Damian Hitchen, Chief Executive Officer for the Middle East & Asia at the digital Bank, trading/custody platform provider Swissquote presented a fascinating Workshop at the Hubbis Middle East Wealth Management Forum in which he surveyed the world of financial services and warned that wealth management firms in the Middle East must embrace technology solutions. Partnerships and outsourcing are vital in order to help firms evolve their products and services, to bolster their revenues and to strengthen them against the inevitable wave of new competitors sweeping across the leading economies worldwide.
Hitchen has a truly global perspective from Swissquote’s worldwide business operations. Looking at the Middle East, he is concerned that many of the incumbent wealth management and financial firms are slow to realise the impact that technology is having across the globe on the delivery of financial services and therefore of the competitive environment.
Big Tech and ‘nifty’ new entrants, both armed to the teeth with technology, strategy, and deep pockets – whether corporate funds or private equity – are revolutionising the delivery of financial services. A remarkable example is that some 80% of all online payments in China’s vast economy are now transacted through just two digital non-Bank platforms.
The Middle East wealth management industry will, Hitchen firmly believes, be one in which the human interface with the client remains vital. But for relationship managers and customer-facing team members to be truly successful, their firms must free them up from laborious tasks, and enable their revenue generation with new technologies. To do so they should work with specialist partners who can truly help them fast-track the necessary changes, or at the very least they should consider outsourced plug-and-play solutions.
Hitchen knows, from his broad experience, that change in the wealth management industry is inevitable and that it must not be ignored. He implored the audience to action, arguing that the only incorrect step is to do nothing.
Hitchen heads Swissquote’s business in the Middle East and Asia and has an in-depth appreciation of the clientele and their needs, as well as a deep understanding of the global market that Swissquote services. Armed with this knowledge, as well as an evident passion for his subject, Hitchen cast his eye over the broad landscape of digitalisation and gave the audience some invaluable insights.
A platform for success
Swissquote offers a state-of-the-art trading and custody platform and tools to allow the firm’s customers to trade on behalf of their wealth management clients. All Swissquote customers around the world manage their accounts and global trading via a PC, a tablet, or a smartphone. The firm’s clients include B2B, for example, full-service global banks, private banks, independent asset managers, insurance companies and family offices, all of which are looking to provide their clients with an enhanced digital experience. With Swissquote’s Execution-only model this means there is no conflict of interest with its B2B partners, as the Partner delivers the product and advice and then executes on the Swissquote platform.
Offering full information, access, and functionality, Swissquote’s platform houses over three million investment products online. The firm can partner with anyone who uses their technology platforms for custody and to execute securities trading on behalf of their clients.
Stability is, of course, paramount. Swissquote is both solid and well capitalised, having been listed in Switzerland since 2000. The bank has around US$26 billion in assets under management and with a Tier 1 capital ratio of 27.5%, which is in the top 50 banks in the world, in terms of capital.
A partner, not a competitor
“We are very different from your normal traditional Swiss bank and indeed Swiss private bank,” Hitchen explained. “We are a fully digital bank offering a global banking, trading and custody platform that is purely online.” As such, Hitchen and his colleagues are intimately involved in the evolution of digital financial services. “We see the fundamental driver for technology as expanding customer expectations,” he added.
“There is huge money being spent within this ecosystem to move the whole financial services industry forward.” And a huge percentage of that money is being spent on technologies, from robo-advisory solutions to alternative finance or lending platforms.
GCC slower to adapt, but the potential is there
“There is so much money being thrown at the concept of fintech or technology and financial services,” he observed, “so now the question is whether it is being spent in an efficient manner that will truly add value to the industry and ultimately the end clients or consumers.”
He added that the driving forces are in North America, Europe and Asia, while the GCC region is generally slower to adopt technology, although the advantage is that the solutions coming into the region are already proven elsewhere in more mature markets.
Hitchen mined down into the further detail of technology investment within the financial services industry. Looking first at the retail market, he noted that two businesses now dominate the entire national payments sector in China, handling over 80% of all online remittances and payments. “For two non-bank providers to be transacting that much in an economy as vast as China is quite remarkable. That shows us all the potential threats from the non-bank providers, especially as technology moves faster and faster.”
The new market
He elucidated his view by remarking that in Asia, his other key market, millennial and new wealth in the age group of 35 and younger has far less brand loyalty or brand respect as the older generations. They seem quite content to bank and conduct their financial services through what are today non-bank players.
Hitchen also highlighted the importance of aggregators, citing the example of an ultra-HNWI who holds a variety of private banking relationships. “What he would want,” he explained, “is the ability to see all of that on one central dashboard. Many Singapore and Hong Kong private banks are now using such external aggregation software and services or moving towards that.”
Hitchen explained that only a limited number of banks understand that they will need to offer their data alongside data of their competitors, because the client is now driving the conversation, demanding a consolidated view of their personal finances, rather than exclusivity.
New entrants armed with technology
Hitchen observed that banking as a service is therefore emerging, but not yet developed. “Banking as a lifestyle,” he added, “is where from a conceptual perspective a lot of the money is being spent.” And armed with big data and tremendous resources, the Big Tech firms or other non-bank players can and likely will present a radical challenge to the established financial services firms of all types. He also cited the example of specialist, tech-enabled lending services firms, who are proving the concept of how they can advance the loans industry and then sometimes partnering with the big, traditional global banks and houses to help them boost their customer experience and satisfaction.
Hitchen then returned to the key drivers of change. He explained, for example, that a local bank, asset manager or insurance company must as an absolute minimum be providing clients access to information through their preferred channel, whether that is a PC, a tablet, or a smartphone.
Clarity of thought and action
“Such players,” he advised, “need to be very clear on where they are today about fixing the immediate problems and thereby providing a better service, a better information communication to existing clients and then think clearly about where they are going next.”
Hitchen then referred to data from surveys to support the thesis of precisely how digitally challenged the financial industry is today. And explained that from Swissquote’s discussions with its B2B prospects and partners, the firms find that very few players have a clear focus on what they want to do. He advised stepping back to accurately survey where they are today, what the clients want for tomorrow and then prepare a detailed roadmap ahead. “We see an enormous amount of work,” he said, “and money spent which is not really leading anywhere.”
Wealth management industry lags behind
Zooming in on wealth management, Hitchen observed that it is, as he said, “way, way behind the curve”. He concluded that when the non-bank competitors go mainstream, the risk is obsolescence for the traditional incumbents, as they miss the boat for radical transformation. “It is globally acknowledged that wealth management, asset management, insurance to an extent is behind the retail banking and payments side of the industry, that it must improve quickly. But I do not really see a huge change regarding implementation and action.”
He explained, for example, that he had been in deep talks with at least two local banks in the GCC region for more than four years about a potential partnership which will help them add value to their wealth management proposition for their clients, but so far without making any material, tangible advances.
Cast off the inertia
“There are many reasons for that,” he observed, “from the problems of legacy systems, the vested interests and “empire building” of internal departments such as Treasury, IT and product departments.
Other obstacles include different stakeholders in a larger organisation, even sometimes the board of directors not following through with the CEO plans.” The conclusion is that the whole team must be on board for change to be embraced and effected, but in the Middle East that is not yet happening.
Partnerships can fast-forward your future
Hitchen turned to the potential for partnerships to help fast track change. He advised firms to identify the areas where they can and want to change and then either do it themselves, or, as is more often the case, work with a partner who knows what they are doing, a specialist, and plug and play into that platform, that solution.
“This all starts with strategic analysis,” he explained. “And then how you do it. In-house is extremely challenging unless you are a huge global player and, in my experience, there are perhaps only five or 10 firms around the world who should adopt that model.” Accordingly, his advice is clear – partnerships from both a purse and a business perspective are strongly preferred. And outsourcing is the next level of preferred option.
He defined partnership as working exceptionally closely with an external party to devise the proposition, refine the strategy, and deliver the results together. While outsourcing is taking a more homogenous, off-the-shelf service and plugging it into the institution’s infrastructure. “In this case,” he elucidated, “you are not really working on a continuous basis with a partner, but this all comes back to strategy, being clear on where you want to go and then working out the best way of achieving that.”
Hitchen drew his Workshop towards a close by reiterating that if a firm cannot defend its existing relationships, it certainly cannot extend them and grow. And the firm in question must balance its approach, for example combining the efficiencies of the robo-advisory protocol, with the many and significant advantages of face-to-face communication with clients.
“We have no doubt that there will always be a place for human advice,” he advised. “Working with partners to make time for your relationship managers, for your client-facing staff to spend most of their time talking to clients rather than doing paperwork, data collection, continuous KYC and so forth because all of that workload can be outsourced.”
The very real risks of inaction
He closed with a summary of the rationale for evolution. Revenues, he remarked, are the obvious reason. “Inevitably,” he observed, “technologies and platforms, particularly in wealth management and private banking, and no doubt in insurance as well, will drive premiums and revenues down, and further down. So, we need to control that threat within the ecosystem. So, do not underestimate the threat of non-financial providers, be aware of the increasingly modular nature of financial services, with the AML/KYC software, the compliance software, the risk management and asset allocation software, the platforms and others.”
He closed with a call to action, stating that the only wrong approach is to do nothing. “This is all inevitable,” he said, “it is happening today. “Think really carefully about where your business is today, where you want it to be tomorrow. Start thinking about partnerships.”