…). These advances are based on blockchain technology and are highly applicable to asset management. Among other things, they could reduce operating costs through automation and increase cybersecurity. Blockchain is poised to permanently transform the IT infrastructure and service offerings of all financial institutions, including wealth management.
Scaling up through digital transformation
Digitising processes allows for a more flexible enrolment process and a move towards a self-service model for customers. Automation is therefore part of scaling up the process for private banks. The potential target may indeed be broader and open up to the management of smaller assets.
In this case, the very exclusive aspect, reserved for a privileged clientele, is likely to diminish. It will therefore be important for private banks to manage to digitise wealth management while maintaining human contact, which is essential in the bank-client relationship. In the age of digitalisation, human interaction is becoming an element of differentiation that should not be neglected. According to a recent study by Accenture Strategy, 77% of respondents want human interaction when they need advice.
Businesses in all sectors need to invest in technology while remaining accessible and personalised. This is especially true in the luxury and private banking sectors, where satisfying the individual is more important than meeting a mass need. Technology becomes in a sense a tool of the customer experience without being the whole thing. And for customers used to the human touch, maintaining this option is important. In private banking, chatbots or other FAQs are not enough to meet the needs of customers. Their questions are much more often specific than general.
Private banks set their sights on younger generations
Digitalising private banking is also the way to reach the next generation of wealth management clients. Millennials and Generation Z have high expectations of online services and are demanding quality digital experiences. Many of them have certainly never had to deal with a physical appointment to check their bank accounts. They are used to juggling applications, logging in, making online payments, etc.
This is a target group to consider in private banks’ wealth management digitalisation projects. It is not a question of digitising everything, but of starting to do so in order not to miss the transition. Each service that is added to the traditional range of services will improve the customer experience for greater loyalty. Automation enables better and faster service. The mere ability to access a multi-channel portal can be a source of satisfaction. The customer can consult his assets from his computer as well as from his smartphone when travelling, for example.
Startups, allies of the “platformisation” of private banks
Transforming its services means supporting its users in this transition without cutting corners in terms of communication and by conducting a meticulous change management process. Aware of the financial and regulatory challenges facing the wealth management industry, Mark Le Lievre, CEO and co-founder of Vestrata, believes in the potential of his investment platform developed in collaboration with private banking insiders (J.P. Morgan, UBS, Credit Suisse, Barclays, HSBC…).
Vestrata aims to improve client engagement, control risk and reduce costs through its proprietary integrated investment platform. The startup is transforming the role of the advisor without taking away their value. The digital platform saves time but the advisor remains central in providing service and value-added support.
Optimising security to increase customer loyalty
Speed and efficiency are not the only benefits to be gained from the relationship between banking players and startups. Data security unsurprisingly adds to the demands and fears that can be made of the digitalisation of private banking.
FacePhi recently acquired Spanish startup Ecertic (rated by Early Metrics), a provider of EIDAS compliant certification services. Using technologies including facial biometrics, machine learning, image analysis, automated management and blockchain, Ecertic develops automatic document analysis technology for customer identification processes. FacePhi thus adds an extra layer of security to its business operations, a significant asset for its customers.
Turning to artificial intelligence
IntelliBonds develops a modular, collaborative AI-powered platform to help institutional investors with their day-to-day operations. Its first solution, Virtual Credit Assist, provides AI tools to help investors achieve better performance and reduce operating costs. SESAMm also relies on artificial intelligence, which combines with big data to collect and analyse an immeasurable amount of textual data from the web. The rated startup is growing rapidly, which suggests its attractiveness to financial players.
These new players can therefore support traditional private banking players in their portfolio management and in optimising their costs and revenues.
Thanks to new digital platforms and technologies, private banking professionals will be able to focus on higher value-added activities (advice) while reducing management costs. The question for these players is not “are we going there?” but “when are we going there? The path towards platformisation is not therefore at odds with advice: the two support each other to both reduce costs for banks and offer a better customer experience.