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Private banks are beginning to offer electronic services to increasingly tech savvy clients.

Start talking to someone about private banks and among the first things that spring to their mind would likely be Switzerland, walnut panelling and pin striped suits. Stereotype, sure, but it illustrates a perception in which there could be a grain of truth û that private banks are all about old money and donÆt have much to do with the ônew economyö.

With many banks this is, in fact, quite true, but others are gradually coming to terms with the impact technology is having on their business and determining strategies for dealing with it successfully. There are a few different factors driving change in the private banking industry. Besides the technology and what it enables, there are also changing demographics and competitive pressures combining to bring change to the walnut-panelled offices of private banks.

Not surprisingly, given the rate of new wealth generation in developed countries - particularly in the US - a recent PricewaterhouseCoopers (PwC) European Private Banking Survey revealed that banks are expecting a significant shift in the source of revenue growth in favour of new clients.á

ItÆs also expected, purely as a function of demographics and technology use, that the new wave of customers establishing relationships with private banks will be far more active investors, having become accustomed to the free flow of information available through the internet and even traditional media, as well as being able to transact at their convenience.

Henri Gautier is general manager of Wilco International, Switzerland, a software and services provider active in transaction and settlement systems for financial institutions. He says that, as someone on the IT side, heÆs observed more and more private banks becoming interested in the impact of technology on their business.

ôFor the clients we work with, we have to provide value added services that allow them to become closer to their clients. ItÆs mandatory because the power has moved to the clients now. Before, the power was in the hands of the bankers, especially in Europe where itÆs been very conservative.ö

ôBut now, through greater ease of access to all kinds of information, the banks have been forced to give more and more power and know-how to their clients, and theyÆre under pressure to provide more value-added services to make money,ö he adds.

The phenomenon of empowerment has also led to the creation of a new subgroup of wealthy individuals, referred to often as the æmass affluentÆ, who are wealthy, but have net worths that fall a bit short of the type of customer traditionally served by private banks.

Some of the larger global private banks are extending their services into this area as a way of generating new business, though a lot of the mass affluent business has already been captured by retail-oriented institutions that were the first to offer online access to multiple markets and multiple financial instruments. Other newer institutions are also springing up to specifically serve this mass-affluent sector with a slightly more personalized approach.

One of these new players is the Merrill Lynch-HSBC joint venture thatÆs been established to target global affluent investors outside of the US, where they expect a market of some 50 million technology literate investors to emerge over the next 10 years. The service was expected to launch first in the UK, but instead went live in Canada in November and Australia in December. The UK launch is being launched in phases with trading functionality scheduled for later this year. Asia will follow a few months after that.á

The MLHSBC joint venture provides the self-directed investor with in-depth research and online tools for managing a portfolio, with a selection of over 160 managed funds, access to the worldÆs major stock exchanges and transfers and transactions possible from the web site. Not all the exchange access is available direct online, however. Trades in some markets still need to be conducted over the phone. But the process of enabling online access to the global network of Merrill Lynch and HSBC operations is well underway.

Interestingly, another tie-up involving HSBC, the result of its acquisition of Republic New York Corporation and Safra Republic Holdings, hasnÆt yet yielded such high-tech ambitions. Granted, the merger that created the HSBC Republic private bank only took place on 31 December 1999, but a look at its web site reveals little more than a sales pitch and company history û whatÆs referred to as brochureware in the internet industry. The web site contains nary a mention of the word æonlineÆ, or even the ubiquitous æeÆ.

In a way, this hesitation is perhaps understandable. New technology and the resulting speed and scope of information and transactions not only has the potential to create new revenue streams for private banks, but it can put pressure on the margins. It can also put pressure on the client advisers who may soon have to deal with a larger number of informed investors with real-time access to their portfolio information. Thus, they wonÆt be able to pad their fees by ôchurningö transactions within a portfolio and convincing the client itÆs in their best interest.

Faced with increasing competition from other private banks as well as newer entrants to the wealth management sector, some European banks are looking to Asia as a new source of wealthy individuals. Here, technology can help achieve a wider customer penetration for private banks as well as helping improve efficiencies within the banks themselves. But before these new technologies for Asian operations become fully implemented, the European banks are trying to get things right on their own turf first.á

United Bank of SwitzerlandÆs (UBS) private banking unit and Credit Suisse Private Bank (CSPB) are two of EuropeÆs largest private banks, and both are pursuing an internet strategy to cater for their more self-directed customers, existing and potential. Both offer a range of advice and information on their private banking services, and some e-banking and online stock trading capabilities. CSPB also offers an online risk-profiling function that runs through the basic questions a private banking customer might be asked on their first encounter with a client adviser.

UBS has a similar feature, called the WealthOptimiser, which it launched in January. Aside from risk-profiling, this feature also has questionnaires and tools that help with investment and cash flow planning.á

ôBy using the web and filling out forms there, seeing pie charts etc, it encourages more detailed planning and thinking from the customer,ö says UBS Executive Director Michel Boschung. ôAnd it also works as an aid to the client adviser,ö he admits.

Alongside these profiling tools UBS also plans to incorporate an e-Portfolio feature that gives either a broad-brush or detailed picture of the customerÆs position in everything from derivatives to bond yields and commodity derivatives. Eventually this will be linked to the myUBS personalization platform that the bank is rolling out for all of its banking customers, enabling delivery of research, news and information thatÆs highly relevant to a customerÆs portfolio and interests.

The e-Portfolio feature doesnÆt feature prices in real-time though. Information comes from the previous dayÆs close and access also comes with a legal disclaimer. Boschung explains that this is standard practice. ôUsually only the month-end statement is legally binding, if weÆre asked to fax or send portfolio information in between these, it always has the disclaimer.ö Nevertheless, customers can get real-time quotes, on equities especially, from other parts of the site.

UBS has a large presence in Asia, so itÆs not surprising that the Hong Kong-specific site will be rolled out shortly after the online services get the green light in Europe. Using the same basic architecture, the web site service for Hong Kong will also offer trust, taxation and inheritance advice and information specific to the territory as well as research from UBSÆ Hong Kong-based research team. The Asia expansion of the service will continue with Taiwan next, followed by Singapore.

But the web site is not only for the private bank customer. The same site, as well as a wealth of other tools and services designed for use within the bank, will also be accessed by the client adviser. In this way, the traditional corporate intranet is being merged with the customerÆs information, so when adviser and client are discussing a portfolio they are, literally, on the same page. ôWe also want it to lead to a structured approach for client advisers,ö says Boschung. ôCurrently their approach isnÆt standardized and performance varies. There are different standards of advice.ö

Once the first phase of online development is completed, Boschung says the bank will then implement a complex data collection and profiling system for customer relationship management (CRM). The recent PwC survey indicates that other private banks are thinking along the same lines. It says that banks expect their IT spending on CRM systems to increase from 22% of total spending to 30% by 2004.

This kind of investment in CRM should yield benefits for private banks in their knowledge of customer behaviour, and therefore the quality of service they can provide û traditionally an important selling point for the private bank and one that will be increasingly important as competition from brokers and other players increases. The cost of providing this personalized service must be also be reduced where possible and this will only be achieved through investment in technology.á

IT companies are also wising up to the opportunity presented by private banks who fear being left behind. Companies that have previously operated mainly in specific niches in the financial service industry, such as Wilco, DST International and Midas Kapiti, are now pitching more complete solutions to private banks, and are often proposing an outsourcing model that many of the smaller banks find attractive.

In offering to implement and manage a range of components covering relationship and portfolio management, order routing and workflow management, transaction processing, accounting, and settlement, these IT companies can take the weight off the shoulders of banks and allow them to focus more on the personal relationship building and investment decisions.

But as these kinds of online services and back-office tools become the norm in the private banking industry, just as they are rapidly becoming in the simpler world of retail banking, what kinds of technology will it take to differentiate a private bank for future generations of tech savvy investors?

Will future investors want to take advice from an Artificial Intelligence client adviser scanning and evaluating the whole world of investment choices in seconds? Or will people always prefer the reassurance of a human face when thereÆs so much money at stake.

Anyone who has seen HAL in æ2001: A Space OdysseyÆ is likely to bet on the job security of the human client adviser. The possibility of logging in to review your portfolio only to find that your virtual client adviser has traded away all your blue-chip stocks to invest in a Nigerian oil scam ôfor the good of the missionö should be enough to force customers to keep a human perspective in their wealth management.

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