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October 17, 2017

Digital dilemmas for private banks: PBI Global Wealth Summit highlights

By Oliver Williams

WealthInsight’s head Oliver Williams highlights key takeaways from the recent Private Banker International Global Wealth Summit in Singapore and explains why this year has been a turning point for digital in private banking.

Almost every private bank in the world has finally ticked the digital box: Mobile banking app; social media strategy; online investment platform? Most already have them.

Even the UK’s newest private bank Hampden & Co, which opened its doors in 2015 with no digital offering, now has a mobile banking app, as does the UK’s oldest private bank, C Hoare and Co.

The bill for all this has been huge. While some have built Google-esque offices, such as DBS in Singapore, others have merely bought existing platforms.

This year’s shopping cart has been filled with fintech purchases such as ING’s partnership with Scalable Capital, BNP’s purchase of Gambit and Aviva’s stake in Wealthify.

So what, if anything, remains to be done in the digital space? Quite a lot according to industry heads at PBI’s Global Wealth Summit that was held on 13 October 2017 in Singapore. Here are some of their views on the future of digital:

Fintech companies will no longer pose a threat to private banking

But big technology firms will, according to several heads of digital departments at private banks and asset managers. Their argument: While fintech start-ups can be (and has been) bought or partnered with, big tech and e-commerce firms such as Amazon, Google and Alibaba cannot.

The fact that none of these companies currently offer wealth management services does not lesson the threat. A survey conducted by consulting firm Accenture recently revealed that approximately one in three banking and insurance customers globally would consider switching their accounts to the likes of Google, Amazon, or Facebook if they offered financial services.

That reality might not be far off: Just last week Alibaba announced plans to spend $15bn on an academy to work on fintech among other projects.

Its Ant Financial Services Groups (formerly Alipay) is already the most valuable fintech company in the world. Apple and Google are already active in payments. Many are awaiting a “Bank of Amazon” in the next few years.

Trust is key to client use of digital

Industry leaders are keeping a close eye on big tech for reasons other than disruption.

Trust in technology is taking a hammering. This year has seen Facebook, Twitter and Google called before congress over their sale of political advertisements;

Uber has suffered huge reputational damage over its leadership and breach of Apple’s data policies; the EU has handed out huge fines to Google over tax and competitive laws; YouTube and its parent Google have been caught displaying automated ads alongside violent or hard-line websites.

Meanwhile, Yahoo! has been the victim of the biggest data breach in history and all of this in an era of fake and polarised news consumption driven by tech.

As the knock-on effect of this resonate throughout the online world, private banks need to stand by their digital offerings.

Trust, which takes a bank years, sometimes decades to build, can be destroyed the second data is hacked or misused. Clients will need to be assured that any new digital gimmick is absolutely bulletproof.

Private banks continue make false assumptions about their clients

Citi Private Bank was not alone in spending large sums on its client-facing website and apps. Development teams spent months mapping ‘client journeys’ and ‘usage patterns’. But according to its Asia Pacific CEO, Bassam Salem, most clients don’t use these digital platforms as the bank expected them to; they only use it to check how much money they have.

The story was similar with other private banks: UBS has found that instead of millennials, most users of its new ‘Smartwealth’ investment platform were older, often retired clients. Credit Suisse saw an 11 times increase in trade values since H1 2016 as clients become their own active investors.

With such big bills, it is important that banks do not try to second guess what their clients want out of digital platforms. More often than not, clients’ needs are simpler than a bank thinks.

Digital will struggle to turn a profit

With these bills racking up, there is concern over the profitability of going digital. While UBS attests to being profitable with its Smartwealth platform (despite its president, Juerg Zeltner, doubting this in an interview with Reuters, saying, “This is a big learning … the real question is how do you scale it to more?”), other banks were not so forthcoming.

Profitability of digital banking has been questioned at the fintech firm Nutmeg, which has just revealed losses up 5% to £9.3m in 2016. Other fintechs have filed similarly.

If the largest investment fintech in the UK cannot turn a profit on an AUM of £600m, then where does that leave private banks?

This is where digital in private banking will sink or swim. Those can afford sophisticated platforms can run them as loss-leaders in order to better retain customers and build brands. Others will be forced to keep their digital offering much more manageable.

UHNWIs remain to be convinced of investment platforms

Whenever digital is discussed at these summits (and it is, every time), a question is raised: Will UHNWIs – those with over $30m in net worth – ever exchange traditional adviser-led private banking for a digital private bank?

The answer depends on who you ask, with the more digital-sceptic answering in the negative, and the digital-native arguing that a hybrid model between the two is what’s required.

If one conclusion can be drawn, it’s that, for now, private banks are safe from disruption posed by digital. But if they are to stay safe, this conversation must continue.


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