Beyond the buzzword - ABBL · 2019-02-18 · Beyond the buzzword 3 Over the past two decades, the Luxembourg private banking industry has frequently been said to be at a crossroads

Digitalisation and Luxembourg private banks

Findings from a joint KPMG and PBGL research study

February 2019

kpmg.lu

Beyond the buzzword

2 Beyond the buzzword

Foreword


3Beyond the buzzword

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


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)


Organisation & culture24


Digital communication52

Voice of core banking system vendors and BPO service providers

58

International perspective64

Customer experience34

Distribution & sales42



About this research


7Beyond the buzzword 7Beyond the buzzword


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


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

10 Beyond the buzzword10 Beyond the buzzword


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.


Executive summary


13Beyond the buzzword 13


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 ...



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.


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.


Digital strategy




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

lem

enta

tio

n o

f d

igit

al s

trat

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Definition of digital strategy



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.


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.


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



Other

• Dynamic tools for portfolio consultation and reporting

• Securities transactions on multiple markets76%

71%

29%

18%

18%

5%


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.



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.


Organisation & 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.

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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ure

Organisational maturity



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%


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.


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.


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%


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



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


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.


Customer experience




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



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.


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.


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%


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?


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.


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%






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


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%


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



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


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.



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


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.



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%






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


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.


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.


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


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


Voice of core banking system vendors and BPO service providers




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.


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.


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


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


International perspective



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.



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


Switzerland


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.



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


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.




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.

© 2019 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.www.kpmg.lu

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