Beyond the buzzword - ABBL · 2019-02-18 · Beyond the buzzword 3 Over the past two decades, the...
Transcript of Beyond the buzzword - ABBL · 2019-02-18 · Beyond the buzzword 3 Over the past two decades, the...
Digitalisation and Luxembourg private banks
Findings from a joint KPMG and PBGL research study
February 2019
kpmg.lu
Beyond the buzzword
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Foreword
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Over the past two decades, the Luxembourg private banking industry has frequently been said to be at a crossroads. In 2000, the Feira Agreement laid out for the first time the principle of “exchange
of information” between tax authorities. Then the financial crises of 2002 and 2008 significantly altered the country’s banking landscape. Strong regulatory pressure has since led to the introduction of multiple regulations lying behind esoteric abbreviations — such as CRD, MiFID or PSD — and this industry that had remained relatively untouched until recently has increasingly been affected by consolidation. Most recently, major players have been strategically repositioning themselves towards a more demanding clientele of HNWIs and UHNWIs who require products and services of an enhanced quality. So, Luxembourg private banks have indeed already encountered many a crossroads!
Today they stand at another junction — that of “digital transformation” — and it looks rather more complex than its predecessors … What does it mean to “be digital” for a private bank?… Do we need to be a first mover?... What do my clients want?… What is the competition doing?… In fact, what is the competition?
Ultimately, all this boils down to two major questions: What digital offering can private banks propose to their clients? and: What digital offering do they want to propose to their clients?
Although the first question encounters multiple challenges — related to, for example, financial investments, business cases, technology, cybersecurity, agility in delivery, resources, etc. — it remains the more minor one. Or at least it remains very operational and actionable, since it amounts to simply defining a roadmap and a project management approach, as with any other project.
The second question, however, is far more involved than it sounds, as it puts the focus on the heart of private banks’ strategic ambitions. What exactly are the expectations of clients in terms of digital? Do these depend on the client’s age, country of origin or amount of assets under management? Could offering digital services to private banking clients risk weakening or even losing the sometimes very intimate relationship between the client and their relationship manager? Is there a risk of cannibalisation when it comes to, for example, “robo-advice”? Is digital truly a differentiating factor, or simply a commodity that a bank cannot afford not to offer? In other words, just how far do private banks want to go in their digital offering?
In this context, we felt it was timely and relevant to try to address these questions in a study in which both the digital maturity and the digital ambitions of Luxembourg private banks could be assessed.
We hope you will enjoy reading this study as much as we have enjoyed researching and writing it.
Jean-Pascal NepperPartnerKPMG Luxembourg
Pierre EtienneChairman of the PBGL Member of the ABBL Board
Serge de CilliaChief Executive Officer Head of the ABBL Management Board
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Luxembourg private banks on their digitalisation journey
About this research6
Executive summary12
Digital strategy16
A study by KPMG Luxembourg, in cooperation with the Private Banking Group Luxembourg, a cluster within the Association des Banques et Banquiers, Luxembourg (ABBL)
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Organisation & culture24
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Digital communication52
Voice of core banking system vendors and BPO service providers
58
International perspective64
Customer experience34
Distribution & sales42
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About this research
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Objective
The objective of this study was to assess how digitalisation has impacted the business and operating models of private banks in Luxembourg so far — and what its future impact will be.
More precisely, we wanted to answer the following two questions:
— What is the digital maturity of private banks in Luxembourg?
— What are the digital strategic ambitions of private banks in Luxembourg?
Timeline
Research for this study was carried out between September and December 2018.
Methodology
The methodology we adopted for our research involved:
— One-to-one interviews with senior executives of 20 major private banks in Luxembourg, mainly the members of the Executive Board of the Private Banking Group Luxembourg (PBGL)
— Desk analysis of publicly available information regarding the digital offering, branding and positioning of these banks
— One-to-one interviews with senior executives of core banking systems vendors and business process outsourcing (BPO) service providers active in the Luxembourg market
— Thought leadership from the KPMG Global Wealth Management network, with a focus on the private banking markets in the United Kingdom, Switzerland and Hong Kong.
20private banks
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In this study, we focus on the extent to which private banks are endeavouring to meet their clients’ needs in terms of digital — and we analyse their maturity across five dimensions related to strategy, organisation and culture, customer experience, distribution and sales, and communication.
For each of these dimensions we also highlight the characteristics exhibited by “champion” banks in that specific area.
Digital communication
We assess the formalisation of digital strategy by Luxembourg private banks — and their advancement in its implementation — taking into account the importance given to digital within overall business strategy.
We analyse how the organisation and HR capabilities of private banks have so far been adapted to their digital strategy, as well as the effort being put into developing an appropriate digital corporate culture.
In this dimension, we assess how far the banks have progressed in the definition of their customer experience, and the level of digitalisation they want to offer their clients.
The digital availability of products and services is considered, as well as the extent to which private banks are leveraging technology to improve their distribution and sales strategies.
We analyse the extent to which these banks are building their online presence via digital marketing channels — and whether they are striving to build their digital brand.
Digital strategy
Organisation & culture
Customer experience
Distribution & sales
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Bank Julius Baer Europe S.A.
Banque de Luxembourg S.A.
Banque Degroof Petercam Luxembourg S.A.
Banque et Caisse de l’Épargne, Luxembourg
Banque Internationale à Luxembourg S.A.
Banque Raiffeisen Société Coopérative
BGL BNP Paribas S.A.
CA Indosuez Wealth (Europe) S.A.
Delen Private Bank Luxembourg S.A.
Deutsche Bank Luxembourg S.A.
Banks who have kindly agreed to participate in this research:
DNB Luxembourg S.A.
Edmond de Rothschild (Europe) S.A.
ING Luxembourg S.A.
Intesa Sanpaolo Bank Luxembourg S.A.
KBL European Private Bankers S.A.
Pictet & Cie (Europe) S.A.
Société Générale Bank & Trust S.A.
UBS Europe SE, Luxembourg Branch
UniCredit International Bank (Luxembourg) S.A.
VP Bank (Luxembourg) S.A.
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Executive summary
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Our clients tend to expect the same level of digitalisation they currently have with our mother company in our home country
Senior management plays a key role in diffusing a digital culture and empowering local teams
We do not want to push work and responsibilities to our clients. This is not what we do; this is not who we are
This is not only about the tool, it is about the mindset
We want to remain relevant in the digital field, but we do not want to be leading the charge
You had... “augmented reality”, you now have the “augmented private banker”
Our clients are more and more using WhatsApp to communicate with their relationship managers. How can we manage this going forward?
How to collect the expectations of our clients in terms of digital and manage… the very same expectations?
Digital brand positioning needs to be subtle: we do not want to be perceived as mainstream
A B2C robo-advisor is not, and will probably never be, an option we are willing to consider
Clients need to be given the tools to engage with us when and how they want
It is all about an intelligent mix of traditional and digital banking
When private banks talk about digital ...
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Digital strategyLuxembourg is known as a country of subsidiaries. Consequently, when it comes down to the definition of strategy — be it business, operational or digital — the often very close connections with parent companies lead to integrated decisions. It was therefore no surprise that, for almost all the private banks interviewed, their digital strategy is defined at group level. In parallel, while the vast majority of private banks in Luxembourg consider digital to be key for the development of their sector, their degree of advancement in the definition — and, more importantly, the implementation — of their digital strategy shows large discrepancies.
Organisation & cultureThe organisational maturity level of private banks in Luxembourg is usually well correlated with their development in terms of HR capabilities and culture. Those banks that have already adapted their organisation and governance to today’s digital challenges tend also to have initiated corresponding changes in their talent attraction and development, and to have effected a shift in culture through channelled communication both internally and externally. Conversely, private banks that are not as mature in terms of digital strategy have not yet carried out such organisational changes, nor have they introduced digital-specific HR practices or shifted their organisational cultures towards digitalisation.
Customer experienceOnly a limited number of private banks in Luxembourg have redefined and digitalised their customer experience — and fewer than a third have taken significant steps to implement new client journeys focusing on digital touchpoints. However, this seemingly intransigent stance can sometimes be due to very consistent strategic positioning being maintained. About half of private banks have formally defined their clients’ customer journeys — although this will not necessarily translate into their offering a highly digital experience, since many banks insist that the very nature of private banking is “people business”. Digital is — and is likely to remain — an enabler, and banks are carefully choosing which touchpoints within the customer experience they will or won’t digitalise.
Distribution & sales
Private banks in Luxembourg currently make rather limited use of technologies to improve their distribution and sales strategies. Those banks that have achieved a moderate level of digital availability for their products and services have done so through well thought-out strategic positioning.
Efficient use of customer relationship management (CRM) tools, and exploitation of data to better target and approach clients with relevant offerings, are somewhat underdeveloped.
Digital communicationVery few banks are aiming to really project themselves as digital private banks — and over a third of banks are not focusing on building their digital image and online presence at all. Parent banking groups often play the principal role in designing and implementing the communication strategy for their subsidiaries, giving some Luxembourg private banks only a limited role to play themselves. Banks’ willingness to be perceived and position themselves as “digital” is principally a matter of strategic positioning, as is their presence on online channels. Universal banks tend to be more visible in this respect, strongly capitalising on the developments of their cross-group and cross-service line marketing teams — while pure private banking players tend not to benefit in the same way.
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Digital strategy
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Luxembourg is known as a country of subsidiaries. Consequently, when it comes down to the definition of strategy — be it business, operational or digital — the often very close connections with parent companies lead to integrated decisions. It was therefore no surprise that, for almost all the private banks interviewed, their digital strategy is defined at group level.
In parallel, while the vast majority of private banks in Luxembourg consider digital to be key for the development of their sector, their degree of advancement in the definition — and, more importantly, the implementation — of their digital strategy shows large discrepancies.
Champions in digital strategy exhibit the following characteristics.
— Digitalisation is perceived as a source of competitive advantage for their private banking activities.
— Digital strategy is fully integrated with the overall business strategy defined at group level, but takes local specificities into consideration.
— Market developments are actively tracked and acted upon.
— Digital strategy has been translated into an actionable roadmap and implementation is on track.
Figure 1. Relative positioning of banks in digital strategy — implementation vs. definition
Imp
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f d
igit
al s
trat
egy
Definition of digital strategy
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Defining digital strategy is essential for business transformation
Almost all consider digital as key to the development of the private banking sector in Luxembourg, but also agree on the fact that digital cannot — and will not — replace human interaction in a world where the private banker remains pivotal to the bank’s relationship with the client.
Digital is instead seen as a push towards “augmenting” the private banker — that is, helping them increase and improve client
Figure 2. The main objectives of digitalisation
Increase process efficiency 89%
83%Improve client experience
28%Free up relationship manager time
22%Sell more services
22%Create an omnichannel offering
11%Offer new means of communication
11%Improve data quality
11%Keep up with the competition
acquisition and retention through a better customer experience. This may take the form of, for example: less burdensome administrative tasks for both relationship manager and client; enhanced customised services through better client data management; more innovative banking products; or smoother and more flexible means of communication.
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Digital is also considered a key lever to improve operational efficiency in the front office — as well as at middle and back office levels — thus allowing banks to reduce operational costs while freeing up more time for commercial and innovatory developments.
Figure 3. Is digitalisation key to the development of the sector?
“ “Similarly to the notion of “augmented reality”, we can talk here of an “augmented private banker”
— Research participant
14%Marginal
86%Important
Of course, all these investments cost money and could impact the bank’s profitability in the short term. But the cost of not adopting digital may prove higher in the long run — particularly if not doing so results in, say, (i) losing tech-savvy clients who are looking for an enhanced customer experience, or (ii) decreased profitability if potential efficiencies, achievable through digital, are not exploited.
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The vast majority of Luxembourg-based private banks adopt the digital strategy defined at the level of their parent companies. Indeed, banks strongly capitalise on group level actions in general — be it the improvement of customer experience, or the development of specific technologies — reflecting the appeal of an integrated digital strategy and the necessity of distributing the high costs of digital projects across group entities.
However, it is also worth highlighting that, for a handful of the banks interviewed, the Luxembourg entity does not seem to rank highly among group priorities, which consequently hinders the implementation of major digital projects in the short term.
In terms of functional areas, unsurprisingly, attention is mainly focused on investment management and customer experience.
— For investment management, the main priorities are generally the enhancement of portfolio consultation and reporting functionalities, with the aim of offering dynamic reporting tools to clients. For execution-only clients, some banks also dedicate time and effort to the transactional side, allowing clients to trade securities on multiple markets.
— In terms of customer experience, private banks focus on trying to identify pain points in their customers’ journeys and assessing where digitalisation could bring increased value to those journeys. The digitalisation of the MiFID II questionnaire — and, more widely, of the entire end-to-end onboarding process — is often cited as one of the main priorities in improving customer experience.
— Champions usually go a step further and also focus on data quality and data management in order to improve their customer knowledge, as well as their distribution and sales strategies.
• Definition of customer journeys• Digitalisation of the MiFID II questionnaire
• Development/enhancement of CRM tools• Building of customer intelligence capabilities
• Digital branding• Increase in online presence
• Mainly data quality and data management
define at local level and leverage at
group level
define at group level, with local
initiatives
define at group level
Figure 4. Strategic focus areas of digitalisation
Figure 5. Level of digital strategy definition
33% 62%
Investment management
Customer experience
Distribution & sales
Digital communication
Other
• Dynamic tools for portfolio consultation and reporting
• Securities transactions on multiple markets76%
71%
29%
18%
18%
5%
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Figure 6. Keeping track of market developments and innovation
Monitor market developments and best practices only on ad
hoc/needs basis
57%
Participate in relevant events and conferences
38%
Do not monitor market developments at all
33%
Use a dedicated internal unit for constant market monitoring
29%
Work with an external specialist organisation
24%
57%monitor market developments and best practices only on an ad hoc or
needs basis
“ “We want to remain relevant in thedigital field, but we do not want tobe leading the charge.
— Research participant
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Implementation is under way … or is it?
Most banks started to implement some elements of their digital ambitions around 2015. Some others started later but with greater support behind them, and were already making major achievements by 2018.
Almost half of private banks consider that they are lagging behind the competition with regard to their organisation’s implementation of digital.
This is an intriguing result, as the digital ambitions of most private banks are very heterogeneous — hence there is no real baseline for them to compare themselves against. So, what may look like “lagging behind” may actually be a result of their own strategic positioning — for example, a strategic decision not to offer clients the ability to trade securities or make payments, as opposed to the late implementation of this functionality.
Another key element we observe in the digitalisation of the private banking sector is of course the emergence and growth of fintech businesses, as many of these focus on developing solutions for private banks. However, at this stage, although
Figure 7. How advanced do you feel your digital achievements are compared to the competition?
Lagging behind competition
Ahead of competition
At the same pace with competition
Far ahead of competition
43%
14%
38%
5%
fintech is a word that regularly pops up in our financial reading, the number of private banks that have genuinely identified, analysed, selected and implemented a fintech solution remains rather low.
Within the private banking world, activity with fintech companies seems to remain limited to market or competitor monitoring, events or conferences and a (very) large number of “one-day stand” demonstration sessions.
One of the possible explanations behind this is that fintechs often design solutions aimed at addressing a direct B2C issue, whether it be in the area of investment management or customer experience (e.g. robo-advisors dedicated to end clients), while private banks are still considering just how digital they really want to be in their client relationships. Private banks, it seems, may be more open to solutions that would improve their internal operating models, allowing them to better serve their clients, e.g. a robo-advisor that would push investment recommendations to the relationship managers, not to the clients.
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Organisation & culture
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Those banks that have already adapted their organisation and governance to today’s digital challenges tend also to have initiated corresponding changes in their talent attraction and development, and to have effected a shift in culture through channelled communication both internally and externally.
Conversely, private banks that are not as mature in terms of digital strategy have not yet carried out such organisational changes, nor have they introduced digital-specific HR practices or shifted their organisational cultures towards digitalisation.
Champions in organisation and culture exhibit the following characteristics.
— Digital initiatives are steered centrally, with the creation of dedicated leadership and teams.
— Senior management is closely involved through direct reporting, and there is strong governance around digital programmes.
— Digital initiatives are actively communicated internally and externally, thus progressively embedding digital into corporate culture.
— HR has developed talent attraction and development strategies for digital skills, as well as awareness about digital risks.
— IT strategy is well aligned with business strategy.
Figure 8. Relative positioning of banks in organisation & culture — HR capabilities & culture vs. organisational maturity
The organisational maturity level of private banks in Luxembourg is usually well correlated with their development in terms of HR capabilities and culture.
HR
cap
abili
ties
an
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ult
ure
Organisational maturity
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Leadership and governance are crucial to establishing digital strategy
Only 38% of Luxembourg private banks have put a specific structure in place for digital initiatives — usually consisting of a dedicated digital team with a clearly identified person in charge. In some cases, a separate “innovation” team has also been set up, focusing mainly on technological market monitoring. This sort of structure is often seen among banks that either have their headquarters in Luxembourg or are universal banks with a digital unit that spans all business lines.
Nevertheless, not having a specific digital team in Luxembourg certainly doesn’t mean that
In over 50% of cases, digital leadership and teams exist at group rather than subsidiary level
Figure 9. Luxembourg private banks’ overall organisational maturity
Figure 10. Heads of digital in the organisational structure
38%of banks have assigned a specific leadership role in
charge of digitalisation
62%do not have a dedicated
leadership role in Luxembourg
50%
25%
12.5%
12.5%
The head of digital reports to the:
Head of private banking
CEO
COO/CIO
Head of strategy
digital is not on the agenda. More often than not, digital leadership and teams exist at group level, and Luxembourg entities can draw on tools and capabilities developed by the parent group.
In 75% of banks, the digital lead reports to either the head of private banking or directly to the CEO, clearly showing how far digital has risen up the business agenda, and highlighting that digital is first and foremost a client relationship topic for private banks.
Interestingly, only 12.5% of digital leads report to the COO or CIO.
Nascent Somewhat mature Mature Very mature
38% 24% 14% 24%
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In some cases, a certain disruption of the traditional IT structure may be involved, as digital software developers may be positioned on the business side of the organisation. This is sometimes the case when digital developments are deployed using agile methodologies for software projects or in dedicated “factories” — although the maintenance of digital applications may in turn be handed over to traditional IT teams in the industrialisation phase.
More generally speaking, half of the banks surveyed have adapted their structures and governance to the nature of digital projects, having implemented agile methodologies in parallel with the traditional “waterfall” approach to software development which remains more relevant for standard IT projects.
48%of banks have implemented a dedicated digital project structure and governance
Figure 11. Extent of cross-functional business collaboration within banks
little
19%
close
19%
none
24%very close
38%
Cross-functional collaboration is improving
As a rule, the level of collaboration between the different functions within private banks mirrors their overall organisational and cultural maturity — i.e. in organisationally mature banks, efforts are combined across business lines to successfully deliver digital projects. Some banks point to the physical proximity of teams enabling better and more efficient collaboration.
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More flexibility needed
With regard to the IT function, 68% of private banks consider their organisation’s IT strategy to be aligned with its overall business strategy. The clearer the business’s digital strategy, the more the IT strategy and organisation have been adapted to deliver it.
However, the relationship between the standard IT department — developing and maintaining what can in some cases be an old, or very old, legacy core banking system infrastructure — and the newly-created business tech-savvy digital teams can sometimes be a little challenging. The IT department may well be tempted to think that
HR policies, including training and education, play an important role in shaping culture
Over 60% of banks identified a low level of local HR maturity towards digital. Even when digital momentum has clearly been created in the business, HR strategies have often not followed this development, with 50% of private banks still feeling that they do not have the right digital skills in-house.
Figure 12. Alignment of IT strategy with digital demands from business
Figure 13. Flexibility of IT in responding adequately to challenges presented by digitalisation
completely aligned
29%
very flexible
29%
somewhat aligned
9%
somewhat flexible
9%
well aligned
38%
flexible
19%
not aligned at all
24%
not at all flexible
43%
Champions usually have an in-house IT department that gives them a high degree of autonomy and flexibility
these digital natives hardly understand IT and do not abide sufficiently by the rules, while the latter may tend to view traditional IT departments as bound by outdated conservatism. This situation becomes even more complex when the IT is offshored or outsourced.
Geographic proximity does indeed facilitate operational agility, performance and speed to market for digital products and services. Those banks that depend heavily on their parent group do not necessarily get their specific needs implemented, and the digital roll-out roadmap is often not within their control.
Banks are combining external recruitment and internal training in an attempt to fill the gaps, but ramp-up is not always as fast as expected. External recruitment tends to be used for specific specialist skills, such as user experience or user interface designers.
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Figure 14. How banks solve the issue of not having the right skills in-house
About half of banks are investing in targeted education for their employees, but this figure shouldn’t be taken at face value, as the coverage and depth of the training vary widely between banks. Less than 10% organise formal training or information sessions about specific digital topics or technologies — training at the majority of banks is usually limited to guidance on digital risks or how to use and behave on professional social media.
Most banks do not face any significant generational problems when it comes to digital acceptance. In fact, digital is often seen by relationship managers of all ages as an enabler rather than a constraint or a threat, especially for performing administrative tasks. Nonetheless, only a limited number of skill-transformation programmes have been formalised, and very few digital change management initiatives have been launched to assist client-facing staff in fully embracing digital and adapting their ways of working.
From an employee standpoint, younger relationship managers may be keener on using digital tools for business development, among other purposes. This generation may therefore be tempted to choose their employer on the basis of its capability to offer state-of-the-art tools to both its private bankers and clients.
50%have the skills
in-house
50%do not have right skills in-house
Solutions
Digital risks
Most private banks feel they already have the right security guidelines and adequate practices in place when it comes to digital risks and cybersecurity. The general impression is that banks are trusted by clients on their ability to protect client information, as few bankers have been questioned by their customers on these issues.
Banks with strong guidelines on digital risks and cybersecurity have generally defined them at group level and imposed them on all group entities. These same banks have also set up training programmes to educate their staff members on digital risks.
Recruit from outside the firm
Train in-house resources
66% 83%
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58%have specific
guidelines
42%do not have specific
guidelines
Figure 15. Banks’ guidelines on digital risks
have educated their staff
47%53%
Figure 16. Education of staff on digital risks
have not educated their staff
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Figure 17. Extent to which digitalisation is embedded into corporate culture
Figure 18. Internal and external communication on digital vision
completely embedded
well embedded
somewhat embedded
not at all embedded
9% 24% 29% 38%
43%Communicate
internally
57%Do not
communicate
Out of which 56% also communicate
externally
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Company culture is a strong foundation for catalysing digital transformation
There is still some way to go for banks to nurture a truly digital culture — only about a third consider that digitalisation has taken root in their corporate culture. Banks emphasise the key role that senior management has to play in communicating and promoting such a culture — and in empowering local teams to experiment and launch new initiatives. Some groups have a strong innovation culture, but this does not always have a spillover effect on their Luxembourg subsidiaries.A strong digital culture is initially created by the transmission of very clear and consistent internal
Success stories
Effective communication
Strategic branding
Change management
Behaviours
Beliefs
Values
Attitudes
communication messages, raising awareness among staff about the organisation’s activities and success stories. Strategic brand positioning and external communications also create a very influential basis on which to build a digital culture.
In Luxembourg, the banks that are actively communicating both internally and externally on their digitalisation developments are more often universal banks, with fewer than 10% of “pure” private banking players doing so.
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Customer experience
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About half of private banks have formally defined their clients’ customer journeys — although this will not necessarily translate into their offering a highly digital experience, since many banks insist that the very nature of private banking is “people business”. Digital is — and is likely to remain — an enabler, and banks are carefully choosing which touchpoints within the customer experience they will or won’t digitalise.
Interestingly, among the 43% of private banks that have not yet put significant effort into defining or improving their customer experience, two thirds are awaiting the roll-out of their parent group’s digital initiatives in Luxembourg.
Champions in customer experience exhibit the following characteristics.
— Clients’ digital expectations are canvassed and addressed effectively.
— Customer journeys are mapped out and touchpoints are digitalised according to digital strategy.
— Investments are made to improve apps and web experience.
— Communication channels are developed to maximise the bank’s availability “anywhere, anytime”.
Figure 19. Relative positioning of banks in customer experience — level of digitalisation vs. definition
Only a limited number of private banks in Luxembourg have redefined and digitalised their customer experience — and fewer than a third have taken significant steps to implement new client journeys focusing on digital touchpoints. However, as seen earlier, this seemingly intransigent stance can sometimes be due to very consistent strategic positioning being maintained.
Leve
l of
dig
ital
isat
ion
of
cust
om
er e
xper
ien
ce
Definition of customer experience
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Clients’ digital expectations are not systematically sought
Several private banks in Luxembourg have a rather limited knowledge of their clients’ digital expectations, with only a third collecting information on these views. But when these banks do canvas expectations, information sourced from relationship managers is used as much as direct feedback from clients — a practice that could well result in unconscious bias in the results.
Perhaps surprisingly, generation and age are not seen by the banks as key differentiators for client expectations, apart from for clients over 80 years of age.
Geographic origin and country of residence seem to have a bigger impact: Luxembourg-resident clients can seem to have fewer needs in terms of digital, while non-residents may find the ability to remotely
Figure 20. Collection of client expectations information
Only 24% of the banks that seek client feedback have observed an increase in the scope of the online services that their clients expect — these include:
— paperless client onboarding and management of client data
— availability of new means of communication, enabling the client to contact their bank “anytime, anywhere, anyhow”.
33%of banks canvas client expectations through
67%do not seek client feedback
in a structured manner
43%
43%
43%
How do you collect client feedback?
Relationship managers
Client panels/ interviews
Recurring surveys
manage their accounts very appealing. Non-residents may also have more basis for comparison, if they also use private banks located in their countries of residence. Asian and Nordic clients, for example, were cited several times as particularly keen on digitalisation, as the level of digital maturity in their countries of origin is already very high.
Factors such as profession and investment profile also heavily influence clients’ appetite for digital. For instance, entrepreneurs and self-directed clients of all types are often likely to opt for advisory or execution-only services, and thus tend to expect greater access to financial markets via online transactional functionalities. This will, of course, not be the case with discretionary management clients, who might merely need portfolio consultation and reporting functionalities.
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Figure 21. Clients’ expectations in terms of digitalisation
Client onboarding and the management of client information are the highest digital priorities for private banks
Even though client onboarding is seen as the most important journey to be digitalised for clients, roughly half of banks have not yet formalised an initiative for this — and only 14% have reached the level of digitalisation they aim at.
Contrary to the situation in retail banking, it is very clear for the vast majority of private banks that they will never fully digitalise the client onboarding process. With regulations imposing very strict “know your customer” (KYC) standards, and the complexity of the wealth structuring exercise, allowing HNWIs to open private banking accounts themselves, online, is simply not an option. The rare cases where it might be considered would be for very straightforward client situations (e.g. for resident clients with all their assets in a discretionary mandate) — but even then, private banks consider this would be losing a very privileged touchpoint with the client. However, banks can foresee the possibility of having a “remote” onboarding process by developing digital tools which will allow relationship managers to
76%Paperless client onboarding and
management of client data
65%New means of communication
59%Transactional functionalities
47%Digital content (market analyses,
investment strategy, expert points of view, etc.)
perform all related administrative tasks during client meetings held outside the bank.
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Communication channels require more attention from private banks
Private banks seem to have put little effort into developing new means of communication for clients so far, despite 65% of banks considering that their clients expect such developments.
Clients are increasingly contacting their relationship managers via tools such as iMessage, Messenger or WhatsApp, which can represent a significant compliance versus client experience issue. Most private banks’ procedures still require orders to be placed on a fixed line or in writing, which necessitates making a phone call, or using secure email or a chat function accessible through either
Strict regulations — in particular MiFID II — have made the client onboarding process a highly complex exercise for both the relationship manager and the client. Onboarding is sometimes viewed by the client as a stressful experience — and the signing through a pack of dozens of pages, that few actually read, can seem unpleasant. This is why most private banks focus primarily on digitalising the gathering of client data and the MiFID questionnaire. They also aim at allowing document uploading and verification via digital channels.
Electronic signature is an element that is being considered by 57% of banks, in order to speed up administrative tasks. However, they point to the fact that “qualified” electronic signatures — the
only type of e-signature that is legally equivalent to a hand-written signature — require a face-to-face verification of the person’s identity, which hinders their implementation in “full digital” use cases. To support such use cases, certain institutions are now satisfying themselves with “advanced” electronic signatures, thanks to the recent entry into force of a harmonised European legal framework on electronic transactions (i.e. the EU’s eIDAS regulation). Biometric-based identification is being contemplated by 40% of banks.
Figure 22. Banks’ approaches to digitalisation of client onboarding
the bank’s online banking platform or a dedicated banking app. But from a client experience viewpoint, using e.g. WhatsApp is of course far easier, more convenient and less time-consuming than connecting to a bank’s token-based online banking platform.
Many private banks are still pondering the best way to tackle this issue, with the main solutions being to better educate the customer on the dangers of potential security issues or to design a more user-friendly secure communication channel.
do not intend to
digitise client onboarding
process
have digitised only some parts of client
onboarding but will be digitising more
have digitised some parts
of client onboarding but don’t intend to digitise more
are studying the use case/thinking about it/ haven’t yet started
14% 48% 24% 14%
40 Beyond the buzzword
Figure 23. Digital communication channels currently offered or planned to be offered to clients
81%Secure emailDedicated secure mailbox accessible through the bank’s online banking platform or dedicated bank app
Private chat accessible through the bank’s online banking platform or dedicated bank app33%Instant secure chat
14%Video capabilities
10%WhatsApp / iMessage
The majority of private banks are investing in improving their mobile apps and web portals
For those striving to enhance digital customer experience, the collection and analysis of browsing data could be a very insightful source of information. Some banks are currently working on this, but it is considered a challenge, as it requires the development of dedicated capabilities which are not always seen as a priority. Nevertheless the value of these analyses is recognised, as they would allow banks to assess the true return on investment of their extensive existing digital content
“ “Our customers are more and more using WhatsApp to communicate with their relationship managers. How can we manage this going forward?
— Research participant
Figure 24. Extent to which client advisors can be reached anywhere, anytime via digital means
very large extent
5%
limited extent
52%
large extent
29%
not at all
14%
(the market analyses, investment strategies, etc that they publish on their websites).
Very few banks actually analyse the bounce rate of their website (i.e. the percentage of visits in which users click away from the website landing page without browsing any further), even though this sort of data could help in judging the quality of the site’s content and how well they are targeting their communications.
41Beyond the buzzword
Figure 25. Extent to which private banks invest in improving their mobile apps and internet banking portals
Figure 26. Availability of digital client administration and communication capabilities
Open an account 100% online
Offer e-signature
Give online feedback to the bank on the level of service
Initiate an instant conversation with a banker
Access online peer-to-peer communication platform
We are already doing it
We intend to do it and it is an ongoing project
We intend to do it and it is in our
pipeline
We are studying the use case or thinking about it
We do not intend to do it
at all
4515
15
5
5
55
2010
10
10
33
33
38 14
15
24
29 61
28
70
10
very large extent
28%large extent
29%limited extent
29%not at all
14%
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Distribution & sales
42 Beyond the buzzword
43Beyond the buzzword 43Beyond the buzzword
44 Beyond the buzzword44 Beyond the buzzword
Private banks in Luxembourg currently make rather limited use of technologies to improve their distribution and sales strategies. Those banks that have achieved a moderate level of digital availability for their products and services have done so through well-thought-out strategic positioning.
Efficient use of customer relationship management (CRM) tools, and exploitation of data to better target and approach clients with relevant offerings, are somewhat underdeveloped. In terms of the online offering of products and services, private banks have a very different strategic positioning to retail banks, the main difference lying in transactional functionalities.
Champions in distribution and sales exhibit the following characteristics.
— Tools are developed to support relationship managers and portfolio managers.
— The potential use of advanced data analytics is explored in depth and relevant capabilities are being developed.
— Client data quality is improved and structured.
— Clients are incentivised to act more autonomously, via the digital offering of a wide range of products and services.
Figure 27. Relative positioning of banks in distribution & sales — leverage of technology vs. digital availability
Leve
rag
ing
of
tech
no
logy
for
dis
trib
uti
on
& s
ales
Digital availability of products & services
45Beyond the buzzword
CRM tools and their digital extensions are not sufficiently developed to allow remote private banking
About a third of the banks interviewed felt that their CRM tools are not able to fully support relationship managers in their day-to-day operations. Some banks are in the process of replacing these tools, or have plans to do so, while others refer to the lack of good practice in feeding the tool with relevant client information.
Even though tablet computers are made available to relationship managers, very few of these devices are fully connected to the banks’ platforms, thus hindering what would be a fully fledged utilisation in client meetings held outside the bank. Systems portability and security concerns remain a strong barrier to remote private banking.
Customer intelligence is not sufficiently developed to effectively support distribution and sales
Fewer than 15% of banks are exploiting client data through the use of data and analytics, or artificial intelligence. Banks mainly focus on internal static and transactional data to analyse client behaviour and measure attrition, and not to build predictive and targeting models. Furthermore there does not appear to be any real interest in enriching client and KYC data with external data sources. GDPR is often cited as a limiting factor for such data enrichment.
A few banks are exploring the data and analytics option, but are often limited by the fact that they do not always have access to sufficient historical data to develop this capability. They usually strive to at least clean and organise the data they have, to “make some sense out of it”. About half the banks are performing basic data mining through manual queries and analysis, but this remains limited.With regard to the digital behaviour of clients, analysis remains at a superficial level, with little being done beyond the analysis of internet banking or mobile app take-up rates, and of online operations.
Figure 28. Use of data and analytics technologies to identify or anticipate client needs
Figure 29. Monitoring of sales orders through digital channels to adapt sales strategy
14%
48%
38%
used to a limited extent
used to a large or very large extent
not used at all
19%
NoYes
81%
46 Beyond the buzzword
The overall digital availability of products and services remains limited, in part reflecting the strategic orientation of private banks
The basic digital functionalities that are developed by all players are in portfolio consultation and reporting. In general, banks put significant effort into more dynamic consultation functionality, including in their mobile applications. With regard to reporting, three quarters of the banks already offer online access to periodically-generated reports.
However, less than half are offering their clients dynamic investment reporting tools, even though the banks themselves perceive these to be of high added value for clients.
Figure 30. Use of digital tools for client investment reporting
35%dynamic data drilling
46 Digital in Private Banking
41%provide access to dynamic reporting (generated on demand)
76%provide online access to periodically-generated reporting
46 Beyond the buzzword
47Beyond the buzzword
Figure 31. Digital functionality offerings
Receive investment recommendations
Consult investment portfolio
Make investment simulations
Initiate a securities purchase or sale order
Initiate a payment order
Simulate or request a loan
Update client ID data and documentation
Access a social investment platform
Provide account aggregation
9
5
5
5
29
24
9
14
10
14
19
48
52
19
5
5
5
5
5
5
33
81
33 67
86
38
38
24
24
19
14
71
57
5
9
9
We are already doing it
We intend to do it and it is an ongoing project
We intend to do it and it is in our
pipeline
We are studying the use case or thinking about it
We do not intend to do it
at all
48 Beyond the buzzword
Transactional functionalities seem to be the most prominent digital theme, with 62% of private banks offering, or wanting to offer, clients the ability to initiate securities orders — while 38% reject this option altogether. For client-initiated payment orders, 71% of banks are in favour, while about a quarter have a clear negative position.
Conversely, the vast majority of banks are unwilling to even consider making loan simulations or requests available online. This is directly related to the nature of private banking loans, which tend to be complex and often require the calculation of collateral or the factoring in of other assets.
There is also a wide consensus in not wishing to offer investment simulation functionality, with about two thirds of banks not prepared to consider this option at all. Providing access to social investment platforms — which enable clients to follow and replicate other investors’ portfolios — is likewise rejected by over two thirds of the banks.
Push notifications of investment recommendations — which the client can then accept or reject online, either via internet banking or a mobile application — are usually seen as a nice-to-have functionality, but not considered a top priority in the digital agenda.
Account aggregation as a high added value functionality?
About half of private banks consider that the recent coming into force of the Second Payment Services Directive (PSD2) will have limited impact on them, as they argue that they either do not offer payment services at all or do not provide online access to cash accounts.
For the 33% that see PSD2 as a business opportunity for the wealth management sector, the regulation is a clear first step to developing an account aggregation service — this would allow clients to have a holistic view of their assets, whether deposited with banks, insurance companies or other types of financial institution. These banks are therefore investing in building the right technologies and architecture in anticipation of a wider opportunity in the future.
“ “We do not want to push work and responsibilities to our clients. This is not what we do; this is not who we are.
— Research participant
49Beyond the buzzword
Figure 32. Banks’ perception of forthcoming developments of “open banking” and PSD2
48%believe it will have limited impact and is not applicable to
wealth management
33%see a tremendous
opportunity for wealth management
19%think that if they don’t follow the trend, it will
become a threat
PSD2 – “open banking” is here
The revised Payment Services Directive introduces a number of key changes compared to its predecessor — the most prominent being mandatory access to (payment) accounts for third-party payment service providers, at client request. Unsurprisingly, banks have very different views on the directive and what it will mean for their industry: these range from viewing it solely as a compliance burden to foreseeing it as bringing strategic opportunities to develop new products and services.
Depending on the business model of the individual bank, both views are understandable. Traditional retail banks consider payments as part of their DNA — with the payment account at the heart of the client relationship — and their customers often have more than one banking relationship, so may not be unwilling to share information on their other accounts. Getting access to these accounts opens up opportunities to cross-sell products and provide other valued-adding services. Private banks, on the other hand, would not define themselves via a payment service but rather a portfolio management service — providing payment services is simply a means to offering the investment business. Their client base may well be more reluctant to share account information with third parties and hence, for those banks, the implementation of the new requirements will mainly come at a cost only.
Juergen RiederPartner KPMG Luxembourg
50 Beyond the buzzword
Are “robo-advisors” a private banking solution?
Only 15% of banks are considering offering a B2C robo-advisor solution, and this would be for mass affluent clients exclusively. The vast majority of banks do not consider robo-advice a credible option, stressing the fact that their clients primarily seek a privileged interaction with their relationship managers.
Nevertheless, many banks see some potential for this type of tool, provided that it is implemented
Figure 33. Uses foreseen for robo-advisor technology
B2C: offer it as a new service – effectively a “cheaper advisory
solution”
15%
B2B: use it as a tool for relationship managers, to boost efficiency in
advisory services
55%
B2B: use it as a tool for investment managers for
discretionary portfolio management
30%
only in an internal setting — i.e. to support relationship and investment managers, and without any direct connection to the client. In fact, while many banks are satisfied with their current investment proposal engines, a robo-advisor could provide added value by using advanced artificial intelligence to enable appropriate targeting and flexibility in the assessment of client situations.
50 Beyond the buzzword
51Beyond the buzzword
Figure 34. Is serving independent asset managers part of your strategy? If yes, does digitalisation help you attract them?
Third-party asset managers do not seem to be a significant driver for digitalisation
Although 29% of the research participants recognise that serving independent asset managers (IAMs) is part of their overall business strategy, they do not see IAMs as a driving force for digitalisation. In fact, some banks already offer them specific access in order to manage their accounts and portfolios, and this is felt to cover their needs. A few banks also observe that some IAMs in Luxembourg tend to remain rather conservative in the way they communicate with them, so conclude that digitalisation would not necessarily be seen by them as a differentiating factor.
Yes29%
Yes14%
No71%
No86%
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Digital communication
52 Beyond the buzzword
53Beyond the buzzword 53Beyond the buzzword
54 Beyond the buzzword54 Beyond the buzzword
Very few banks are aiming to really project themselves as digital private banks — and over a third of banks are not focusing on building their digital image and online presence at all. Parent banking groups often play the principal role in designing and implementing the communication strategy for their subsidiaries, giving some Luxembourg private banks only a limited role to play themselves.
Banks’ willingness to be perceived and position themselves as “digital” is principally a matter of strategic positioning, as is their presence on online channels. Universal banks tend to be more visible in this respect, strongly capitalising on the developments of their cross-group and cross-service line marketing teams — while pure private banking players tend not to benefit in the same way.
Champions in digital communication exhibit the following characteristics.
— Focus is put on building digital image and brand online.
— Digital channels (own and social media) are fully utilised to communicate about the bank and its values, in order to build trust and inspire confidence.
— Leadership advocates the digital brand online.
— Distinctions and awards that contribute to a positive digital image are actively pursued.
Figure 35. Relative positioning of banks in digital communication— marketing channels vs. branding
Use
of
dig
ital
mar
keti
ng
ch
ann
els
Digital branding
55Beyond the buzzword
Banks’ digital branding is a matter of choice
Only a fifth of banks focus strongly on building their digital image — while well over 50% of them make little or no effort in this regard. Banks with their headquarters outside Luxembourg are, for instance, not always able to exercise strategic marketing decisions locally, as the communications strategy and means of implementing it may be dictated centrally, leaving little room for local initiatives.
But, in general, regardless of the size and autonomy of the marketing departments of private banks, their digital branding is primarily a matter of strategic choice. Many simply do not wish to be perceived as “mainstream” and they therefore choose instead to
Figure 36. Extent to which banks focus on building their digital image
“ “Digital brand positioning needs to be subtle: we do not want to be perceived as mainstream.
— Research participant
only 1/3 of banks pursue efforts to
earn credentials in digital
very large extent
19%
limited extent
19%
large extent
24%
no extent
38%
emphasise the many years of legacy and tradition that lie behind their highly personalised client service — something they may see as very far removed from the notion of digital, which could well be regarded as too impersonal or distant. In fact, some banks, while offering products and services that are digital by nature, and built using the latest technology, even choose to avoid the use of the word “digital” in their communications.
This may help explain why only a third of private banks actively pursue efforts to earn credentials, awards and distinctions for their digital developments.
56 Beyond the buzzword
Communication channels as a way of building digital presence
A significant majority of the banks — 71% — use digital channels to communicate information about their company, its values and history, with the aim of inspiring confidence and building the trust of their clients. The company website is the primary source of communication about the bank and is often built into the parent group’s website.
The level of information given on the Luxembourg page of banks’ websites depends on the purpose the banks assign to their sites. Some see a website merely as a means for clients to locate initial bank contact information; others use it as a tool to display information about products and services. Just over two thirds of banks are active on social media, and 44% use their mobile app as a means of communication.
Interestingly, 29% of Luxembourg-based private banks do not have a dedicated department or senior leadership maintaining an active presence online. Amongst those that do, 60% have a dedicated communications team as part of a structured marketing activity.
It is worth noting that online channels are rarely viewed as means of targeting or acquiring new clients by these private banks — but rather as a means of communication about the bank’s activities.
Figure 37. Use of digital channels to communicate about the bank
do not use digital channels
use digital channels to build brand
29%
71%
29% of banks do not have a dedicated department or senior leadership actively present online
57Beyond the buzzword
Figure 38. Use of digital channels to raise brand awareness
Figure 39. Use of digital channels to communicate about the company, in order to build trust and inspire confidence
Figure 40. Level of online activity by senior management or a dedicated department, aimed at appealing to new and existing clients and promoting the bank
Website 94%
69%Social media
44%Mobile app
Website
93%
Social media
67%
Mobile app
40%
Blog
7%
7%Other online presence
42%
29%
29%
Decentralised online activity left to individual initiative
Structured as part of the bank’s communication strategy, with online activity defined, planned and executed by dedicated communication team
No presence on social media
58 Beyond the buzzword
Voice of core banking system vendors and BPO service providers
58 Beyond the buzzword
59Beyond the buzzword 59Beyond the buzzword
60 Beyond the buzzword
As mentioned earlier, as part of our research for this report, we also interviewed a number of core banking system vendors and business process outsourcing (BPO) providers active in the Luxembourg market, in order to understand their perceptions of the digital maturity and ambitions of their own customers — i.e. the private banks.
Main areas of focus of private banks
Unsurprisingly, in the opinion of these vendors and service providers, many “pure play” private banks are still in the process of defining their digital positioning, whereas private banks that are part of universal banking groups are more advanced in this regard.
From a general viewpoint, all private banks aim at providing the correct balance between offering relevant features, to the right client, on the appropriate channel, and avoid pushing unwanted responsibilities onto their clients.
In this sense, the current tendency is seen to be more about exploring how to extend the banks’ platforms and applications on the bankers’ tablets, than developing self-service features for the client.Both vendors and service providers have observed three clear areas of focus from their private bank clients. The banks are:
— exploring how to interact with their clients in more seamless and more fruitful ways
— betting on digital to achieve a higher operational efficiency and simplify the banker’s job
— striving to better equip their bankers with digital tools for advisory and portfolio management. Some vendors and service providers believe that execution-only clients will probably move to pure digital brokerage in the future.
According to vendors and service providers, many private banks are still lagging behind in terms of their data and analytics capabilities, as well as in artificial intelligence (AI) — and for the very same reasons previously highlighted by the banks themselves, i.e. lack of data quality, and limited use of information from CRM and transactional applications. Banks do perform analysis of transactional data, but are still building capabilities for the development of decision-making tools.
Finally, vendors and service providers are inclined to think that private banks could probably invest more in the change management effort linked to the implementation of a digital culture.
61Beyond the buzzword
Private banks’ expectations depend on their size and on their clients’ countries of origin
Private banks have varying expectations of their core banking system vendors or service providers, depending on their own size and organisation. Larger private banks usually have their own digital teams and have already invested heavily in front office solutions, including digital solutions — they therefore want their providers to be able to integrate these solutions. Conversely, smaller banks tend to expect out-of-the-box and integrated digital front-ends, for reduced costs and quicker deployment. Finally, some private banks opt for the hybrid option of developing their own user interfaces, integrated into their existing portals.
Figure 41. Key areas of focus of private banks
Client interaction
Operational efficiency
Data & analytics
Change management
Advice & portfolio
management
Vendors and service providers observe that there can be significant differences between the Luxembourg market and other locations. For example, in terms of client interaction, Asian private banks are developing online “chatbots” to respond to the basic enquiries of their clients — a feature which is, to date, barely an option in Luxembourg private banking. Also, while advisory and discretionary portfolio management are core offerings in Luxembourg, it is noted that, in Asian private banking centres, private clients tend to favour execution-only services.
62 Beyond the buzzword
Vendors and service providers invest heavily in the development of digital solutions, with a strong focus on open architecture
In general, digital ranks highly in the priority list of service providers, which translates into a significant effort and investment to deliver their digital roadmap. Their challenge is not only to respond to their clients’ demands, but also to strive to anticipate how digital will continue to evolve.
They therefore put a strong focus on innovation, be it with the creation of collaborative factories with fintechs, or by playing the role of facilitator for fintech selection by banks. They invest heavily in open architecture and the development of application programming interfaces (APIs), to ensure that they will be able to integrate fintechs’ solutions in an agile manner when required. For instance, there seems to already be a strong demand for securities account aggregation, as well as for client profiling and client onboarding solutions.
All vendors and service providers stress their key role in ensuring security for their clients, including in the integration of external solutions.
BPO service providers also invest significantly in developing efficiencies by means such as: maximising business process automation, using robotic process automation (RPA) and exploring machine-learning technologies.
Finally, although demands with regard to data and analytics so far remain limited, some vendors and service providers are currently working on the development of solutions that will enable them to integrate data from multiple sources and multiple countries — and are developing AI capabilities towards “hyperpersonalisation”, as well as more sophisticated analytical models — with the objective of anticipating future demands from private banks.
62 Digital in Private Banking62 Beyond the buzzword
63Beyond the buzzword
Figure 42. Private banks’ expectations of their vendors and service providers in terms of functionalities
Client interaction — Virtual meetings with clients (video, chat, screen sharing, shared documents)
— Secure messaging
Advice & portfolio management — Real-time statements
— Automated risk optimisation through algorithms
— Solutions including regulatory constraints
— Guiding the banker in the dialogue through to investment strategy
— Online signatures for transaction authorisation
Client onboarding — Front office tools for more efficient processing, integrating AML/KYC, etc
— Electronic signatures
— Digital onboarding: upload of documents, verification of signature/ID
Transactions — Cash and securities transactions (to a limited extent). Fewer securities transactions on mobile
banking than web banking
— More efficiency in transaction execution, taking into account regulatory constraints
— Transaction simulations (cost, risk and impact on financial planning)
Security — Confidentiality and security
— Authentication
— Penetration tests
64 Beyond the buzzword64 Beyond the buzzword
International perspective
65Beyond the buzzword 65Beyond the buzzword
66 Beyond the buzzword
United KingdomOverview of the private banking and wealth management market
The UK is one of the leading global wealth management centres. The country has a sizeable onshore wealth market estimated to comprise more than 700,000* HNW individuals, with total financial wealth of US$2–2.5 trillion. This includes about 8,500** UHNW individuals with US$0.8–1 trillion of financial wealth.
Together with the Channel Islands, the UK also serves US$1.25 trillion* of cross-border private client assets. Whilst Brexit has created uncertainty, the structural attractiveness of the UK — London in particular — continues to attract cross-border wealth.
The UK is a highly competitive private banking and wealth management market with a range of financial organisations serving the needs of domestic and cross-border HNW and UHNW clients. These include global private banks, the private banking arms of UK universal banks, independent wealth managers, HNW/UHNW- focused asset managers, and single and multi family offices. Over the last 3–5 years, a number of robo-advisors and online discretionary managers have also entered the market.
UK private clients: profile and digital expectations
UK domestic HNW clients have acquired wealth through a range of sources. Entrepreneurs are a key segment for much of the private banking industry. Discretionary mandates focused on wealth preservation and wealth planning propositions are popular with UK HNW clients.
Typically, UHNW clients seek cross-border solutions and have sophisticated needs requiring capital market- focused solutions and access to a broad range of asset classes. To accelerate revenue growth, private banks are focused on growing lending to HNW and UHNW clients, with investment-backed lending and high-value residential mortgages being key propositions.
Private clients are increasingly more digitally connected, using multiple devices — and their expectations of digital capabilities continue to be shaped by their experiences outside of financial services. Many organisations focused on HNW and UHNW individuals, including luxury brands, have delivered or are developing digitally-enabled client experiences that seamlessly blend digital and human interactions.
66 Beyond the buzzword
67Beyond the buzzword
While the usage intensity of digital engagement mechanisms may differ between individuals, the majority of HNW clients demand and expect “always-on” digital capabilities from their financial advisers and wealth managers.
The scale of the opportunity associated with the expected intergenerational transfer of wealth is also a key catalyst for investment in digital capabilities by private banks and wealth managers. A recent study*** estimated that more than £200 billion of wealth will be transferred by HNW individuals (millionaires) over the next 10 years.
Response to changing expectations and digital disruption
Over the past 10 years, most UK private banks and wealth managers have focused on addressing regulatory changes and have benefited from a growth in assets and revenues on the back of a sustained bull market.
The industry has recognised that it is not measuring up to client expectations of experience in the digital age. We have seen the first wave of investments appear on the digital agenda. These have mainly been focused on delivering capabilities and features that help clients and prospects to: enhance their connectivity to the private bank (e.g. mobile apps, responsive websites, digital availability of knowledge and research); be better connected to their holdings (e.g. online client reporting); and access basic transactional and self-service functionality. These investments have delivered some improvements in the client experience. However, as most of the investments have been oriented toward foundational aspects of the client experience, they have had limited impact on financial performance for most players. Another characteristic of the industry’s approach to digital to date is that it has typically been pursued as a separate initiative or programme. There are differences in the maturity of industry participants in delivering these foundational capabilities — however, at a macro level, this variable digital maturity of private banks has not yet translated into material differences in operational performance or market share.
Going forward, we see an imperative for the digital agenda to be at the heart of reshaping the business and financial performance in the context of challenging markets, evolving client expectations and growing pressure on revenue margins (driven by transparency, sustained competitive intensity and acceleration of low-cost, digital-first propositions), against a backdrop of high levels of regulatory scrutiny.
More than ever before, the success of private banking businesses will be determined by how cohesively they reimagine their businesses for the digital age, rather than pursuing a separate digital agenda. Some private banks have recognised that the shift from “pursuing
a digital strategy” to “operating in the digital age” is profoundly transformative, requiring businesses to build on their strengths while being prepared to fundamentally challenge — and, where appropriate, change — everything from how they attract and serve clients to how the organisations are configured — and, indeed, even how they deliver change. While enhancing the client experience will remain an enduring agenda, we see this refreshed approach to digital as having a broader scope and being more oriented toward delivering business outcomes rather than features. Some of these outcomes will be transformative in nature, such as: helping the industry increase in relevance for specific cohorts of clients (e.g. women, Next Generation); helping private banks capitalise on open banking, reducing the cost of compliance; and creating a more agile, engaged and diverse workforce.
Robo-advice in the UK
The UK has seen a proliferation of robo-advice and digital discretionary management propositions from both new entrants and established industry players. Most of these offerings have been targeted mainly at serving the simple investment needs of mass-market investors, with some organisations focused on “democratising investments”. However, these propositions are capable of serving the simpler investment needs of individuals across the wealth spectrum. Their take-up has so far been limited though — and one global private bank has even closed its robo-advice proposition. Some robo-advisors are evolving their offerings into more of a hybrid model that blends algorithms with human contact. At the same time, we continue to see sustained investment in robo-advice/digital discretionary propositions, along with some new entrants entering the market.
These developments are characteristic of the early stages of innovation in most industries. It is therefore premature to opine on the likely success or failure of robo-advice/digital discretionary businesses. While customer adoption of these models is still evolving, the increasing mainstreaming of robo-advice has catalysed focus on low-cost investing and a compelling user experience across the industry.
“
“
More than ever before, the success of private banking businesses will be determined by how cohesively they reimagine their businesses for the digital age, rather than pursuing a separate digital agenda.
— Abhijit Rawal, Partner, KPMG UK
* Credit Suisse Wealth Databook, Global Wealth Report, Statista, ONS, KPMG analysis
** Wealth-X Ultra Wealth Report, Knight Frank Wealth Report, KPMG analysis
*** Global Data, KPMG analysis
68 Beyond the buzzword
Switzerland
68 Beyond the buzzword
Overview of private banking market
Switzerland is the world’s largest offshore private wealth manager and continues to attract wealth from all over the world, even since the implementation of the automatic exchange of information.
Over the past eight years, there has been a strong wave of private bank consolidation, driven by the appetite for growth and modernisation of half a dozen consolidators, and by the exit of foreign banks’ wealth management arms. As a result, close to 60 private banks have disappeared, mostly smaller (<$5bn AuM) players weakened by the 2008 financial crisis, and struggling to adapt to the current regulatory and tax environment, and the IT spending needed (for more modern and digital core banking systems). With dozens of private banks remaining, there is still a rich and varied ecosystem that includes smaller players, some of them very successful in their niche.
The large change efforts made at many banks, together with support from the financial markets, have led to stabilising profit margins, and Swiss private banks are optimistic about the future.
Swiss private clients: profile and digital expectations
Swiss private banking clients are on average over 60 years of age, and the banks’ view is that only 2% of clients “want digital”, according to the latest KPMG Switzerland survey. Even for the “next generation” (i.e. 45–60 year-olds), this figure is put at only 15% by the banks.
But while clients still mainly expect human interaction with their relationship manager — i.e. not (yet) a robo-advisor — they are becoming more demanding: they want instant access to information, greater and customised investment advisory and portfolio analytics, the ability to interact in real-time with advisors and, increasingly, tax reports.
69Beyond the buzzword
Response to changing expectations and digital disruption
We see a bifurcation in the market.
— The stronger banks make the needed investments into software, data cleansing, process standardisation and staff training which build the basis for the future.
— The weaker ones move more slowly and continue to stress the strength of their client relationships, older clients’ lack of clear digital demand and cybersecurity concerns.
92% of banks state that they want digitalisation to improve the client experience (just 27% intend to use it to reduce costs). They are most advanced in e-banking, mobile banking and communication tools, while starting to move on digital onboarding (18% have at least partially implemented this, and another 33% have planned it).
Digitalisation of advisory
In the wake of regulatory pressure from MiFID II and internal revenue increase goals, most banks have formally defined their advisory products in the last three years. The more advanced are now digitalising their delivery while still keeping the human interaction element central.
For example, in order to support relationship managers in effectively delivering promised services — and to minimise the risk of both non-compliance and wrong advice — some have built software that assesses client portfolios nightly against market moves, client wealth level/risk profiles and goals, the bank’s investment views etc. Based on this analysis, the system suggests investment ideas to the RM, who can then discuss these with their clients. Providing relevant discussion content like this makes the RM much more effective, and reduces the risk to the bank of giving advice that is not in line with the house view or the investor profile. Some banks go so far as to give clients online access to these suggestions or even to send suggestions directly to clients.
Digital client onboarding
FINMA, the Swiss financial regulator, has allowed video identification of clients since 2016. This, and the progress of service providers in client identification, allows banks to offer fully digitalised online client onboarding. Elements include: a questionnaire-assisted KYC process with partly automated checks; dynamic contracting based on information gathered; e-signature; a complete digital journey eliminating manual completeness checks, scanning and archiving; and automated client and account creation in the banking systems. As this allows fully automatic processing in the majority of cases, it can dramatically speed up the process and save costs. The new onboarding journey typically reduces the account opening time from sometimes 10–15 days to 1–2 days. However, so far only the large wealth managers are advanced in implementing this. Behind the digitalisation of the onboarding process a preceding IT infrastructure modernization is often needed to allow for straight-through processing.
“ “Digitalisation of advisory makes the relationship manager much more effective.
— Martin Brändli, Partner, KPMG Switzerland
Figure 43. Banks’ views on clients’ interest in digital
Source: KPMG Switzerland survey
46-60 years old
>60 years old
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15%2%
15%
50%
73%
10%
27%
8%
Clients will appreciate this
Clients want this
Clients have no interest
Banks do not know
70 Beyond the buzzword
Hong KongOverview of the private banking market
Hong Kong, as one of the global financial centres, is also home to a well-established private banking sector. Due to its proximity to China, Hong Kong is a key booking centre for Chinese offshore assets, catering to sophisticated private banking clients with global investment needs across a wide array of products, currencies and deal flows. An observable trend is the growing importance of non-investment related wealth services such as wealth and succession planning, family governance advisory and philanthropy services. This trend is underlined by the increasing number of family offices being set up in Hong Kong.
With a new billionaire being minted every three days, wealth creation in China is at a global peak, which certainly also impacts the growth of the Chinese offshore asset base. Of particular importance for Hong Kong is its immediate proximity to the Greater Bay Area, which is among the most dynamic and innovative growth regions in China.
Competitive pressure for Chinese offshore assets is increasing, mainly driven by new entrants from within China. These newcomers are established banks branching out into private banking, as well as pure-play Chinese wealth managers beginning to expand their offshore capabilities.
Hong Kong private clients: profile and digital expectations
From a client experience perspective, financial services clients in China are among the most demanding in the world regarding (mobile) technology. Whether it is payments, buying and selling of financial products or KYC and onboarding, technology is always centre stage, and the penetration of cutting-edge solutions among users is likely higher than anywhere else.
However, compared to their onshore peers, Chinese offshore clients tend to have more complex and more global product and services needs, which may not — at least not currently — be entirely automated or digitised. Consequently, in expectations with regard to offshore private banking services, the human element continues to play an important role, particularly in the context of complex financial products or high value-added wealthservices. That said, digital client experience expectations regarding plain vanilla transactional products, payments, and client-banker interactions are certainly increasing.
70 Beyond the buzzword
71Beyond the buzzword
Response to changing expectations and digital disruption
Private banks have recognised the opportunities, but also the threats of emerging technologies and new business models for their business. Reactions to these developments are not uniform and can range from partnerships with fintechs, or insourcing via white label technology solutions, to the setup of banks’ own innovation labs with the mandate to develop in-house solutions. However, the general perception of established banks in Hong Kong is that their digital offering is not meeting client expectations (KPMG – PWMA HK Private Wealth Management Report 2018).
Another strong indicator of banks’ recognition of the new reality is the great interest being shown in applications for virtual banking licences, authorised by the HK banking regulator HKMA in 2018.
Virtual banking licences
In 2018, the HK banking regulator, HKMA, called for the submission of virtual banking licence applications. This was received with great interest by the financial services community and resulted in the submission of 29 applications in the first batch which will be evaluated for approval by Q1 2019. This is a clear indicator of the recognition of the importance technology plays in core banking services by both the regulator and the financial sector, as well as of the importance of new business models in finance.
Client experience
Clients are clearly increasingly demanding mobile and digital access to core banking services such as payments and transfers, as well as for buying and selling plain vanilla financial products. Many of these demands can be covered by e-banking services — however, the latter tend to fall short regarding brokerage capabilities and portfolio analytics. Additionally, in order to enjoy e-banking and brokerage services, clients still need to go through onerous and lengthy KYC and onboarding procedures in order to open an account. This is another area where technology can clearly improve the client experience, by reducing onboarding time and easing the onboarding experience (e.g. by using remote KYC via facial recognition).
Cybersecurity
Embracing emerging technologies inherently increases the vulnerability for cyber attacks. Hence, the importance of cybersecurity, mitigation, threat response and forensics services has increased exponentially. Due to its increasing prominence, cybersecurity has moved into the C-suite and has become a topic of strategic importance, not only for financial institutions. Cybersecurity has also moved firmly onto the agenda of the HK regulator, increasing the requirements for protective measures, cybersecurity governance and breach disclosure measures.
Figure 44. Growth in private wealth AUM in Hong Kong (US$ billion)
Source: KPMG – PWMA HK Private Wealth Management Report 2018
CAGR:
680
2015
790
2016
+20%990
2017
“ “
Financial services clients in China are among, from a client experience perspective, the most demanding in the world regarding (mobile) technology.
— Ricardo Wenzel, Director, KPMG Hong Kong
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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