At a time when private banks can choose to disrupt or be disrupted, ‘business as usual’ is not an option. Innovation is imperative as private banks aim to become more client-centric, and strive to reach financial leadership. PBI asked private banks and analysts what innovation in private banking truly means
Innovation can be defined as putting valuable ideas into actions that enable private banks to drive new revenue and remove big costs, alongside enhancing customer and advisor experiences.
From a technology perspective, innovation in private banking is about not only developing for the clients but developing with them. It is about understanding and identifying what the next experience the client wants will be, and evaluating, thereafter, what technology supports it.
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Reimagining the customer experience
John Bai, MD, client experience transformation at Canada-headquartered Scotia Wealth Management, views innovation in private banking as "reimagining the customer experience, from simplifying key banking experiences to introducing new game-changing solutions that our clients don’t even know they need yet".
Stephen Wall, senior analyst with Aite Group specialising in global private banking and wealth management, explains:
"Tradition, stability, preservation: these are terms strongly associated with the wealth management sector – not innovation. But as the sector is confronted with a growing pressure to change from factors such as regulation, client expectations and new technology-enabled competitors, the need to innovate to change the business model is stronger than ever before. The sector is increasingly looking to the concept and practice of innovation to take back the initiative and set more of its own agenda in shaping of the future wealth management business model."
According to Wall, innovation in the context of wealth management is essentially about relevance, engagement and growth.
"In the digital age, businesses are fearful of being left out in the cold as the world changes around them, and use the notion of innovation to test, design and build new solutions to keep their firms relevant, engage clients and advisors, and deliver growth.
"For now, innovation is heavily linked to the digitalisation of the sector but, depending on the success of these initiatives, the learnings and benefits from these programs, they can be applied to all aspects of the business."
Collaborating to compete
Wall adds that innovation is opening up wealth managers to outside influence and "forcing an outside-in approach". "To learn new techniques, access the latest ideas, to think differently about how to do business and be a wealth manager, the theme of innovation is forcing wealth managers to discover new sources of knowledge. Innovation in wealth management is driving a culture of sharing and collaboration."
This outside-in approach is clear in BNP Paribas Wealth Management’s attitude towards technology development and innovation. Thierry Derungs, chief digital officer at BNP Paribas Wealth Management, says: "We work on innovation as startups do – we search for added value and business models, and new technologies. This approach has helped us develop a rather strong presence in the startup ecosystem.
"We have opened ourselves widely to startups, and are looking constantly for new collaboration opportunities. We are a committed stakeholder in BNP Paribas OpenUp – the community platform connecting startups and BNP Paribas employees and experts."
Derungs adds that the need for new technology could come at any time, and BNP Paribas Wealth Management is aware of this.
"Our IT team prepares for this by following technology trends and learning about new technologies through proof of concepts."
Leveraging existing technologies to create new client services
According to US-headquartered State Street, innovation is the joining together of technologies that have been around for years to create a new client experience."Robo-advice in some form has been around for decades. Mobile integration and apps have been around for at least five to seven years. Low-cost investment products have been around since the 1970s," says JR Lowry, EMEA head of State Street Global Exchange.
"But the joining together of these technologies and services in a way that provides a fresh take on customer experience is what’s new. These new offerings are aimed at bringing private banking-type services to the mass affluent, engaging the millennial generation, taking a more holistic approach to financial wellbeing, moving more interaction online, and to some degree, at disintermediating the wealth management value chain,"
Boudewijn Chalmers Hoynck van Papendrecht, senior manager, performance improvement wealth and asset management at EY, reiterates that the changing characteristics of HNWI clients are the key drivers of private banks’ innovation agenda.
"The new generation expects innovations in the way they interact, levels of engagement and their involvement in managing their financial wealth. All these are driven by the need for an improved client experience, which is driven by the needs for performance, engagement and trust, according to the recently published Global Wealth Research 2016 report by EY."
He adds that innovation in private banking will largely come from the impact of digitisation on a day-to-day basis. "FinTech developments have the potential to affect all aspects of the private banking value chain.
"FinTech solutions can be leveraged to optimise the lead-generation process, improve the speed and security of the client onboarding process, and across front-office applications and tools to optimise relationship management capabilities. Middle or back-office operations are also opportunity areas to address," says Chalmers Hoynck van Papendrecht.
Provision of financial advice through automated advice technology is a "clear and opportune development" EY is discussing with private banks, as it gives private bankers the chance to focus on clients who are in greater need of specialised advice. "The future of private banking is likely to be a hybrid between technology and traditional relationship managed service-model," adds Chalmers Hoynck van Papendrecht.