The Global Financial crisis experienced in 2008 saw the private banking and wealth management sectors struggle for survival. This struggle was as a result of a decline in the global affluent individuals’ assets. The introduction of Fintech, however, came as an opportunity for private banking institutions and wealth management firms to resurge by increasing their market share and wallet portfolio.
To maintain the high net worth of individuals who are now more informed and want to be involved in investments decision making, the private banking and wealth management sectors are required to adapt to the technological revolution. The most important features of this innovation include artificial intelligence, application programming interface, mobile banking, cybersecurity, and the Internet of Things. These technologies have transformed our ways of living across the globe, and financial institutions are not spared either.
Next generation of private banking organisations, such as Fortu, are working to provide more accessible banking services by introducing application programming interfaces (API’s). Mobile banking, on the other hand, offers frictionless banking while adding to the cashless banking options. Artificial intelligence is the technology behind the automated processes, such as chatbots. Much as AI cannot fully replace manual functions, it manages repetitive roles.
One of the main concerns in the digitization process has been the security of the information in possession of the banking institutions. This move calls for more innovation in authentication methods to include features such as voice and face recognition. Finally, is the Internet of Things which will allow for the integration of services. A client will be able to get all banking services from a central location or better still from their gadgets. The financial institutions, on the other hand, will be able to analyze their clients’ needs and provide them with tailor-made solutions and services.
We are in an era where financial institutions have apps where clients can transact. People don’t walk around with liquid cash any more thanks to cashless technology. Investments including buying and selling of securities, money markets, and even insurance premiums are done on App. It is important to note that the affluent investors targeted by private banks are mostly occupied with running their empires. They will embrace any innovation that will save them a minute.
Just like any other revolutionary idea, the digitization private banking sector does not come without challenges.
The first main challenge would be a cultural change. Reading through Who Moved my Cheese by Spencer Johnson, we realize that most people are not willing to move from their comfort zones and embrace change. There are always much better options on the other side of technological advancements, but there are many in-betweens before you get there. For the private banking institutions, this will require training of all employees, which could be a costly process. The workforce will be affected adversely in that over time, some roles will be rendered redundant. Generally, the process of introducing new concepts is initially met with resistance, but the friction wears out sooner or later.
The second challenge is regulating online platforms. The internet is a free space where everything happens, both the good and the bad. Considering private banks and wealth management firms deal with affluent investors, they need very stringent regulatory frameworks to safeguard both the assets and identities of their clients.
The next challenge which is closely related to the second one is cybersecurity. Cybersecurity is a problem across the board, and the financial sector is not an exception. In fact, this is the most targeted industry owing to the nature of the business transacted therein. Cyber security threats are becoming more advanced while developers are working round the clock to improve on internet security. As both private banks, wealth creation firms, and affluent persons embrace digitization, they also need to understand that cybersecurity is not a problem that will be solved once and for all. It is a continuous process that will go on and even call for more innovation over the decades. The online platforms need to be monitored round the clock, systems need to be put in place to detect any suspicious activity and it must be reported in real-time. Putting up these measures is an ongoing and costly process.
With all it’s challenges, the pros of digitizing the private banking sector outweigh the cons. All stakeholders need to work closely and seal the loopholes that might compromise on security. The whole process could be costly initially but will pay off in the long run.