Wealth Tech Awards 2019: Banks finally ready to press start button on tech transformation

With close to 50 entries overseen by banks’ chief innovation officers and assessed by a panel of 10 judges based in the US, Europe and Asia, PWM’s second Wealth Tech awards show that private banks are at last taking the task of digitalisation seriously.

While award winners such as Citi, DBS and the Spanish banks have been innovating in this sphere for more than 10 years, most banks say they only began their official digital rebuilding efforts as late as 2017.

But this is not the beginning of the process, say our judges. “Banks are now entering the second phase of their transformation programmes. Before 2017 most were still in a discovery phase seeking to work out the most suitable path for their business models and clients,” says Sebastian Dovey, an independent wealth management consultant who founded and later sold the Scorpio think-tank.

Banks are now clearly devoting much greater resources and finances to meeting the digitalisation challenge, although both wealth firms and their clients are unlikely to experience the results of this for another two or three years, if we look at previous patterns.

There are other factors, in addition to the fear of the unknown, which are hampering major changes. Whereas traditional mass retail banking lends itself to wider-scale digitalisation, this is not necessarily the case for ‘private’ banking for wealthier clients.

“Only a few private banks have the high volumes and processes which can be standardised, allowing major platform investments and acquisition of large numbers of new customers,” says Urs Bolt, a Swiss-based wealthtech adviser. “In many cases, from an incumbent’s perspective, business cases cannot be justified, as their primary focus is on cost efficiency.”

Despite these practical contraints, client or customer experience (CX) is becoming a driving factor.

“CX is now finally on the agenda,” says Mr Dovey. “Before a bank can decide what to do next, it first has to systematically understand what it does now and how much it is valued by its current and future clients.”

Many banks look at this whole exercise with a degree of cynicism – believing happy customers will buy more products – but the argument propagated by Mr Dovey is that CX is not just a tool on its own, but a resource-allocation technique, which can be used to determine the most effective business model.

Our judges also agree that through judicious digitalisation, new technology will allow relationship managers to actually spend more time focussing on higher value activities.

“Ultimately, this should increase the amount of business that can be done,” says Sharmil Patwa, founder of Opus Una Financial Services Consulting. “While natural attrition can be used to restore balance, if digitalisation is done right as far as RMs are concerned, cost to income ratios should improve primarily due to increased income. Where we may see some active headcount reduction is in some of their support areas, including private banking executives and admin staff.”

Most banks in our cohort are heading towards this hybrid model. While there is yet to be a true cultural transformation, management and bankers alike are beginning to see the benefits of innovation both for themselves and clients.

“Hybrid will be the default model for private banks and wealth management firms,” says Alois Pirker, research director for wealth management at Aite Group in Boston, US. “Some will continue to lead with an adviser proposition, supported by technology, while others will start leading with technology and have advisers supporting a largely self-service experience.”

There is also a widespread opinion that the most successful banks in digital innovation are those which bring in both clients and external fintechs into the design process.

Innovation is more likely to come from fintech firms than banks, confirms Mr Pirker. “They can operate and think independently and are not incumbent by existing business processes and culture,” he says, expecting independent or acquired fintechs to increasingly reside within banks or specially designated innovation centres, built by the banks.

“Fintechs are speedboats, banks are ocean liners,” says Mr Patwa from Opus Una. “The former moves fast, can get places fast, but cannot carry many passengers. The latter is slow and steady and has many passengers. They need each other and the symbiosis is starting. I foresee a lot of acquisitive activity of fintechs, the challenge will be integration, without killing their spirit and essence of what they are.”

This new collaborative model, of banks, fintechs, technology, vendors and wealthy families all working together to build or share a joint platform or create an ‘ecosystem’ is increasingly being talked about.

“Currently, there are very few wealth management firms which think in terms of platform services or even ecosystems,” ventures Mr Bolt. “I believe this will be key for the success of private banks, especially for Swiss firms if the country wants to maintain its role as a leading financial centre for private wealth.”

There is also a widespread acceptance that without such collaboration, private banks will struggle to adopt a digital culture. “If you asked ‘big-tech’ companies like Facebook, Amazon, Alibaba, Netflix or Google if private banking had a ‘digital first’ culture, you would be laughed out of the room,” says April Rudin, president of the New York-based Rudin Group. “Compared to technology firms, private banks have been woefully slow and inadequate in terms of embracing, let alone leading in a ‘digital first’ manner by anyone’s definition.”

Having said that, she agrees that the pace of transformation has accelerated dramatically over the past year, “as the urgency for real change has become a mandate at many private banks”.

While there is still much debate on whether blockchain – decentralised or ‘distributed ledger’ technology – will be one of these lasting innovations in the wealth management world, the role of big data and artificial intelligence is increasingly seen as a game changer.

This is in stark contrast to five years ago, when these disciplines were seen as marginal, experimental projects, pursued only by a handful of players globally.

“Wealth management is all about data and connecting the various databases that exist within a firm. Generating insights from the data will be a true differentiator going forward,” says Mr Pirker. “This holds true for any private bank, digital-first or adviser-led business.”

The creation of a digital innovation culture, agree the judges, must be fostered by leadership and top-down transformation as much as a collaborative atmosphere in the firm’s lower ranks. “Change always requires tone-from-the-top and looking at one of the early adopters, DBS, their CEO Piyush Gupta, was a key force behind the transformation,” says private wealth management business adviser Mario Bassi. “He brought in strong change agents and created a culture of innovation, especially within private banking.”