23 October 2016
Jeroen Buwalda says fintech can help private banks reduce costs and improve services. Photo: HKEJ
Jeroen Buwalda says fintech can help private banks reduce costs and improve services. Photo: HKEJ

Private banking sector set to evolve with fintech

Smartphones today allow users not only to easily compare prices of hotel rooms, trade stocks and do their online banking but also to gain access to wealth management services.

As private bankers embrace the trend toward financial technology (fintech), the face-to-face approach to sales is becoming less common.

“A lot of old-fashioned bankers will probably prefer face-to-face above digital interaction channels,” Jeroen Buwalda, Asia-Pacific wealth and asset management leader at Ernest & Young, told the Hong Kong Economic Journal in an interview.

“But clients now demand access to many services online. They want to save time meeting with their private bankers.

“Fintech applications will make a big difference.” 

Dominic Gamble, founder and chief executive of WEALTH, an online “matchmaking” service for wealth managers and clients, said: “The salesman approach has died in most developed markets and will be dying in Asia soon.

“As trust builds in the power of online comparison and selection of service providers, the face-to-face model will be gone.

“Many consumers do not realise that the only reason businesses can continue to employ face-to-face sales is because fee margins are so high.”

In Asia, wealth management remains a very traditional industry and is reliant on personal networks and word-of-mouth referrals, Gamble said.

However, this is inefficient and often ends up with an investor engaging with a wealth manager who is not the “right fit”, he said.

Gamble said high-income people in countries such as Thailand and Indonesia, who lack investment options and advice, also demand professional wealth management online.

These developments, plus high rates of digital adoption, make wealth management ripe for fintech firms to come in, he said.

Digital adoption

While there is a perception that the elderly are less tech-savvy, the reality is that seniors in Asia are very comfortable with technology.

In Hong Kong, about 80 percent of those aged over 55 use the internet daily, a global study by Google shows. The figure is 94 percent in Japan and 78 percent in Singapore.

“People think just the younger generation tends to use digital. That’s not necessarily a right assumption,” Buwalda said.

He said retired people actually have more time to adopt new technologies, and they are no strangers to WhatsApp and Wechat, as they want to communicate with their grandchildren.

However, people aged around 50 might have more difficulty adopting digital services, as they are at a prime time in their career, Buwalda said.

“People in this segment are working very hard to build their businesses and have not much time to adopt new technologies,” he said.

Fortunately, as more and more clients are asking for digital services, the barriers to digital adoption will come down, Buwalda said.

“In the next 10 years, I can well imagine that a very large proportion of digital services will be from private banks,” he said.

“That could be to manage portfolios, interact with private bankers or subscribe to other wealth management services.”

While the younger generation has been quicker to adopt digital platforms — from internet banking to ordering groceries online — “silver surfers” are getting more and more used to conducting daily chores online, said Gamble.

“Digital adoption for private banking services will only increase as the current populations aged 40-50 start to get older,” he said.

“They will be more used to technology and using mobile and the internet to make their life easier.”

While much has been said about the challenges associated with looking after large populations of elderly people, technology will solve many of these issues – simply because tomorrow’s seniors are digital natives, Gamble said.

Fintech implementation

Although most private banks have recognized that fintech is the trend of the future, some remain reluctant to adopt the technology, because of their concern about the initial investment.

Some private banks may not be able to spend on fintech innovation, as they have small operations, Buwalda said.

Also, as the wealth management market remains very fragmented in the Asia-Pacific region, it may not be able to justify a large initial investment in fintech, he said.

However, Buwalda said, private banks should be reminded that they will eventually be able to save operational costs as fintech helps minimize the workload of relationship managers, portfolio managers and investor managers and allows them to focus more on their specialist areas.

Also, as the global private banking market is likely to consolidate further, because of narrowing margins, fintech will help private banks boost efficiency and handle cross-regional business, he said.

The adoption of fintech by private banks will accelerate, Buwalda said, given the fact that some international banks are putting more resources into their private banking units because of increasing regulatory requirements in other banking activities.

“We believe the fintech startups that have disrupted the market will be disrupted by the traditional banks, which are coming back very quickly with a lot of applications and have an advantage with their existing distribution networks,” he said.

Buwalda said pure fintech companies may not be able to threaten the traditional private banks, as they lack well-established client networks and strong teams of relationship managers.

Clients and good relationship managers are the two rare resources that new private banks find it hard to find, he said.

Gamble said private banks can adopt fintech through acquisitions of related startups, which enjoy certain flexibility in developing new tools.

“Banks do acquire fintech firms simply because they stand to benefit from many of the innovations they develop,” he said.

“Fintech firms are able to quickly develop solutions to problems that many banks face. They are not burdened by multiple branches, bureaucracy or legacy IT systems.”

Gamble agreed that fintech startups are not necessarily disruptive to traditional banks.

Last year, Credit Suisse launched a global digital private banking app for clients in the Asia-Pacific region, with Singapore as the first launch location.

The new digital platform will place the bank at the forefront of providing digital wealth management services to its current and next generation of clients, while creating a new private banking service delivery model, said Francois Monnet, the Swiss bank’s head of Greater China private banking.

“Private banking is a relatively nascent industry in Asia, and we face the challenge of a shortage of talent. A digitalized multi-channel service delivery model will bring the relationship manager and bank significant efficiency gains and higher value-added productivity,” Monnet said.

[Chinese version中文版]

How fintech is shaking up private banking (May 18, 2016)

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Chief reporter at EJ Insight

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