Photograph of Lupus Maltzahn, AccentureIf necessity
is the mother of invention, it could well be that complacency is
the father of disruption.

When an industry is complacent
about how it delivers value and where the next wave of competition
comes from, it usually is not because there is no threat, but
because those in the industry simply do not see the threats they
face. This may be the case in private banking.

Phillip Clarke, the new chief
executive of UK-based super-retailer Tesco, has clearly stated the
importance of financial services to his strategy. Other
high-performing companies like Google and Virgin are entering the
field as well.

Clearly the credit crisis has not
put these companies off entering financial services, and it should
be equally clear that the arrival of innovative and aggressive,
albeit inexperienced, competitors should be a concern for
established private bankers.


Lack of obvious response
from private bankers

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Yet how have most established
private bankers responded? Largely by shrugging their shoulders –
suggesting that, while the new interlopers are impressive as
companies in other fields, they have nothing to add to the private
banking market. What is being missed is that the whole private
banking segment is in a massive state of upheaval.

And arguably, in such
circumstances, the value of being an established player falls at
the same time that the value of being a dynamic business, from
whatever background, rises.

Nor is it just that the private
banking industry is undergoing upheaval. Consumer confidence in
traditional banks is at a nearly all-time low. This combined with
regulators pushing for transparency, and the break-up of value
chains, as in the case of the UK’s Retail Distribution Review
(RDR), is shifting not only consumer buying behaviour, but consumer
attitudes as well.

Transparency and broken up value
chains, where nimble operators can launch into the market are
challenges for which traditional private banking models are ill
equipped. Yet they play directly to the strengths of entrants such
as Google, Tesco and Virgin.


should banks to tackle these new threats?

Given this, it may be time to stop
dismissing them out of hand, and to start thinking about the ways
in which to meet new demands and challenges that are facing the

The traditional private bank
offering of a broad range of products and services for a broad fee
is giving way to products or services being available a la carte.
This leaves consumers with unprecedented freedom to select those
they value, while rejecting those they do not.

Premium fees attached to ordinary
services are also increasingly easy for consumers to spot, and
their resistance to them is clear.

Ultimately, whatever the
conventional wisdom on the subject might wish, the era of the
“captive consumer” is ending.

Brand loyalty still exists, of
course, but in this new purchasing paradigm, it is offered only to
companies trusted to consistently deliver value.

Transparency is a critical part of
generating that trust, and is a feature consumers are increasingly
willing to change purchasing patterns to secure. Nothing suggests
that the consumer banking sector will be immune to such shifts.


Need for transparency to
‘survive and thrive’

Looking to the future, a business
such as Tesco is built on understanding consumer behaviour and
continuously meeting changing demands. This is difficult, but
allows the generation of consistently good profits on slim margin

Is it reasonable to assume that
such skills might be applied to great effect where the provision of
financial products is concerned? Of course.

Private banks may have to move from
a ‘full service at a price’ world to an ethos of “every little
helps” – Tesco’s slogan. Industry after industry is finding that
they have to become transparent and deliver consistent value to
survive and thrive.

Tesco Bank’s emphasis on “being
simple, straightforward and rewarding loyalty” might well be seen
not as a motto, but as an opening salvo in the upending of the
current status quo for private banking.

Lupus Maltzahn leads
Accenture’s wealth management and private banking practice across