Private banking: get truly digital or get left behind
Over the past few months, 11:FS Ventures has seen a spike in interest from clients in private banking and wealth management.
There are a lot of different nuances to these conversations, but they generally have a couple of goals in common:
We need a new customer base (usually younger and/or with a lower cost of entry)
We want to broaden what we do for our existing customers (usually to build deeper relationships or get a bigger piece of the pie)
Side note: it’s always interesting when we see a burst of interest from a specific business area. Sometimes it’s triggered by a new entrant to the market, the mass adoption of a new technology or a social or economic trend. My hunch, in this case, is that as fintech investment players like Robinhood and Wealthfront scale, customers and execs from traditional wealth management services and private banks get excited about the potential that digital can offer.
To achieve either of these goals, private banking will need to shake off the white gloves and embrace going truly digital.
Being truly digital means building products and services with the full possibilities of the modern digital landscape in mind. It's moving beyond digitised to truly digital. You can learn more by reading through our Truly Digital Manifesto.
Private banking is a world where exclusive access to people and experiences is as important as effective investing. For years, the illusion of personal service has made up for a lack of real utility.
Private banking is a world where exclusive access to people and experiences is as important as effective investing.
I recently heard an anecdote about a visit to a private bank. The standout moment wasn’t the great advice or healthy returns, but the biscuits - made with honey from the bees on the roof.
I love biscuits, but it feels like a change is coming.
So, what might the future of private banking look like?
Hypothesis #1: Private banks will better meet their customers' real functional needs.
They’ll recognise that many high and ultra-high net worth individuals have needs more like small businesses than individuals and will provide more appropriate tools and services.
The new generation of truly digital investment specialists will push private banks into offering better investment tools. But this process will commoditise what has been ‘special’, leaving private banks vulnerable to churn.
And this brings us back to the biscuits.
No one chooses or stays with their bank because of the home-baked snacks. To protect and grow your base, you need to do the basics well and then be super clear about what you stand for. Which leads us on to…
Hypothesis #2: Private banks will invest in digital services that meet their customers' emotional and social needs.
Intelligent use of data will create huge opportunities at the intersection of private banking and philanthropy. Increasingly, people want more from their philanthropic efforts than a tax-efficient wrapper, and the private bank that can move fast to capture this opportunity will win customers who are looking for a bank with purpose.
For years, private banks and wealth management specialists have been grappling with how to crack multi-generational banking. Hyper-personalised, intelligent services that accommodate multiple profiles, permissions, views and goals in one family account will finally become the norm.
Crypto. After speaking to high and ultra-high net worth individuals in recent weeks, it’s plainly clear that crypto as an asset class is here to stay. But to a lot of people it’s scary, complicated and high risk - which makes it a no-brainer for private banks to simplify crypto and bring real value to their customers.
Hypothesis #3: Private banks will recognise that truly personal service only works if the customer feels seen.
70% of widows change their financial advisor after the death of their spouse, largely because they’ve been sidelined and patronised by their husband’s advisor for years. So when they’re looking for advice they go elsewhere.
In future, private banks will strive for inclusion, representation and equity of experience - not just with regards to gender, but in all things. Do this, and the world will be a happier place.
In future, private banks will strive for inclusion, representation and equity of experience
So, where is this change going to start?
If this is being driven by the threat of better digital tools and services from fintechs, then the logical place to start will be with functional needs (Hypothesis #1). But it’s often super hard to make those changes: legacy tech, complex systems and congested roadmaps can make ‘upgrades’ harder to achieve than radical change.
My approach would be to work out which of your customers’ social and emotional needs best align with what you want to stand for, and go after that space. But do it inclusively, with an eye on making your customers feel seen as well as served. If you’d like to chat about how we can take you on that journey, then get in touch.
But if you’re set on earning your customers’ enduring loyalty through biscuits, here is Nigella’s recipe for the perfect shortbread. No bee hives necessary.
This article was originally published in April 2022.