Private banking embraced digital in 2020, is this set to continue?

The COVID-19 pandemic forced the wealth management sector to rethink how relationships and engagement work. Remote working became the norm and technology was utilised. Many clients even liked the new normal. Patrick Brusnahan asks the sector: is this new tech-savvy private banking sector here to stay?

What technology and digital trends are going to affect private banking in 2021?

2020 has certainly been an unusual year and it has really tested firms and their employees’ ability to adapt under pressure. One of the biggest challenges in our industry already was the prevalence of less than optimal technology to support organisations. Indeed even simple tasks like remote access for many firms was hindered as an influx of users normally in office locations piled onto networks not built for the capacity required, of course these were remedied immediately but the fact remains that users could not perform basic tasks for a substantial period of time, making an already difficult time almost impossible to resource adequately.

The same lacklustre approach is often applied to the core operating platforms used by firms, often with a patchwork quilt of software’s old and new and less than efficient interfaces between them all, there is normally more firefighting to stitch some regulatory reporting than much needed reviews of how to harness the power of innovation and improve the performance. And although it is recognised that innovation is needed to enhance services and efficiencies, it rarely delivers a satisfactory outcome – but why? From what we see, large scale transformation projects tend to lose change the goal posts – there is so much focus on delivering progress by any means, and often regulatory updates and market changes during the drawn out process that the final product has around 70% of the functionality requested, and around 60% more workarounds on a staff model that has been reduced in line with the initial “resource” savings.

Why is the transformation process in the industry continuing these same patterns? With Tax Reporting being at the centre of all data relating to securities, we see all aspects of the implementation and migration process across the business workstreams – we also see a disjointed approach internally between management and core staff, between departments and additionally there can be a multitude of conflicting approaches with software vendors. The industry needs a change, a change in the approach of how we use technology and ensure the efficiencies promised are delivered. We need to start looking at the core functions in more detail, how can we harness that knowledge and the underlying data to enrich to the function and de-risk it. How can we improve the operations efficiencies and ensure the investor, the underlying client is receiving the best service possible. It’s time to do things differently.

2020 has heralded a significant change in the way we communicate with clients. I anticipate that the ubiquitous video call will continue to feature in 2021, as part of an omni-channel communication landscape where we meet clients face-to-face, speak on the phone, hold ‘Zoom’ calls and also communicate via text message. It’s been remarkable how quickly even the most traditional clients have embraced this multi-channel approach.

The remarkable level of government spending in 2020 will need to be paid back in short order. Higher taxes are an inevitability. The only question is which taxes will be targeted? We are speaking to clients about this now and where they were planning to take certain action (for example, gifting to the next generation), we are recommending that they take these steps in short order to avoid being caught out by punitive tax changes.

Low interest rates have been a feature of the financial landscape since the financial crisis of 2008. This shows no signs of changing in the near future. As a result, clients should continue to expect negative real returns from their cash deposits, meaning that they need to consider investing their funds. That said, this does also present opportunities, including the scope to consider using leverage within a client’s financial plan where appropriate.

In addition, this year brought a record bull run in equity markets to an abrupt end. This has been a stark reminder that investment carries risk and is complex. As a result, I expect to see clients continuing their recent aversion to pure passive portfolios, recognising that the cost of a portfolio is not the only factor they should consider in deploying their capital but rather that risk mitigation and aligning their investments to their broader financial objectives are critical considerations.

The financial crisis of 2008 killed off the nascent ESG investment trend. Conversely, 2020’s crisis has only served to bolster this trend and I expect to continue to see clients focussing on the impact that their financial investments are having in the new year. As this becomes an increasing theme, clients will continue to scrutinise their investment manager, ensuring that they genuinely are ‘walking the walk’ when it comes to ESG and that there is a robust process in place to ensure that their investments really are supporting positive change.

I predict that AI will become even more important to the financial industry, especially during the current global health crisis. The ability of banks to know and identify their customers has become more difficult. It has become incredibly challenging to create rules and build automation-based systems when customer behaviour has changed so drastically. Banks now require computers that can take the place of very senior, experienced bankers and investigators. Criminals are increasingly using AI to commit financial cybercrime, so banks need an advanced level of Artificial Intelligence and intuition to detect and defeat them.

The world of international payments is also changing before our eyes. Due to the global health crisis, international travel has come to a near-standstill. Cash is being controlled more stringently all over the world, and some countries have even banned its use. However, global payments are crucial, and bank customers need new solutions. The correspondent banking system is historically the most effective method of connecting developing economies to the global financial system, but criminals are increasingly using it to launder funds related to narco-trafficking, terrorist funding and human trafficking. 2021 will find banks investing in advanced AI technologies that can detect criminal activity hidden within complex correspondent banking transactions and stop the money laundering crisis for good.

Also, the government developing stronger controls on money movement to make sure national aid payments get where they are supposed to go and aren't stolen and laundered by criminal organisations or nation-states.