The increasing role of technology in private banking has upset the old tried and trusted ways of doing business Published in Bloomberg Businessweek, 7 June 2015
“Twenty years ago, only sophisticated financial intermediaries could afford powerful data tools. Now, virtually anyone with a smartphone can access even more information. My dad can see almost the same things on his phone that I can see on my desk here,” says David Pinkerton, chief investment officer of Falcon Private Bank, a Swiss firm with offices in Dubai and Abu Dhabi. His comments highlight some of the opportunities and the challenges that private banks face as they try to move with the times.
In the past, the access that private banks had to information put them in the driving seat, enabling bankers to give advice to clients that they couldn’t otherwise get. That relationship has now fundamentally changed. “The tools that are available are very powerful and enable people to do a lot of things on their own,” says Pinkerton. “That means they’re less likely to want to pay for certain plain vanilla services from their private bank.”
Banks have responded by developing new digital and mobile services, offering the ability to transact online and access research and market commentaries. They can also offer dynamic, real-time reporting on a client’s portfolio. If done in the right way all this can improve the quality of their service. It can also give the banks greater insight into what their clients’ preferences are, and which groups of people are the most lucrative.
There is, however, a dark side to the new technology. “Every time you expand your use of technology you expand the opportunity for people to take advantage of loopholes they might find,” says Khaled Sifri, chief executive officer of Emirates Investment Bank. “The bad guys are out there looking for loopholes every day. We have to be very vigilant.”
The threats are not necessarily sophisticated. Five or six years ago financial regulators in Saudi Arabia began to get nervous about one area of online activity and, in response, sent a letter to the country’s banks telling them to inform their clients that it is forbidden to pass on their internet banking login details to asset managers. “What had happened was that a lot of small asset management companies had popped up and were asking clients for the login details to their e-banking accounts so that they could act as their discretionary mandate asset manager,” says one industry executive, who preferred to remain anonymous. “Apparently it had happened on a large scale.”
Such incidents can feed into a wariness about personal finance technology among customers and this is particularly prevalent among older generations, who prefer regular personal interaction with their wealth manager. A survey by Standard Chartered Private Bank last year found that, among high net worth business owners, those in their 50s liked to speak to their wealth advisors once a week while those who were less than 40 years old only expect a conversation once or twice a month.
“Digital platforms are growing in importance and we have a fairly ambitious programme for renewing our entire platform,” says Daniel Savary, head of the Eastern Mediterranean, Middle East and Africa for Bank Julius Baer & Co. “However, it is important to recognise that private banking is a relationship-led business that is built on trust. The kind of personal interaction it offers will never be replaced.”
That’s a widely shared view in the industry. Rami Sayegh, head of private banking wealth management at Bank of Sharjah, says a large proportion of its clients still prefer to deal directly with private bankers. The trick is to get the balance right between personal service and the ease-of-use that comes from digital offerings. There are some signs that a lot of private bankers in the region have yet to really face up to the changes that are happening, particularly when it comes to dealing with younger customers.
In a recent survey, consultancy firm Strategy& found only 50 per cent of Middle East wealth managers believe that digitisation is of medium to high importance. Standard Chartered, on the other hand, says that 84 per cent of the highnet-worth business owners it asked regard access to wealth management services via digital channels as important.
Finding the right balance is only likely to increase in importance in the years ahead, given the trends that are apparent in wider society. “Millennials are the biggest spending generation in history,” says Cedric Lizin, head of the Middle East and North Africa for Barclays Wealth & Investment Management.
“They need connectivity, they need mobility, they need speed and reliability. This is not a ‘nice to have’ but a ‘must have’ for this segment. Technology is a key area of focus, including on-demand services, innovative apps and user-friendly platforms,” says Lizin.