Rupert Lee-Browne is the chairman and chief executive of payments fintech Caxton, which he founded in 2002.
What use is a private bank in 2023? Like the sepia-tinted images of tail-coated bankers in grand banking halls, private banking has gone the way of many traditional activities.
Synonymous with exclusivity, clients relied on the expertise of their personal bankers to manage their wealth, provide investment advice and products and navigate complex financial landscapes. The emphasis was on relationships, trust and one-on-one consultations. Private banks offered a truly personalized experience where the management of money in large or small quantities was never a problem.
Gone are those days.
The Challenges Of Personalization In Banking Today
This is 2023, and we are in the midst of a technological and regulatory revolution. Not only does technology now provide for faster transactional banking services, but more importantly, the risk landscape has changed for clients and banks alike. Regulators on a worldwide basis are now demanding that operational risk is removed within banking but also that every out-of-the-ordinary transaction is investigated and accounted for (and probably reported to some authority).
And the real cost of delivering a truly personalized service makes it complicated to operate successfully. This is perhaps one reason why I’ve seen a growing general malaise among clients and bankers. The coffin nails were forged when cost efficiencies were prioritized over service, according to one disgruntled London-based private banker I was speaking to. It was naive to think that an invitation to a Wimbledon or Glyndebourne event, he said, would paper over the cracks of a service that could no longer offer bespoke solutions for clients.
And it’s not just a U.K. problem. A Monaco banker complained that their job “had become thankless.” Where it was once about excellent client relationships, they were now left hamstrung by the regulators and shouted at by the clients.
And so wealth management has moved into focus—with agile, client-centered boutiques able to offer a truly personalized service at an attractive price.
Fintech Is Disrupting Traditional Financial Services
Meanwhile, technology enters stage left, disrupting this market and the decades of carefully curated banking relationships. Fintech companies are innovating faster than ever. They are capable of providing what a private bank does, but with a key difference: accessibility. A regulated fintech with a software-as-a-financial-service platform can provide transaction banking services to wealthy audiences via commercial partners, such as brokers and agents, that have a preexisting client relationship.
And it’s moving fast. “Technological change is exponential. … We won’t experience 100 years of progress in the 21st century – it will be more like 20,000 years of progress,” wrote Ray Kurzweil, the American computer scientist, author, inventor and futurist.
And it’s not just tech for tech’s sake; lower fees charged by fintechs in both transaction banking and wealth management compared to private banks open them up to a much wider audience and, dare I say it, democratize private banking services. Add to that data analytics and algorithms power tailored financial advice, budgeting and financial planning tools and investment management, all in real time, and we have an evolved, sophisticated system that is inclusive and helps bridge the wealth gap. Importantly, it captures the imagination of the next generation of high net worth and ultrahigh net worth individuals.
Automation Provides A Chance For Reinvention In Financial Services
I believe the era of personalized service in banking as we knew it is now well and truly gone. The cost and regulatory burden now outweigh the advantage of offering a service where experienced individuals are given the flexibility to make judgments and decisions. You need to have versatile methods for running your estate.
Today’s financial services landscape is about the way things are paid for. It is about automating payments. Technology streamlines financial tasks, automates processes such as investment portfolio rebalancing and expense management while saving time and reducing the risk of human error. The latter is particularly pertinent in the face of recent relentless cyber breaches and attacks.
As we move toward the future at lightning speed, it is crucial to be anchored by the cornerstone of every successful business—the customers. This means ensuring that customers are always able to resolve any problems they may encounter, or seek advice when they need it, in a frictionless and easy manner. And for that, there is nothing better than human interaction in my opinion. Technology mustn’t be used at the cost of human connection.
Technology must be leveraged for operational efficiency, addressing regulatory challenges and not least to remain vigilant in the face of cybersecurity concerns. Human expertise and intuition can benefit manifold with the efficiency of automation. The demise of private banking is, therefore, not the end, but rather an opportunity for reinvention and adaptation in the fast-paced world of finance.