Digitalization: "Banks are at a crossroads."
Digitalization is forcing banks to undergo the most extensive transformation in their history, says Holger Spielberg. Credit Suisse's new "Head of Innovation" for its Digital Private Bank explains the financial revolution.
Mr. Spielberg, in an industry report, PwC writes the following: "Banks find themselves in the midst of a transition with the term 'digital' at its core"; in another report, McKinsey & Co. write: "Getting digital banking right is a matter of life and death." Are we in the midst of the greatest revolution in the history of banking?
Holger Spielberg: That was a long question. The answer is much shorter: Yes, that's right.
Banks today are at a crossroads. On the one hand, they are still processing their recent history. On the other hand, we can already see the first effects of a digitalization of society, an issue that banks are still struggling with. Bank branches are hardly needed any longer. Payments and money transfers can be handled by platforms and robots. These basic functions will be open and free, they do not necessarily require a bank. And soon, we will be able to pay our telephone bills using social media.
The retail business is under pressure.
Yes, and the banks are in a bad position. The competition is closer to the clients and comes mostly from outside of the world of finance – Apple, Facebook, or Swisscom in Switzerland, which is making a strong push into finance. Add to that the fact that "fintechs," startup companies in the financial area, are springing up like mushrooms. Worldwide, around seven billion francs are being invested in these companies annually. We are seeing a lot of fintechs in the retail area right now, as well as increasingly exciting approaches in wealth management.
But isn't the outlook in private banking better?
In this area, we find ourselves in a relatively strong position – for now. This business is much more complex and the usually quite exclusive clients are less price-sensitive than in the retail business. Security, relevance, expertise and protection of the private realm are just as important. But here, too, there is a digital revolution.
One hears a lot about the "Digital Private Bank." Until now, though, this has seldom meant more than graphically attractive portfolio analyses and access to the client's own data using any device. Is that a revolution?
First of all, yes, you are right that user interfaces and mobile access are truly the first things to have changed. But it was necessary. Our interaction with the digital world has undergone enormous changes in a very short time. No one was demanding a screen that could be manipulated by swiping back and forth, but once it was here, everyone thought it was cool. Innovations like this will continue to come. They aren't specifically related to banking, but we are affected by them and have to do our part. Otherwise, we run the risk of becoming alienated from our clients.
Banks have been forced to change their business model in recent years due to the financial crisis and more stringent regulatory requirements. In addition, there is a huge amount of pressure on the relationship of costs to revenue. It's about achieving a whole new level of efficiency on the one hand, while also presenting new growth. The digital world offers an opportunity here, but many European banks are still reacting too hesitantly. Visually augmented graphics are just a band-aid, but not a model for the future.
What will it take?
That is the third part of the answer. I believe that we need to somewhat rethink banking, consistently with clients in mind. With all the buzz about fintechs, banks have the potential to establish themselves sustainably for the future. So we have to rethink our services from a push to a pull model. My vision is to see banking become integrated in the lives of our clients, with more relevance and a great deal of trust. For the banks, this means investing intelligently in new strategic competencies, such as partnering. If the banks really trust in themselves, they can be better than any start-up.
Why are American banks more advanced in this regard?
For a long time the American banking system was very inefficient and was still functioning in part on a manual level – think checks, for example. There was extreme pressure to innovate, compounded by the fact that digitalization was much more advanced in other areas. In addition, the economic crisis hit earlier, and US banks were forced to cut costs, which is achieved through digitalization. Besides, regulations and data protection are less stringent than they are here. And, finally, the American banks are serving an enormous market, which is a very important aspect for digitalization since economies of scale are what count here. You don't earn much for individual clients; you need high volumes to pay off the high development costs and expensive software solutions.
Is it also a question of mindset?
Yes. The way I see it, US banks have fewer reservations about Silicon Valley, fintech ventures and technological innovations; we could learn something from them in that regard.
How is Credit Suisse responding to the digital challenge?
By taking specific steps: In order to really change things, we are changing the way we work and approach the topic. This starts with our team, which we are augmenting with talented people from other industries, startups and with digital backgrounds. I'm also trying to set the tone, based on my 15 years of experience in Silicon Valley. We are transforming all of our activities to be more agile, and with our office layout we've put the business and developer teams together. We can point to the measurable, positive experiences we've had with our "factory" in Singapore in this regard.
What's ahead for the long term?
Zurich and Silicon Valley will have innovation labs after 2020. There, we hope to create interfaces with other developments in society, technology and research, as well as realize projects and prototypes for shaping our own banking future. These labs should also become sources of disruptive thinking and impulses, which will redefine banking and completely reconfigure processes and added value for clients in Wealth Management, for example. With the Digital Private Bank, we find ourselves at the beginning of the bank's transformation. A number of other banks are currently also taking on digitalization for themselves. I am convinced that, in the long term, the banks that will be successful are not those that offer the coolest features right now. Rather, success must be measured by the bank's ability to implement digital changes sensibly and efficiently on an organizational level.
What will the role of the client advisor be?
In our philosophy, the client advisor will play an important personal role. But roles and tasks have to change in order to remain more relevant to the lives of our clients in the future. The fact is that we are not taking the right approach with the 30-year-old Google millionaires or the Millennials. A traditional "wine and dine" approach is working less and less in this segment, where the advisor is seen as more of a coach. These clients want support in how to handle money in general, how to set financial goals and how to make them achievable.
Will Credit Suisse be on a first-name basis with its clients, addressing them using the informal "you"?
We are a global company, so "you" is already just "you"! But that should ultimately be left up to the client. After all, using digital channels in addition to client advisors also creates a much more personal relationship with our clients.
Swiss banks stand for discretion. The digital world stands for the opposite: absolute openness. Isn't that a contradiction?
"Swissness" is a strong value established over centuries and which, at its core, remains a solid one. Especially these days when so much is "shared," trust and security mean a lot. This is what the Swiss banks should build upon, redefining discretion in a digital world.
If I want to transfer money from one social media platform to another, as previously mentioned, the underlying platform must be able to guarantee data security. That could be a Swiss bank. The exciting thing is that digital also means direct personto-person interaction. New technologies can help here and represent an opportunity for Swiss banks with their tradition and international reputation.
Where is mobile payment actually ideal?
Number one in mobile payment is my former employer PayPal, simply because a significant portion of e-commerce is conducted using mobile end devices and PayPal is innovative. Yet Starbucks is number two. They are not actually even involved in the mobile payment areas, but they have an app for ordering a latte, earning loyalty points or buying someone a coffee – and along the way you can also pay the bill. It works like Uber, where everything is integrated in a single app: ordering a taxi, displaying wait times, entering the destination, rating the driver – and paying, too, including a digital receipt which can be automatically saved in an expense report. The payment function is successful because it is embedded in the app. Really, why should I carry cash?
Does consumption rise along with the user-friendliness of electronic money?
I'm not sure. Of course the transaction becomes easier, but you also have a higher degree of transparency and control. Household budgets are very well suited for digital solutions. There are more and more apps to connect various accounts and let you know how you stand compared to your budget. You receive an alert if you exceed a spending limit.