Patrick Dreyfuss, deputy regional CEO and regional COO of Société Générale Private Banking (Asia-Pacific), speaks to Thomas Zink about the operational investment priorities of private banks in Asia and ways to tackle the cost challenges
Patrick Dreyfuss has been Société Générale Private Bankings regional chief operations officer since the end of 2005 and oversees the banks non-front office functions.
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In this role he managed the migration to a new dedicated private banking platform and established Singapore as the regional hub for private banking in Asia-Pacific.
In March 2011 he was appointed deputy regional CEO of Société Générale Private Banking.
Thomas Zink: How have the operational investment priorities in private banking in Asia changed over the last few years?
Patrick Dreyfuss: There are two areas: external factors and internal policy changes.
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By GlobalDataIn terms of external factors, the financial crisis was a game changer.
Pre-crisis, private banks were more focused on developing their product offering, acquiring new clients and attracting more relationship managers for technology this meant processing volumes and investing in scalable systems.
The crisis has changed the priorities, moving compliance to the top of the agenda for most banks.
Notwithstanding this, it does not mean that risk management and compliance are new to private banks.
But a number of banks did not see the transformation coming.
Even today there are some banks under pressure to adapt to the new zeitgeist of close regulatory scrutiny, consumer protection and tight risk management.
Given the rapid expansion of regulation today, there is a remodelling of processes as well as shift of priorities.
However, its not all externally driven. Internal credit policies and risk management practices have evolved in line with the market and sometimes even precede external factors.
Société Générale Private Banking had in 2005 implemented a new credit policy, having realised changes in the product sophistication and more demanding nature of our clients.
So when the crisis hit we already had robust risk policies and systems in place.
TZ: How important are cost considerations and return on investment for such decisions?
PD: In areas such as fraud management, risk management or compliance, it is not a question of ROI but more the necessity to efficiently manage core areas.
Nonetheless, before you set off you need to define the priorities and decide on a proper business case as well as to make the most of every dollar you invest.
For us as an international bank, this means building cross-regional platforms to increase scale and efficiency.
We try to centralise operations as far as possible and build centres of expertise where regulation and arbitration allow it.
Process automation through technology is the third consideration. However, banks need to be disciplined to avoid unnecessary customisation, as this drives cost and development effort.
TZ: So what technology solutions make the top of the priority list of CIOs/COOs today?
PD:Regulation and compliance have changed the operating environment considerably, both on an international level, such as Basel III or anti-money laundering regulation, and domestically, where regulators have implemented changes on the sales practices, customer protection and regulatory reporting.
This has not just impacted banks, but also their clients. Clients now have to be provided with more information and need to be continuously educated and informed.
For bankers this not only brought changes on how they interact with their clients, but they also have to cope with a bigger administrative burden.
Data needs to be collected, digitalised or input, standardised, maintained and monitored.
This is a big change on the way a private banking business is run. Though initiated by regulation, it is also driven by internal policies.
Today, banks track the interaction between the relationship manager (RM) and customer more closely for a number of reasons.
These include enabling back-up RMs to take over seamlessly, controlling fraud, tracking the RMs performance and facilitating client reporting and the customer experience.
Société Générale Private Banking, for instance, has set up a data management system which eases the access to information and facilitates information sharing within the bank.
Given the additional administrative work required by regulation, investments in front office platforms have also become an important topic for the industry.
But it generally depends on where a bank stands in its development and what it needs to serve its clients.
Without a robust back office and well-integrated operational platform, a private bank can end up updating parameters manually.
Therefore, private banks need to find the right balance between client servicing, product development, operational efficiency and risk management capabilities.
TZ: Where do you put the emphasis when it comes to compliance?
PD: Our emphasis is on:
1. Client characterisation and the sales process;
2. Operational risk framework involving the tracking of interactions between RM and client;
3. Back office capabilities: Having the right platform, data and documentation capabilities, and ensuring processes are compliant;
4. Building the infrastructure to monitor, support and back-up RMs; and
5. Improving competencies; providing continuous training for RMs.
TZ: How has this affected the cost of the business? Is there a way to quantify the cost of compliance?
PD: It is difficult to quantify regulatory costs exactly, but we are definitely talking of a few points of cost-to-income ratio.
Quantifying the investment in systems is easy, but calculating cost from operations and the time that is taken up for various tasks, including training and administration, is difficult.
The regulatory changes also benefit the industry by making the environment more secure. Building better risk management and monitoring capabilities also helps the banks to manage better.
It creates a level playing field for all players as everyone has to comply with the same regulation.
TZ: Do you think that technology will help to reverse the trend of rising costs?
PD: The cost of business in Asia is high, as a matter of fact, even higher than in Europe. Costs have been increasing given the competition for a limited pool of talent.
Asia is still in investment mode, but in the medium to long term banks need to find a balance between profitability and growth.
Mature markets are more profitable, but the growth potential is here in Asia. At some point it will have to converge.
Technology will help to reduce costs, but other factors such as industry consolidation and outsourcing will also contribute.
TZ: In which areas do you think outsourcing has most potential for private banks?
PD: I believe outsourcing has most potential for small banks who want to set up Asian operations. Platform sharing might be interesting for these banks, as they do not seek differentiation, but simply want to be in the market.
Of course there are a lot of issues that need to be resolved first, such as data security. But I think this is a natural evolution.
TZ: You mentioned frontline systems as an investment priority. How are those systems changing the interaction with the customer?
PD: We are at the final stages of upgrading our CRM system. The idea is to make the relationship between customer and banker smoother. The process to open an account has become quite tedious given the comprehensive KYC requirements.
We are now trying to automate this process as far as possible and to provide the RM with a tasklist of topics he needs to discuss with the customer.
The system also makes it easier for her/him to collect necessary information and to get information and documents from multiple departments within the bank.
This frees up time that the RM can spend with the customers to understand their needs.
TZ: How do relationship managers adapt to such new frontline systems? After all, these systems also make it easier to replace the RM and as such, weaken his position.
PD: The relationship between client and RM has evolved over the years.
Given the increasing competition, more sophisticated customer needs as well as a more complex operating environment, RMs today are more dependent on the support from the bank.
There is only a certain amount of value that a single banker can bring to a customer. As a result RMs have become team players backed by product specialists and expert teams, who add value to the customer relationship.
More than that, the regulators also expect RMs to have a back-up.
Maybe five or 10 years ago, an RM would have been able to take many of his clients with him when he leaves the bank, but today this is not possible as an RM works in a team.
The competitive pressure is self-evident. A banker who does not buy into this team approach is not working to the benefit of his customer.
Nonetheless, proper change management to get the RM to use the new system is very important.
TZ: Do you see the importance of technology in private banking increasing? After all there was a time not too long ago when private bankers waved aside technology investments stating that the customer relationship is all that counts.
PD:Technology is a tool to achieve an objective.
Private banking is about the personal relationship between customer and banker. The issue therefore is how to use technology to deliver more value to the customer.
The answer of course depends on a bank and its business. The requirements of a bank offering brokerage services are different from a private bank that wants to be the trusted adviser of a customer.
For us, the key is to listen and to understand the customer. We want to be the trusted adviser. Of course, we provide online access to a customer for his transactions, but the core of the value proposition is the RM and the expert teams.
TZ: More private banks are introducing frontline tools in the customer discussion. What is your take on using tools like iPads and mobile banking, for instance?
PD: I would say it is a trend, but not the most important one for the client.
Clients are more concerned about the quality of advice, the range of products, and the performance of their portfolio. Whether such tools are an asset largely depends on the client.
Not all clients, irrespective of their age, experience and lifestyle, can be treated in the same way.
The key is to make sure the relationship is smooth and efficient. Many of those initiatives, including mobile banking, are more critical and relevant for the retail banking business.
TZ: How important is the factor of speed for back office operations in private banks?
PD:Timely and smooth execution is expected and not new to the industry. When a customer checks his accounts or talks to his relationship manager he does not want to have outdated information.
It is also important for risk management, as it allows relationship managers to better assess what is still possible in a portfolio and what is not.
For us it is important to have an integrated platform to deliver fast execution. Particularly for the Asia business, this is crucial as customer needs are more transactional and more leveraged than in Europe, for instance.
Direct access to dealers is also a valuable service for active traders, but for other clients it might not make a difference at all.
Private banking is about catering to the specific needs of each customer and those needs differ. You cannot be everything to everyone.
