Low margins, cost pressure, more demanding customers: Private banking is facing numerous challenges. However, as a provider, you should regard these developments as an opportunity, because this is how you can benefit from the digitalization of private banking.
Private banking has been a constantly growing and tremendously successful line of business for a long time. Since the turn of the millennium, things have looked different. Although assets under management have declined according to Deloitte continued to rise between 2000 and 2020 – by 60 percent but at the same time profitability fell by 40 percent. According to the experts at Deloitte, the provider’s business models are to blame for this development: They are outdated and increasingly fail to meet customers’ needs.
These needs have changed dramatically in recent years. As we have become accustomed to in other industries, banking transactions should be able to be carried out 24/7 and with little effort. The solutions must be state-of-the-art and include additional functions that not only look good but also offer added value. Thanks to the Internet, customers are also increasingly well informed. They compare the services and fees offered and (understandably) only want to pay for what they actually need.
Those who do not meet these demands will not be able to hold their own. Because while bank customers used to be very loyal, today they are more willing to change their banking relationship.
Not to do things by halves
The changes in private banking are so profound that it is not enough to digitize individual areas. Installing digital sales channels, such as an app, is the first step. However, to remain relevant in the future, providers must also digitize all processes from the ground up.
At the same time, it is important to maintain proven strengths such as discretion, quality, individual service, and independence. The latter, in particular, is central to private banking and allows clients to be served not by product salespeople, but by financial specialists. By advisors who earn not from product commissions, but from the growing wealth of their clients.
While many providers are still struggling with these developments and sticking to the existing business model, customers have become accustomed to the benefits of digital offerings. Not only because of the leaner fee structure but because they benefit in other ways as well. For example, in a Studie von Ernst & Young 57% of respondents say they make better investment decisions thanks to digital tools. Unsurprisingly, Millennials (78%) use the offering more than Generation X (59%) or Baby Boomers (42%). The Corona pandemic has further reinforced these developments, with more than half of respondents now relying even more heavily on digital tools.
Digital but still personal
However, the increased focus on digital offerings does not mean that people no longer play a role in private banking. The need for personal advice will continue to exist in the future, which is why hybrid business models have the best prospects. In these, all processes are digitalized, but it is still possible to speak to an advisor in person if necessary – for example, via video call.
The democratization of private banking not only benefits customers but also those providers who can meet the new demands. Thanks to competitive offerings, they are becoming attractive to more and more people and can expand their customer base. But unlike in the last 20 years, costs are no longer getting out of hand because the majority of processes are digitalized and cost-effective. Clever digitized private banking is therefore attractive for customers and providers alike.
Continue reading in our journal:
- More on Digital Wealth Management
- Background on the family office
- All about private financial planning
