A new frontier is opening on the fintech battlefield: private banking.
Recent innovations such as robo-advisers could reduce the need for wealth managers, particularly among mass-affluent clients.
Technologically savvy competitors are already competing fiercely with some bank services, such as retail banking and lending to small companies. Fintech start-ups claim to make finance easier for the man-on-the-street, with products such as digital wallets and crowd funding.
Now these hungry fintech firms have private banking in their crosshairs.
And they are particularly gaining traction among Asia’s younger, wealthy clients, who want to be in control of their finances. Accenture found that 37% of the region’s wealth management clients are willing to manage their investments themselves.
“People trust their smartphones more than their relationship manager because it has more information,” said Accenture’s Jonathon Allaway, who develops technology strategies for banks.
For incumbent private banks, the rise of robo-advisers offers a bleak future, as robots generate personalised investment tips for miniscule margins. This puts the banks’ lucrative discretionary portfolio management fees at risk.
This rarefied world of staid suits, meetings in plush offices, is finding it hard to adapt to technological advancements.
“Private banking used to be the place where you did not put tech between the customer and the banker – it was all about human relationships,” Neal Cross, DBS’s chief innovation officer, told FinanceAsia.
Robots in charge
To be sure, robo-advisers cannot be used for the more complex aspects of wealth planning still. And they cannot sit down and discuss a family’s succession plans over a bottle of Chateau Lafite.
But the risk they offer is very real.
It’s also an opportunity, if the banks can only harness is. Artificial intelligence offers banks the opportunity to build scale across the region, while keeping a lid on costs. Many are bringing the technology used by fintech startups inhouse.
Early adopters of cognitive computing include Singapore’s DBS, which has rolled out IBM’s cloud-based Watson, a super computer that trumped contestants in the long-running US TV game show "Jeopardy!".
“Robot advice in wealth management – we see that in the US and we’re starting to see applications of that in Japan as well,” Allaway told the audience at a conference in Hong Kong in January.
Japanese megabank Mizuho launched a robo-advisory service called “Smart Folio”, according to its statement on October 30.
Others are shifting at least part of the work done by their private bank.
Last March Credit Suisse said it had launched its digital private banking platform in Singapore with plans to roll it out globally. The service allows clients’ access to portfolio analytics, research and market data, collaboration and transaction banking.
The benefits are clear. Technology upgrades are helping to keep DBS’s cost/income ratio down to 58% in private banking, much lower than most of its competitors in the region who are operating at 70% and above, Piyush Gupta, CEO of DBS told FinanceAsia, based on his own industry analysis.
DBS is so enthused by its turn to the robots it is on the prowl for acquisitions to scale up its platform further.
It has submitted a preliminary bid to acquire Barclays’s Asian private banking business mid-February, according to industry sources.
It’s not the only one. Nordea International Private Banking, part of Nordea Group, said in January it has upgraded its platform using Temenos Group’s WealthSuite. The product lets customers access their banking information in real time, and across devices.
Luxembourg-headquartered Nordea, which has branches in Singapore and Switzerland, said it has halved the number of systems and interfaces it runs allowing for much higher levels of automation and cut IT maintenance expenditure.
That sort of cost saving is extremely appealing to an industry generally weighed done by hefty costs. But it also promises to transform the region’s wealth advice industry.
Like it or not, Asia’s private banks are being drawn into a fintech fight. They had best arm themselves, and fast.