October 2014

The private banking newsletter
Oct 2014
Outsource and Innovate
Two critical capacities of the private bank
T
alk to senior bankers, wealth management
The second group of challenges demands a different
professionals, consultancy companies, and other
approach. This group includes issues facing the new
industry experts about the state of private banking and
generation of clients, digitization, and competition
wealth management, and you will find that, although the
from non-banking players. Coping with these
number of wealthy individuals is growing globally, they
challenges requires that the industry rethink its client
all agree that the industry faces significant challenges.
services model and become more innovative. The new
The challenges are manifold, but for the sake of
devising solutions, we propose dividing these
challenges into two groups. The first group includes
market and environmental challenges, such as lower
margins, smaller revenues, increased regulations, and
a complex, high-cost operating environment. For this
group, the answer is business process outsourcing
(BPO). Traditional BPO is intended to lower costs and
increase efficiency for simple task-based processes,
such as payments. Over the past decade, though, BPO
has evolved. Today, BPO providers have adopted more
complex, knowledge-intensive, industry-specific
processes, such as compliance and regulatory
processes. While most BPO offerings still fall short of
covering the entire private banking business, private
banks view BPO as a viable strategy to concentrate on
their core competence: client services. The key is to
find a capable BPO provider. Such a provider must
have banking skills, functional expertise, and
operational excellence in order to understand the full
context of and effectively support the bank’s processes.
generation of clients not only prefers but simply
expects to use digital channels, such as the Internet
and mobile apps. This generation of clients also
embodies the shift from consumer to participant,
which will fundamentally change interaction between
the bank and its clients.
Under Par October 2014
New ideas for private banking services can attract
Private Banking Gamification: This service
new-generation clients and create incentives for them
taps into the natural human tendency to
to engage with the bank. As a senior banker put it:
participate in games and enjoy game-like
Private banking does not need to be boring. Why
situations. Features such as contests, prizes,
should the industry not draw some inspiration from
and scorecards promote online activities and
Facebook, Amazon, and Google? Of course, when
create incentives for clients to use the bank’s
implementing these ideas, adjustments must be made
products and services. For example, clients can
to comply with prevailing rules and regulations.
be enticed to win the title of investment master
for selecting the portfolio with the highest
Online Private Banking Forum: This forum
performance, to increase their score for
allows clients to network with their peers. Its
guessing the title which sells most in a day, or
features include question-and-answer sessions
to compete with peers in voting for most
about finance and investment topics, such as
successful crowdfunding project.
stock performance, investment opportunities,
industry news, and suggestions for portfolio
Online Exchange: On this private exchange,
allocations. Clients can share information,
bank clients and prospects can buy and sell
opinions, and experience. This kind of peer-to-
valuables, such as paintings, jewelry, yachts,
peer exchange may well outperform the
and mansions. The bank manages and controls
traditional bank-to-client advisory approach. In
the exchange, which offers additional services,
particular, it could help counteract the loss of
such as estimating the value of an object and
trust plaguing the entire industry since the
arranging the transfer of the goods. Clients’
2008 financial crisis.
names and identities are known only to the
bank and are not disclosed to other clients.
Crowdfunding Platform: Clients, prospects,
and the bank itself can introduce projects on
the bank’s crowdfunding platform. The bank
manages the crowdfunding process and
Conclusion
BPO is a powerful strategy for the private banking and
provides online updates about the projects’
wealth management industry to deal with market
financial status and outlook. Should a project fail
volatility, lower margins, costly operations, and
to take off, clients can re-distribute the money to
increased regulations. Selecting the right BPO partner
other projects. The crowdfunding platform and
is crucial to tackle these challenges.
services might appeal to philanthropists among
high-net worth clients, especially if the projects
serve nonprofit purposes. Additionally, the bank
can improve its image by supporting such projects.
To succeed in an environment of shrinking demand
and increasing competition, banks also need to
become more innovative. They must create a
compelling value proposition to retain existing clients
eFamily Office: The services of the traditional
and attract clients of the new generation. Whether fully
wealth management family office are offered
or partly compatible with the traditional private
online to cater to new-generation clients’ digitized
banking style, many features like those popular on
demands for access and availability. These services
Amazon, Facebook, and Google are genuinely attractive
include tax management, multigenerational wealth
to banking clients, be they retail or high net worth.
management, financial advice, family wealth
planning, and support for philanthropy and
nonprofit activities. These services are enhanced
by digital features, such as customizable views of
data and information, simulation of wealth
development based on different scenarios, and
personalized wealth management.
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October 2014 Under Par
Dreaming of a global platform
The management handicap of private banking and wealth management
W
ill the dream of a single platform for globally
operating wealth management banks ever
come true? Over the past two decades, many large
Prototypical failure of a global project
A large private bank starts to roll out a vendor
banks have tried to standardize their wealth
package at its major sites across the globe. The
management booking centers with commercial
program is based on a 5-year business case
banking packages or in-house solutions. These
promising substantial cost savings. When the first
projects have much in common with the value
site prepares for migration to the new platform, the
proposition of today’s top-of-the-line business process
project team requires many resources to cope with
outsourcing (BPO) providers but also exhibit
fundamental differences.
The drivers of global platforms and process
standardization are cost reduction and increased
efficiency. If all your booking centers or BPO client
banks use the same platform, you will profit from
economies of scale. Maintenance and upgrades can be
larger than expected gaps in functionalities,
different product offerings, and local dependencies.
Fifteen months into the project, many locationspecific changes have been implemented to meet the
site’s needs and expectations. Due to substantial
customization, the project runs over budget. While
the next site on the program’s roadmap is getting
ready for the migration, a new global information
technology (IT) head takes over. He requests an
managed in less time and at a fraction of the cost. In
assessment of the business case and a complete
addition, standardization enables automation, which
review of the program. With uncertain long-term
increases efficiency and reduces errors. In today’s world
benefits, increased pressure from the business, and
where lower costs must offset diminishing revenues,
new short-term cost saving initiatives popping up,
exploiting synergies and economies of scale is vital.
the IT head cancels the program.
However, the barriers to implementing a standard
solution are high, ranging from technical to political.
have to perform a delicate balancing act: They need to
Assume that your booking centers use different
remain true to the single platform while also deciding
banking platforms or a heterogeneous mix of in-house
how to best accommodate and implement changes.
and commercial applications. Further assume that one
of these platforms is suitable for serving as a global
standard (in BPO terms, a model bank). When you
implement this platform at other sites, though, there is
never a complete fit. Be it different operating models,
mismatches in the data architecture, missing
functionalities, or different processes, there are always
discrepancies and gaps. Banks and BPO providers alike
Customization must be kept to a minimum. Ideally,
customization is used only for tax and regulatory
requirements, and even in these cases, work-arounds
and shortcuts that violate operational, architectural,
technical, or data standards should not be tolerated.
Requests for new or different functionalities have to be
thoroughly scrutinized. If a new functionality is
deemed necessary, for example, for handling new
products, it should be designed and implemented
as an extension of the single platform, not as a
site-specific version. Changes geared toward the
particulars of a site impact the implementation on
other sites and, more seriously, jeopardize the future
of the single platform.
Considering the tasks at hand, it is clear that, to
address these challenges, you need excellent software
engineers and banking experts who have profound
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Under Par October 2014
knowledge of the business, its products, and its
In contrast, standardization and operational excellence
processes. These experts also need to be able to look
are crucial for BPO providers to survive. They
ahead and anticipate future changes.
immediately address any obstacle that impedes
The biggest threats to the single platform, more
intractable than technical and functional problems,
are people and management problems. Here, banks
and BPO providers diverge. For the bank, IT and
operations are means to an end. If the situation so
demands, business requirements are given priority
standardization and streamlining. For them, the back
office is the equivalent of banks’ front office. BPO
providers have very strong incentives to build and
manage single platforms and, consequently, better
chances of succeeding in these projects.
Conclusion
over standardization. The adoption of standard
processes might be questioned because of how
Large banks and BPO providers seek to implement
business was conducted in the past. Only with
standardized platforms. Both are driven by the need to
extremely strong governance and the full commitment
reduce cost and enhance efficiency, but they are not
of top management can the bank ensure that all
equally well suited for the task. Given the challenges,
involved in the project are pulling in the same
banks are ill advised to embark on the path to global
direction. If management commitment is not strong or
platforms without extremely tough IT and operational
wavers over the course of the project, it will fail.
leadership and long-term management stability and
commitment.
Editorial Board
Sigrid Unseld
Sigrid has worked as an IT consultant for more
than 17 years, for major Swiss Banks and
Private Banks in Europe, the Asian Pacific and
Richard Zweng
the Americas. She has managed international
Richard has over 15 years' experience in the
projects and has extensive experience in many
private banking industry, which was acquired
areas of private banking. Sigrid is a managing
in dynamic and ever-changing financial
partner of Scilla East Consulting.
environments. He has demonstrated longterm leadership ability, and has worked
extensively with numerous different cultures
globally. Richard is a managing partner of
George Ong
Scilla East Consulting.
George is Founder and Chief Executive Officer
of Axisoft. Since 1998, he has been leading the
company to offer IT solutions and services to
Private Banks. His experience includes
solutions and services strategy, technology
consultancy and business development
functions in Asia Pacific.
Axisoft is a Top-Notch Wealth Management Solutions
Provider. Since 1998, we have been helping global top-tier
Private Banks improving their profitability and operation
efficiency.
At Scilla East, a best-in-business, senior team delivers both viable
strategies and hands-on solutions. We have a proven track record
of success in numerous private banking assignments around the
globe. Our approach to projects involves combining extensive
private banking expertise with state-of-the-art IT knowledge.
"Under Par" is brought to you by Axisoft and Scilla East.
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