Jussi Lilja
Term ”barriers to entry” has been used widely, and a bit wildly, but mostly to describe different market entry problems. What are the barriers of entry for an entrant in the private banking landscape?
In most countries and continents the big names, financial giants, benefit from known brand names, millions of customers, large buildings, public speakers on CNBC and the local news, all that, n’est pas? Can entrants ever challenge the traditional market players?
The early stage investments feel high. After the obligatory IT investments you’re faced with setting up the legal and compliance function, bookkeeping and auditing, assistant functions and building the GUI (graphical user interface), an expression of the digital presence. Quite a task, to say the least.
More agile with a ”tabula rasa” (an empty canvas)?
Heavy investments are seldom an option for a team setting up a new private bank. At least, the IT investments require deep pockets, don’t they?
Traditional banks have had their armies of lawyers, accountants, and auditors, but new, dynamic entrants have the option to select differently. Outsourcing most of the professional services, like law, internal auditing and accounting services, is a viable solution for the growing private banks.
There are definitely two sides to the coin when it comes to outsourcing. The polarity of success in these services is high; unless you mess them up, the private banking customer is unlikely to see a major benefit or downside. It’s more of a must-have from a client’s perspective, an expectation that everything works. Internally, of course, there can be advantages in having your own staff, but that’s a different question.
Information technology plays a significant part in the customer satisfaction nowadays. Back-end systems and master data ledgers must have the correct data in a see-through world. Clients’ interest lies in what they can see, and if you fail in the data, ”it’s garbage in, garbage out”. Customers expect to see only correct figures and graphs, and preferably as instantly as possible. The correctness of data and quality of reporting are ”hygiene factors”, they just must be right or you’re in trouble.
In large organizations, projects run on a minimum of quarterly cycles, often even half-yearly cycles. And, as we know, larger changes take years to complete. What is the best case scenario then? Quick feedback loop from your customers, flexible front-end systems for GUI changes and delivery speed of your project organization can be a competitive advantage as such.
Advanced IT can create a competitive advantage to a market entrant. For the market entrants, there are various opportunities to outsource large parts of the process. Custody, trading, portfolio management and online + mobile services are all available by SaaS. Possibility to create new automated processes for the client’s ease of use and a top-notch digital presence for increased customer satisfaction relies very much on your systems’ novelty.
Customer-centricity in action
Establishing a private bank is about creating the winning team, attracting theright people. To win, you need people with a passion for the work. As doctors wear their white capes and high court judges their trusthworthy accessories, devoting to their work and mission, the suit wearing private banker is on a mission, a mission of long-term customer satisfaction. A private bank truly runs on customer-centricity as more demanding customers are hard to come by.
What is customer-centricity in private banking? It is knowing the customer personally and responding to him/her individually. I have noticed that asking the right questions in the very beginning is the most important phase of the customer process. The whole ”tone of voice” of the relationship is set in the very beginning.
KYC (Know Your Customer) is a blessing that many talk about as it was a nuisance. I think it is a blessing, but it is missing the important, soft, customer-centric questions. Understanding what is important to the customer and what motivates him or her is key.
During the relationship and the interactions, I have noticed a couple of times that many don’t ask what the customer wants to talk about. ”Do you care about our reporting or are we going them through just because it’s customary?” ”Do you even want to meet or are we just meeting because I have my KPIs set by my employer?” ”Should we actually just talk about how our kids are doing or head home?” I think busy customers are increasingly happy with just digital communication.
I have also sat in customer meetings with private bankers who want to still display their university-level know-how, totally clueless. Flooding the customer with market news, P/E, PEG, P/B, ROI and the Greeks has had me kicking the private banker’s foot under the table. ”You have clearly made the customer feel stupid/confused/annoyed” isn’t the feedback you want from your sponsor. As years have gone by, I feel the importance of the figures has lessened.
How can you embrace customer-centricity in action? Starting from timeliness and good manners, the basic behavioural building blocks need to be there for it to be private banking. I think we have gone further from there and are already in a world where we should do 360 analysis with customers. The client should have an excellent personality match with the private banker. Why? Ideally, the private banking relationship is like a marriage, ’til death do us apart. And, we know from marriages that you have to have good, honest communication to get over the (market) bumps for it to last.
Asking ”How am I doing?” is a daunting task that puts many on the defense mode, but getting constant feedback should be in the private bankers’ KPIs.”I can’t ask that, they won’t tell me the bad stuff”, is the standard answer. You’d be surprised that people often tell you if you ask.
Naturally, you need to collect customer feedback by digital channels too. There are various providers for sending a short feedback questionnaire, SMS or e-mail, after the meeting. Also, creating a beta tester group of different types of customers for your eg. online/mobile or reporting services creates a sense of belongingness to your clientele. Some would argue that it doesn’t fit private banking, ”too intrusive”, but I disagree. Clients just need to be motivated to give feedback by explaning that we’re trying to make it better for you. I think they want your best too, otherwise they’d leave.
Private Banking by digitalized innovation
It’s still a relationship game. Best private bankers are chameleons, and masters in reading body language and the tone of voice. Having been in hundreds of meetings with clients, I have seen too often the lack of sensitivity to client’s pace, factual understanding and most importantly, lack of understanding the true motives of the client. Let me tell you, it’s not the return of the portfolio that matters. Observe, listen and read people (and quality books) to interpret motives.
I think many of the CDOs in the big name banks would love to start from scratch. ”Just give me a tabula rasa to start with, please”. The dependancies between older systems are a spider’s web, agreements with providers have locked you up for ages, something is done in-house and the guy left the company plus a ton of other dragging issues to make you sleep bad.
The challengers can leap decades and straight to the current era. Utilizing your trusted customers’ feedback and being responsive to their needs will get you far. Stay on top of your game in utilizing information technology. Deal with IT partners who are flexible and knowledgeable. Combined with the human capital, the team, the positive news of your service capabilities travel fast, Ideally, they even give you sales references.
Private banking clients are among the most demanding private customers. In the current era, they have, as have all consumers, gotten used to other responsive digital services that are enhanced continuosly. Furthermore, private banking services’ development cycle is getting shorter and shorter. Resources need to be allocated very differently, away from the old operational models that come with size. Will the old barriers to entry turn to slippery slopes of exit?
Jussi Lilja
CCO, Korkia
Ps. The writer represents a Finnish private bank, @Korkia, which invests heavily in process automation and its digital presence.