This publication recently spoke with two industry figureheads to discuss why the road to digital transformation in private banking remains in flux.
The digital arms race is gathering pace in the private banking sector.
A rising number of young, tech-savvy wealth holders is driving change in the market, with wealth managers increasingly adapting their digital strategies to meet the high expectations of this new-found clientele.
Gone are the days when it might have taken a lifetime to accumulate enough wealth to warrant management services - entrepreneurs are springing up across the world faster than ever.
Young people are in the ascendancy: Bassam Salem, Citi Private Bank's former Asia-Pacific chief executive, who retired in February, said the average age of his clients in China was 36 or 37.
In Asia, a new billionaire is created every other day, according to UBS/PricewaterhouseCoopers’ Billionaires Report, and in 2016 the world’s billionaires grew their wealth by 17 per cent to reach $6 trillion – double the growth rate of the MSCI World Index.
Of course, such statistics are music to wealth managers’ ears. But to continue providing high-quality service as their client books expand can be an uphill battle, which is why they are increasingly turning to technology to make life easier.
“I strongly believe the private banking and wealth management markets are ready for large outsourcing of IT and operations, as enablers to their digital transformation,” Anis Chenchah executive vice president of financial services at Capgemini, told this publication. “The digital experience a private bank offers has to be best-in-class. With such clients you cannot ‘oh well’ any kind of disappointing experience.”
Last week, Capgemini announced it had joined forces with Credit Agricole’s Indosuez Wealth Management to build a new “end-to-end” private banking platform, underpinned by S2i, a system created by Credit Agricole Private Banking Services in 1992. The platform will place client relationship management (CRM), compliance and data analytics all under one roof, with customisable front-and back-end applications designed to streamline processes to “ultimately benefit the end client” with “very significant cost savings,” Chenchah said.
The market for outsourced digital banking solutions in wealth management is expected to grow by more than 30 per cent by 2020, according to the BCG Global Wealth Market-Sizing Database, and the French firms are eyeing a slice of the cake.
But in some ways, the private banking market is still finding its feet in the technology space.
A recent report showed that more than a quarter of wealthy investors refused to use their money managers’ mobile applications because of worries about cyber-security. These findings chimed with research by Capgemini published last year, which forecasted that cyber-security would be a "top concern" for wealth managers throughout 2018.
However, private banking is a different beast to the likes of retail and commercial, Chenchah said, and therefore faces “completely different digital challenges”. Pierre Dulon, head of Credit Agricole Private Banking Services, concurred.
“The private banking digital transformation will take a different path to the retail one,” Dulon told this publication. “Private bankers must be given more digital tools to create the highest level of relationships with clients. I don’t think the industry is lagging behind [in terms of digital offerings]; I think the digital transformation has to find its own way.”
Banks are thirsty but the well is dry
One reason the private banking sector is, in some ways, playing digital catch-up to its counterparts is down to a lack of investment, Dulon said. This, coupled with a swathe of regulations driving up compliance costs and eating into margins, means private banks – particularly smaller ones – often struggle to inject cash into technology efforts.
“Digital needs huge investments,” Dulon said. “The wealth management industry today faces so many different challenges all at once. Regulations, lower profitability, and on top of that a necessity [for digital offerings] but not enough money. This is why we believe IT and operational outsourcing is the way forward so private banks can focus on servicing clients.”
Indosuez and Capgemini will roll out the new platform across Europe and Asia. Switzerland will be a key jurisdiction, Dulon and Chenchah said, as its private banking market is “more mature”.
Dulon forecasts a “very high growth rate” for outsourced solutions in Asia – a logical prediction considering the continent now has the highest number of billionaires who collectively grew their wealth by $500 billion in 2016. What makes the partnership between Indosuez Wealth Management and Capgemini unique, Dulon said, is its ability to marry technology expertise from Capgemini with Credit Agricole’s 124 years of banking prowess.
“We speak a lot about the importance of digital offerings, but at the same time we can offer guaranteed, real banking experience,” he said.