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View: Private banks need to realign with emerging realities

By Will Lawton

With the Covid-19 pandemic knuckling down on economies across the world, it is hard to think of an area of global finance right now in more of a predicament than private banking. One could almost forgive the long-standing institutions for blaming it all on millennials, as they continue to flock to the ‘sexier’ challenger banks.

But can established players really blame them for turning to a Monzo or a Revolut? What millennial wouldn’t be attracted by the prospect of one-day onboarding? Private banks, with their plethora of compliance checks and endless admin, are currently not well placed to meet instant demands of the ‘on-demand’ generation.

In fact, lots of millennials are beginning to trade their money via platforms with far more advanced digital experiences. While some private banks talk a good game around technologies such as artificial intelligence (AI) and using machine learning (ML) for robo-advisory, the reality is that they are not yet using these tools in a way to combat the competition.

It’s easy to see why they find themselves looking to collaborate more with fintechs. After all, like most of the industry, private banks have had to manage a prolonged period of dwindling revenues. However, to simply put the problem down to the bottom-line would be misguided. Through the rising influence of disruptive technologies on investment, what we are seeing is the antithesis of private banking — the diminishing of human interaction, sped up by Covid-19-mitigating social distancing. The answer to gaining business back from the new millennial-friendly banks is adopting digitisation without losing the value-add of people.

This all starts by identifying specific areas of the business where technology can assist existing business models. Take cross-border rules. Most private banking is carried out offshore. Consider the typical case of a client and their assets being booked in Singapore, and the relationship manager also based there. What happens if the client is stuck in locked-down India, and he has a significant proportion of his assets tied up in the FTSE 100, which suddenly suffers its worst trading day of the year due to the coronavirus?

As soon as the client lands in India, he is under Indian law. Now, the relationship manager legally cannot start advising his Singapore client how to get out of their long positions in FTSE stocks as they are not regulated in India. The use of automation could come to help. As the bank would know exactly where the client is calling from and precisely where the assets are booked, a relationship manager can advise on how to get out of their positions.

In this case, the portfolio manager would be able to see the client portfolio from one screen, which means they can advise accordingly based on client performance and risk factors. No relationship manager would be able to remember more than 3-4 countries’ rules. But you can bet your client’s bottom dollar, a machine will.

By removing cross-border headaches, and giving clients an online platform to trade, a bank improves its operations and provides a niche competitive service to clients that rivals that of the online brokers.

Budgeting and incorporating digitisation into decades-old core banking systems are challenges. But if private banks have any hope of seeing off intense competition from the nimble newbies, they need to combine their heritage of human engagement, with more automation and the smart use of technology, to meet the increasing demands of a second-generation investor. In the post-Covid-19 ‘new normal’ world, private banks will have to balance the old with the new — or risk losing out to their aggressive new rivals.

(The writer is head, QUO, TradingScreen, New York, US)

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