While the fast-paced growth of the wealth management industry in the Asia-Pacific region is continuing unabated, there are still significant challenges for private banks to overcome. Martin Frick, Managing Director of APAC at Temenos, talks to Xiou Ann Lim about how private banks in the region can overcome these obstacles with the right partnerships and technology solutions
The Asia-Pacific (APAC) region has seen a prolific rise in wealth and the wealthy within the last decade. According to Capgemini and RBC Wealth Management’s World Wealth Report 2015, APAC has overtaken North America to become the region with the highest population of high-net-worth individuals (HNWIs) in the world.
With a total of 4.69 million HNWIs in APAC, private banks in Hong Kong and Singapore are particularly well-positioned to tap into the opportunities arising out of the emerging markets as well as the growing wealth in APAC. However, there is a lot of room for progress when it comes to how these banks can increase their market share and profitability.
The use of technology plays a crucial role in a private bank’s success in these increasingly demanding times. Managing director of APAC at banking software vendor Temenos, Martin Frick – who has overseen implementations of IT systems for private banks in both Switzerland and Singapore – notes that private banks in Singapore are still a little behind those in Switzerland when it comes to leveraging on technology. "From a client experience perspective, they have no edge as compared to private banks in Europe," he says – before qualifying that private banks in Singapore are still ahead when measured against those in other markets within APAC.
Frick points out that there is a handful of local banks that offer private banking services in Singapore, the rest being international players. "Naturally, international private banks would address problems in their own country first – with one or two exceptions," he says.
Another aspect he highlights regarding the private banking landscape in APAC is the tendency for these private banks to be divisions of bigger banks.
"It’s a different ball game altogether. These private banks need to integrate new solutions with the existing system and they also need to leverage on the infrastructure of the retail side," he adds.
However, Frick observes that there is increasing investment in the fintech space and that the government in Asian markets such as Hong Kong and Singapore are also encouraging the growth of fintech companies. "I think Asia is catching up," he says.
Frick believes there are five major issues beleaguering private banks in APAC, which can be addressed with the help of technology:
Escalating client requirements
Technologically savvy private banking clients are now comparing the digital offerings they receive from popular retailers to those of their private banks.
As a result of this, client expectations are running high. Although Frick believes in a hybrid model that incorporates both digital and face-to-face interactions with clients in private banking, he notes that "recent surveys show that the new generation of affluent customers are more digitally inclined and less keen to talk to people – they interact completely differently from the generations before".
Supporting this is McKinsey & Company’s Digital Banking in Asia: Winning approaches in a new generation of financial services report, which indicates that "about 40 per cent of Asian mass affluent customers now prefer online or mobile banking". The report also states that about half of Asian mass affluent customers under 40 years of age prefer digital banking and that the number of digital-banking consumers in Asia, which currently stands at 670 million, is expected to hit 1.7 billion by 2020.
According to Frick, private banks should make it their priority to offer a seamless customer experience across different channels. "Whether clients are on their mobile phone, computer or tablet – anywhere in the world – they should have a consistent experience."
In a 2014 survey by Capgemini and RBC Wealth Management, 83 per cent of HNWIs in APAC said that they are far more likely to leave wealth management firms that cannot offer an integrated digital and direct channel experience. To avoid this, Frick believes that client retention can be improved by including interactive capabilities such as online games and tie-ins with social media platforms within the client-facing portal.
Martin Frick, Managing Director of APAC at Temenos
Emerging and existing risks
Apart from growing their piece of the pie, private banks are also concerned about keeping pace with the scale, speed and costs of current and planned regulatory changes. With compliance emerging as an immediate cause for concern, private banks are struggling to keep risk and regulatory reporting fulfilment costs low.
Inevitably, private banks require a technological system that not only meets compliance requirements but also enhances client data security and protection.
Frick believes that having the right system in place will go a long way in enabling private banks to improve efficiency and efficacy in this area. "It can be very tedious to perform compliance checks manually or even semi-manually. Systems can automate this – the more automated the process is, the less human intervention is required and this is good because I think human intervention still poses the highest risk to achieving accuracy."
Differing front- and back-end requirements
IT systems that serve the front- and back-ends have different innovation cycles.
Frick explains: "You want to be very agile in bringing fresh and up-to-date elements to your front-end channels, but you also want to be robust and stable on your back-end."
He notes that with some technology solutions, private banks have to implement the entire suite of solutions – from front- to back-end. However, Frick highlights the need for a solution that allows for "progressive renovation", which enables the private bank to maintain its existing IT system in some parts of the business while upgrading the other areas in stages.
Empathising with the fact that most banks have complicated legacy systems – hence the reluctance to go for "a harsh approach, where they tear out an entire system and replace it with a new core all at once" – Frick believes that private banks should standardise at the back-end but individualise at the front-end, "which is where they are able to differentiate themselves from their competitors".
This progressive approach also allows the system to be upgraded based on the individual needs of the business, which can range from regular automatic updates every two months on the front-end to every two years on the back-end.
"Our WealthSuite solution has clear differentiation between channels – front, middle and back. So, you can implement them independently or in a fully integrated manner," he adds.
Citing client Julius Baer as an example, Frick illustrates how the private bank began implementation of Temenos’ middle-office solution in Switzerland while its back-office solution was first rolled out in Singapore.
"Julius Baer had two different needs in two different locations, so they started at different points. But once they complete the implementation of the back-end software in Singapore, they plan to bring that to Switzerland and vice versa," he explains.
The perils of outsourcing
Even though some private banks are warming up to the idea of business process outsourcing (BPO), Frick believes it to be a business that is still local in nature. He attributes this to the fact that regulators don’t allow all types of information within banks – client data, for instance – to be processed across borders.
He also feels that bigger banks may not be too interested to outsource because they have the advantage of scale internally. "As long as regulators do not allow for the free processing of information within banks across geographies, I have my doubts that the model will really take off," he says.
Additionally, Frick cautions that banks may be "held hostage" in some sense – even though there are long-term contracts in place to protect their interests. "After the contract expires, prices will go up for renewals and private banks will have to review if it still makes sense in terms of cost to outsource these processes," he elaborates.
Frick further points out that if a private bank is unhappy with the service provided by their existing vendor, moving on to a new one will mean having to integrate a whole new system and this will take up a lot of resources.
Hence, it is important that private banks carefully consider their options before deciding if BPO is a worthwhile investment for them. According to Frick, the alternative is for private banks to keep these processes in-house, which allows for better control in the long-term, but may be tedious to manage – making it an option that is best supplemented with the right technology systems in place.
Frick observes a couple of trends pertaining to the way private banks in Asia approach IT investment. Firstly, he says, lenders in emerging markets such as Indonesia and the Philippines usually opt to solve an IT problem with the lowest-cost solution. Secondly, private banks across APAC generally address technology issues in isolation – rather than holistically.
"It’s even more apparent in Hong Kong. They address each problem separately, which creates a very inefficient and scattered IT system," he says, adding that although the system may look nice on the front-end, everything is scattered at the back-end – which can do more harm than good.
"This makes it difficult for a banker to get the full view of a client’s portfolio and profile," he points out. This also affects the quality of the service as the banker serving the client is unable to understand the full relationship between the client and the bank, Frick adds.
In order to remedy this, Frick recommends a more long-term view in terms of IT investment.
"This is one of the differences between Asia and Europe, in terms of IT investment patterns. In Europe, the IT architecture is driven by the business," he says. However, he believes that private banks in Asia are largely moving in the right direction because they are mobilising resources – although he reiterates that there is always room for improvement.