Catalytic power: Democratization and commoditization in Private Banking 

The digital age is sending classical Private Banking through major changes. What are the four main phenomena we are currently seeing and their impact? And which positive effects can banks take advantage of?

In our last article, you learned about the importance of data and its analysis as one of the most crucial differentiators for a bank in order to stay ahead of the game.

In this new digital era, it is essential to understand the driving factors behind it. Therefore, we will take a deeper dive into the four most formative and characterizing phenomena in banking nowadays: Digitalization, Democratization, Tokenization and Commoditization.

All of them are hugely important in the shaping, evolution and repositioning of Private Banking within the industry. And they remain in a close cause-effect relationship, reinforcing each other.

Digitalization cracks Private Banking up

Over the last few years, digitalization has probably become the most 'famous' and discussed one. Sparing the details, but nonetheless one thing should be clear to everyone: Digitalization has uncovered completely new possibilities in nearly every area of our lives. It has facilitated an almost 'viral' emergence of new disruptive business models, it has created new channels of communication, new ways of interaction, investment, transferring money and assets or just doing business. This evolution has not let Private Banking unaffected. 

Due to digitalization, Private Banking is no longer exclusively reserved to the classical High-Net-Worth Individuals, but it has become accessible, affordable, and available at the fingertips of many Mass Affluent clients. They now benefit from digital self-service offerings and off-the-shelf products that were formerly reserved to Private Banking clients. Classical Private Banking is reinventing itself as we speak. New clones and hybrid forms of 'retail Private Banking' are appearing: The democratization of Private Banking is taking place. 

Democratization facilitates new methods of analysis

A completely new target group of clients, which until now has been ignored and was out of focus for most private banks, is now interacting on new digital channels daily. As a result, more and more data is being generated. Therefore, the use of appropriate means, tools and methods for processing, analysis, and interpretation is becoming essential. Democratization in banking, however, is not only affecting the way in which new client segments are now gaining access to new types of products and services, as well as the sheer amount of data collected, but it also influences HOW this data itself is being processed.

Sophisticated and very complex methods for data analysis, traditionally reserved to organizations with huge and expensive teams of data scientists and PHD holders, are now becoming affordable for smaller organizations. Despite this new level of affordability, the degree of complexity, sophistication or explainability of conducted analysis remain unaffected. This development is also known as the 'Democratization of Machine Learning (ML) and Artificial Intelligence (AI)'.

Tokenization in banking and the global spread of new digital assets… anything, anywhere, anytime

Tokenization as the third trend means that new types of innovative products and asset classes, such as cryptocurrencies and other digitalized assets (art, jewellery, vintage cars (old timers), wine collections etc.), are made available through new self-sufficient distribution channels and exchange places, affordable to everyone, anytime, anywhere.

Commoditization: from niche to mass product

Commoditization as the fourth phenomenon is closely related to democratization and has been known for centuries. It describes the circle or phases of how a new invention, initially providing a competitive advantage to the inventor for a certain period of time, goes from being something unique, special and unaffordable to being copied by competitors and slowly becoming a main-stream product affordable to everyone. In the last phase of this journey, the only way of creating a competitive advantage over or differentiation from the competition is to offer the very same, already widespread product at a lower price. This is when commoditization has taken place.

Commoditization in Private Banking means that products and services are becoming more affordable and accessible. The 'arc of tension', which allows a bank to achieve a certain differentiation, is becoming narrower and is being reduced almost only to the factor of price. All this for sure is in favour of the final consumer – but what about the banks?

Democratization and Commoditization – Drivers for your differentiation

We have been able to see how tightly all four main currents, Digitalization, Democratization, Tokenization and Commoditization, are linked and how much they influence the industry. Commoditization and Democratization might not seem very alluring at first. However, because they not only affect affordability and prices of banking products and services, but also Data Analytics, ML and AI solutions, they actually create a unique opportunity for banks to gain a significant competitive advantage. So, despite dramatically decreasing margins on the product side and increasingly fierce competition, private banks can also now benefit from more sophisticated, automated analytics tools and a larger data pool thanks to their growing digital clientele.

In the end, we are sure: data sets you apart. As much as in Retail Banking, also in Private Banking, innovation and advanced Data Analytics approaches play a significant role in unfolding the power of the most important resilience factor: the capacity to accumulate data and to stay ahead on the knowledge front, gain precious client insights and be capable of providing the most suitable service to them. Now is the ideal time to level up your digital platforms and invest in both your current and future client base.


Now that we have put the spotlight on the current main phenomena in banking, in our next issue you will learn in detail about some of the most innovative UYC techniques and practical examples in modern Private Banking.

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About the author

Nikolai Tsenov is Product Manager Analytics at Finnova and has been with the company since 2015. He is responsible for the conceptual design and development of the Finnova Analytical Framework (FAF), a unified and holistic analytical platform that fulfils all of a modern financial institution's analytical needs. Nikolai has over 20 years of experience in the fields of data analytics, compliance and risk management.

With his main focus on banking and finance, he has worked on and managed multiple international consulting and implementation projects in the fields of fraud detection and prevention, AML and sanction screening, transaction monitoring and behavioural analysis, aCRM, Basel II/III, cross-border compliance, and product and customer suitability. He holds Master's degrees in International Economics and Finance from the universities of Innsbruck and Barcelona and is the winner of the 'Banking IT Innovation Award 2016' from the University of St. Gallen and the 'Fintech Breakthrough Award' in the category 'Best Predictive Analytics Platform 2020' with his analytical framework concept FAF.