Private banks slowly but surely adapting to digital era

Nearly 100 guests from the global private banking community – many of whom had flown in from the US, Africa, continental Europe and Asia – gathered at the FT building in London for a midsummer’s evening ceremony to celebrate PWM’s Wealth Tech Awards for 2019 at the end of June.

But the evening celebrations were preceded by an in-depth afternoon roundtable discussion, which brought together digital leaders from some of the winning banks and digital transformation consultants from the judging panel.

Our road map – marking the current digital scorecard, analysing challenges, identifying key innovations, assessing the role played by leaders in the transformation process and learning and partnering with other industries – was designed to provide some tentative guidance to help the private banking community in its quest for innovation and new ways of working.

Challenges and drivers

It quickly became apparent in our discussion that despite the claims of many banks to be innovators, digital transformation in private banking has progressed at a much slower rate than in other comparable industries, but there were good reasons for this.

“I think banks have justifiable excuses for why things have not moved so quickly in the past 10 years,” said Stephen Wall, co-founder of The Wealth Mosaic. “These include regulation, the speed of change and the complexity of change being perhaps different from where the industry came from before.”

The panellists agreed that there is no “big bang” or “silver bullet” in terms of digitalisation, but that the pace of innovation among private banks has accelerated in recent times, with a variety of projects in the laboratories, as banks continue to learn as they begin to gradually transform, step by step.  

Structural factors, within their firms, were often restricting change, they argued. “One of the biggest hurdles is the way firms are organised,” said Alois Pirker, wealth management research director at the Aite Group. “We often have a very segmented organisation that has their KPI [key performance indicators] to deliver on.”

This means that a typically “horizontal” digitalisation strategy must cross multiple business lines, leading to some units gaining assets and others losing them, which is difficult for stakeholders to accept.

Tough times such as the financial crisis also test these expensive and intricate transformation strategies. “I think it forces you to take a reality check on what that strategy is and why you are doing it and how imperative it actually is,” said Phillip Watson, chief innovation officer at Citi Private Bank, which began its digital rebuild as early as 2007. 

At the time of the crisis, the bank decided to carry on its programme for many reasons, which have become today’s industry narrative, including growing wealth, its inter-generational transfer, alongside changing attitudes and expectations of clients.

For many banks in the industry, this transformation can go hand in hand with banks’ need to manage volumes and margins and has to be managed accordingly, said Antonio Luna Vaz, head of private banking at Portuguese player BPI. “The biggest concern for me is managing the efficiency of the relationship managers and how they spend their time,” he said, measuring how much of this is spent onboarding clients and advising them. 

“You simply cannot afford to have a person with a €200m portfolio who spends 65 or 70 per cent of their time doing internal onboarding or managing clients. He has too many screens, too many data to process and then has to speak to a lot of people, not leaving any time for clients.”

This means that banks will become less profitable if they fail to adjust and digitalise and reducing the mundane and onerous tasks which relationship managers have previously been burdened by is crucial to this process. “Certainly technology has a part to play in increasing the amount of time the RMs can spend with clients,” said Sharmil Patwa, founder of Opus Una Financial Services Consulting. Risk profiling, suitability, portfolio screening, portfolio management and curation of deal flows were all identified as areas which can be digitised with existing technology to create “dramatic improvements”.

Indeed these changes are identified by the clients themselves as those contributing to their satisfaction levels, according to research conducted at JP Morgan Chase, where digital wealth management boss Kelli Keough has been responsible for the firm’s reshaping.

“Digital is the most important space for us to be focusing on in terms of improving their satisfaction,” said Ms Keough. “And that’s of course a differentiated ‘wow’ experience, but even more importantly, it’s removing the friction from day-to-day interactions with us.”

It is these basics of interaction with clients which appear to be the most important to them, which is why banks such as JP Morgan have focused on building “new platforms, new models, new experiences”.

But such initiatives will never be successful unless they are fully supported by relationship managers, along with the front office and internal service teams. “They are the gatekeepers to your clients, especially in our relationship business,” added Ms Keough.

Many new initiatives start off within banks’ laboratories or innovations, but it seems only a handful of private banks include the client within the design process.

“The starting point has to be understanding our client expectations,” said Mariam Rassai, head of digital transformation and client experience at BNP Paribas Wealth Management. “This is where we always start from and then designing the solution that will answer these expectations.”

While much innovation concerns data-driven decision making, currently, we are still at an early stage in its gathering and analysis, believes Citi’s Mr Watson.

“We sit on so much more information and data today than ever before, and of course that is indisputable,” he said. “We are creating 2.5tn bytes every day, but that will pale into insignificance in just a few years, in even just a few months. I think our overall understanding of how we operate as humans is going to branch out in ways that probably we cannot altogether comprehend. But it’s going to happen. And we are right at the very beginning of this.”

The technology used to sift this data should increasingly be categorised around client needs rather than around the source of the innovation. “When we look at our database, we don’t put in the test of whether it is enabled by Cloud, or built using AI or machine learning or big data,” said The Wealth Mosaic’s Mr Wall. “We look at what the outcomes are and what the business needs are.”

This pigeonholing of vendors and solutions around client engagement areas helps to define innovations, especially when artificial intelligence tools can be refined to help understand client behaviours, outcomes and life events. 

A much more open approach to innovation, bringing in outside vendors rather than constructing everything within the bank is helping to enhance these changes, as talk is finally being turned into action.

“I think the big banks really struggled with the ‘build it, buy it’ approach,” said April Rudin, CEO of the Rudin Group. “I think for this year, what we have really seen is a huge emphasis on partnerships, which is what really works for these institutions,” be they banks or tech providers or even the ‘big tech’ giants as Facebook and Google, who are increasingly making a push into financial services.

Following the North Star

None of this can be achieved without leadership and changes in organisational culture. It is not the digital work that is hardest, but the organisational transformation and change that goes with it, often coming from the very summit of the bank, confirmed JP Morgan’s Ms Keough. “I know that I have the support of our CEO and chairman in what we are doing,” she said. 

“And he has provided the North Star when times get tough, or different groups are worried about digital in their estates. He has helped us stay on track, on course, and given us the wherewithal to push through and get us to the right place together.”

Inspirational leaders in private banking have included Piyush Gupta, CEO of Singapore’s regional Asian bank DBS, which our panellists agreed has been in the vanguard of digitalisation. 

“DBS was in a very difficult place after 2009,” said independent consultant Mario Bassi. “It was hit very badly after the GFC and they had to let go about 500 people, which has never been seen before in Singapore. So there was a lot of uncertainty, a lot of questions.”

Outside influences

But Mr Gupta began bringing in strong leaders underneath him to develop digital products, and not only spending time with groups of employees but looking at other industries closely for inspiration.

Blockchain, or distributed ledger technology, is one area which will likely help transform wealth management, though not all banks are yet convinced of this power, especially once we get to satellite rather than core portfolio assets. 

“Now if you all think about your businesses and you start tokenising two thirds of non-bankable alternative asses, think how your revenue base will explode,” said Urs Bolt, independent adviser at Zurich-based Bolt Now. “It will totally change the way you actually characterise assets.”

Firms owned by clients can also play a huge role in influencing the digital direction taken by private banks. “You have very good impacts from our clients, because they enter a different type of interaction in relation with the bank,” said Ms Rassai at BNP Paribas. 

“Many of them are entrepreneurs themselves, so they appreciate being part of this initiative and discovering the financial culture.”

Retail and luxury brand companies that combine both bricks and mortar with online solutions should also provide inspiration for private banking business models of the future. 

“Those who create divides between them have struggled much more,” admitted JP Morgan’s Ms Keough. 

“We can learn from that experience as we build our relationship between our digital and our bricks and mortar.”