As private banks struggle to be profitable in an ever-challenging market environment, their focus is sharply on ways to try to improve margins and remain competitive.
The market dynamics impacting private banking in Asia continue to consist of higher regulatory costs, shrinking margins, institutions merging or exiting the region, and a challenging economic landscape more broadly. In response, each financial institution is grappling with how to adapt core parts of its business model, along with key functions relating to operations, infrastructure, technology and systems. Clearly, different banks are approaching change in different ways. This is driven by their strategic priorities as well as the opportunities they foresee for themselves.
Fundamentally, however, the competitive edge that private banks have is going to come down to the value proposition they offer their customers, coupled with the extent to which these clients are getting what they want. And an important part of this, agree senior industry executives, is providing distinct points of differentiation. This is increasingly based on contact points with clients and the overall user experience – requiring an effective and relevant digital journey
These were some of the key take-aways at a discussion in Singapore with senior management and business heads across technology and operations, co-hosted by Avaloq and Synpulse.
Finding a common solution
Nobody; from CEOs to front-line staff – can avoid being bombarded by the pressing requirements stemming from far-reaching regulatory change. The upshot, in addition to escalating costs at a time when banks can seemingly least afford it, is that this eats into the time that relationship managers (RMs) get to speak to and engage with customers.
The fact that the complexities of their job are increasing too, makes it even more difficult to generate more new business in an already-tough market landscape.
Further, regulatory, tax and general transparency-related measures will only continue to get more stringent in the wake of developments such as BSI being forced to shut its operations in Singapore.
Automation towards efficiency, therefore, is key. Private banks must find ways to industrialise and standardise as many of their process and platforms as possible.
Outsourcing the solution
Indeed, the need to deal with excessive and ongoing regulatory demands probably has the greatest potential to drive acceptance among senior management of the need to outsource back-office processes. Making these leaner and more efficient is key to reducing time to market plus scaling the business.
The same institutions are also looking at fintech solutions to reduce the cost burden in their bid to boost profitability in their target markets.
And while more industry consolidation also seems inevitable, outsourcing IT and operations get more viable every day.
More specifically, business process outsourcing (BPO) is one option to avoid high up-front investment costs, if banks cannot leverage the platform of head office.
In particular, the Avaloq / Deutsche Bank project provides a benchmark for many other private banks.
A few banks say they want to see others come on board first. They want to understand where the real cost savings might be, and what the issues are relating to data and regulatory oversight.
But if more institutions can get comfortable with the concept and start to embrace it, the community leverage that can be achieved will benefit everyone.
The more (non-sensitive) information that gets shared, for example, the more value it provides for each bank.
Plus, it creates a standardised approach across the industry in areas which many organisations lack either the scale or clarity (or possibly both) to know how to address.
At the same time, however, how to integrate with the model and implement the outsourcing is an important factor in determining how well it works for different banks.
Further, when assessing costs and benefits, softer factors must also be taken into consideration – such as the cultural change created.
An important source of tension also exists in terms of a pay-off play-off.
This essentially relates to the need for a solution which is tailored to the way an individual institution operates (and wants to continue operating), yet one which also delivers the same end-result at a much lower cost, but perhaps in a slightly different way.
Experience counts
The importance of the client experience is also increasingly significant and cannot be over-looked as private banks try to find sustainable and profitable paths for their business.
Despite the drive for more efficiency and cost-cutting, the client journey must remain paramount.
This translates into several key goals. Among them is the need to provide more relevant information for clients, and which in turn helps RMs to become more efficient.
To do this, it is important to work out how to use digital tools in areas where margins are thinnest and a low touch is required among the front-line.
RMs need to be prepared for this, which requires them to have the right mind-set in terms of how to work with digital to add real value to clients and better engage them. Entering the digital age requires this mind-set which is different to those one required in running an established institution.
Notably, one of the trends which is gaining some momentum is banks increasingly working with the end-user experience in mind, and then reverse engineering the application. More broadly, there also needs to be an acceptance of failure to find the right solutions. At the least, the awareness of the need to tweak is critical.
It will be interesting to see whether there can be an equivalent ‘What’s app’ moment for the private banking industry in Asia.
But this all comes back to scale to sustain the kinds of investments in technology required.
Without a way to find such scale, it will be very difficult for some institutions to survive.
Although banks will continue to have an advantage in terms of trust, in relation to individuals putting their money, these institutions need to leverage that trust.
Defining the right target operating model is ultimately the source of a real competitive advantage.
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