1+1=3? The Synergy of Analog and Digital Banking
"Digital or analog?" is the wrong question in the financial sector. Thanks to new advancements in technology, bank advisors have more time for their clients and are able to provide them with better advice, says Marco Abele, Head of Digital Private Banking at Credit Suisse Switzerland.
Mr. Abele, few industries today operate to such a degree at the juncture between analog and digital as the financial sector. On one hand, digitalization has caught up to the banks, while on the other hand, the financial business functions through personal relationships, discretion and tailored consultation. How can you resolve this conflict?
That's the wrong question, in my view. Digital and analog are not binaries, but are more along the lines of the synergy equation: 1+1=3. New technologies support bank advisors and provide them with more options. In my opinion, despite digitalization, the advisor should still be the mainstay of the client relationship. But he can be relieved of repetitive administrative tasks and therefore be able to spend more time with his clients and provide them with better consultation because he has much more precise information at his fingertips more quickly. In other words, everyone involved benefits.
Describe the day of a client advisor in the future.
They can do what client advisors around the world do best: foster client relationships. Assisting them in doing so are the mobile workplace and greater efficiency achieved through the support of robots. They provide their clients with a fast, computer-aided and highly personalized advisory service.
Can you give specific examples?
In client meetings, the tablet can use speech recognition to take over the entire task of documentation. This allows the advisor to focus completely on the client and provide a more personal level of service. The tablet gives the advisor virtual access to experts right in the meeting room who can be digitally brought in to answer any questions. For client telephone calls, automated portfolio analysis reveals opportunities and risks to the advisor in real time – an exposed position in the portfolio, for instance. In other words, her own expertise reaches the client much more rapidly. At the end of the working day, analysis robots are already taking over the follow-up work and making preparations for the next day. This, too, is an area where the advisor will be relieved of her current administrative task load.
And which digital platform is available to clients?
The very same one that is used by the advisor, just with fewer functions. This draws the client and the advisor closer together.
When will these innovations be implemented?
The first client advisors started the pilot phase this summer. What is special about it is that we did not roll out a ready-to-use solution but rather one that the client advisors themselves can help to design. Ultimately, we want the technology to be the perfect support for our advisors.
You would like to provide more support to the client advisors, but at the same time, the industry is discussing how robots can take their place. "Robo-advisors" are financial consultants that manage online portfolios – usually with little or no human involvement. What will their role be?
Assistance from computers in the investment area is nothing new. Hedge funds have been using computer-based models for their investment decisions for years now. Last year, these quant funds made up half of the 25 richest hedge funds. Banks have also made use of automated investment models for years, just behind the scenes. Putting this power directly in the hands of the clients is a logical next step. This trend is in its very early stages, though. The independent robo-advisors appearing in the market today only manage 20 billion US dollars worldwide.
Why haven't robo-advisors really been accepted?
For one thing, these things take time. In addition they operate in an extremely limited investment universe. They usually use algorithms in order to create portfolios based exclusively on exchange traded funds (ETFs). In many cases, these cannot adequately meet the complex financial needs of private banking clients. Besides that, robo-advisors are primarily locally based, many of them in the United States – and transferring wealth to the US is not consistent with the security requirements of most clients.
A study predicts that by the year 2020, robo-advisors will manage 450 billion US dollars.
I tend to believe that. For that reason, Swiss private banks should not rely on their current advantages, because sooner rather than later, automated advisors will overcome these limitations we have mentioned here. But here, too, I consider this to be a way for Swiss private banks to integrate rather than replace the client advisor. It will allow them to offer a broad sector of the population access to analysis tools that have previously only been available to wealthy clients.
Pulitzer Prize winning author Thomas L. Friedman called it the "democratization of technology": While a company used to need certain financial means and a number of employees in order to manufacture a product, today it seems to need no more than a computer and some venture capital. Especially in the world of finance, will start-ups replace banks some day?
The fintechs are no small phenomenon. In the last three years, their global financing has increased seven-fold, reaching around 20 billion US dollars in 2015. But it remains to be seen whether these fintechs will really be able to replace banks.
As yet, none of these companies has managed to become a resounding commercial success. The fintechs promise simpler, more efficient and cheaper services tailored to the needs of a new generation of clients armed with smartphones and tablets. Unlike a major bank, however, these digital platforms focus only on part of the entire value chain. Besides that, financial institutions have already been cooperating with fintech companies for a while now. The mutual understanding is that more can be achieved by working together. Because of this, we are one of the backers of Impact Hub Zurich, a place where many start-up companies from this sector are located [editor's note: this meeting also took place there]. And finally, the young guns will not be able to replace the many years of experience and expertise of traditional banks overnight.
There are fewer and fewer clients who go to the bank branches to make payments, who would like printed copies of their bank statements and who choose not to use online banking.
So, we don't have to worry about traditional banks?
No, that's not true. Digitalization is changing every industry fundamentally – that includes the financial industry. There are fewer and fewer clients who go to the bank branches to make payments, who would like printed copies of their bank statements and who choose not to use online banking. Our future clients, the millennials, have little brand loyalty. The generation of today's 15- to 35-year-olds seeks out the offer that suits them best. Whether that offer comes from a 160-year-old bank or a social network is completely irrelevant. We have to offer the best solution or they will go somewhere else.
Under digitalization, accessibility is a key topic. Thanks to new technologies, people with physical or mental disabilities are able to expand their range of movement. Does that apply in the banking sector, too?
Yes, that is one of the biggest advantages of the new technologies. A lot of changes will be happening here. That includes things that we can hardly imagine today. ATMs capable of communicating with blind and visually impaired clients through headsets have been in operation for a few years now. Our range of online banking services was designed to offer the highest degree of barrier-free accessibility in accordance with national and international standards. The visually impaired can use aids like screen readers, braille or enlargement software to access our services. But today, people with physical, sensory or technical limitations can also conduct their banking transactions from anywhere. Next, it will be possible to open an account via video identification, making the trip into the bank branch unnecessary.
Digitalization has strengthened the international competitiveness of the Swiss financial center even more. Will it come under even greater pressure as a result?
Maybe, but most of all, it is an unbelievable opportunity. In a digital, connected world, the path to the client is much shorter. If we can establish ourselves as a financial center with the best digital services, the banks here can grow much more rapidly than they could have in an analog world. For centuries, our financial institutions have proven how safe they are and how well they can protect the private sphere. Those are the qualities that are attractive in the digital world. Clients want strong data protection and to remain safe from cybercrime.