The future begins in China
Aktualisiert: 8. Jan. 2021
Dr. Daniel Fasnacht
What Swiss private banking can learn from China. Alternative forms of financing and investment are growing.
For decades, Swiss private banks have achieved good returns with offshore clients and so-called "old money". Even though more regulations are weakening business, clients from abroad will continue to invest money in Switzerland or demand wealth management services. In addition, the next ten years will see a transfer of wealth from the baby boomers (1946-1964) to the next generation. Around two-thirds of the assets could change financial advisors. Irrespective of whether financial solutions for the next generation are offered in Switzerland or whether we focus on wealthy Asians, one thing is certain: clients have different expectations.
Technology and innovation
In the future, banking will become digital, mobile, global, and real time. The permanent exchange of information and knowledge, co-innovation with customers, social communities and many other actors is already reality. Financial transactions are processed in the cloud and the classic portfolio manager or client advisor gives way to a robo-advisor or chatbot. Algorithm-based, self-learning machines will form hybrid models soon together with client advisors. Private and business projects will increasingly be financed with crowdfunding and initial coin offerings (ICO's) through peer-to-peer platforms or blockchain technology. The volume of alternative forms of financing will double worldwide over the next three years.
After the USA, China is the second largest wealth management market and is catching up rapidly. Every year, the number of Chinese billionaires and millionaires grows disproportionately to the rest of the world. According to the Boston Consulting Group, digital wealth management in China has experienced an annual growth rate over the past five years of more than 50%. Leading in this respect are payment apps, robo-advisors, and fund distribution via smartphones. Ant Financial, an offshoot of the Alibaba Group, the digital platform Lufax, which belongs to Ping An, or Didi Chuxing, a travel agent, are all non-banks offering integrated financial services. These “unicorns” benefit strongly by the economic growth in Asia and have reached a higher market capitalization as Deutsche Bank, UBS or Credit Suisse within a few years. The data monetization competence and disruptive business models of those challenger banks are threatening the entire financial sector.
The Chinese adopted as the first individualized, integrated, and mobile financial services. Especially, the younger generation would rather use an app than visiting a bank branch. User ergonomics, time savings, and costs are the biggest sales arguments. In contrast, Westerners value security, discretion, and data protection. While the former is relevant for all consumers, the values of traditional Swiss banking will dissolve by the millennials. Studies assume that one-third of all digitally-affine cunsumers in Europe is ready to share their data with non-banks if they see an advantage in this.
"Digital wealth management traverse organisational, geographical, and cultural borders"
Those who spend time in the up-and-coming cities of China find that much works more efficiently and customer-friendly than it does in Europe. Everyone can determine the desired level of data protection for themselves. One is not forced to seek advice on social media channels or spread experiences online. If someone wants to invest discreetly, he or she can do so at any time. The fulfilment of due diligence is guaranteed, regardless of whether money is managed and controlled by a smartphone app or a bank advisor.
The super-app is the new bank
E-commerce, technology, and social media are increasingly offering financial services on their digital platforms. Super-apps such as the WeChat messaging service have already integrated functionalities from Amazon, Uber, Skype, Facebook, Instagram, Expedia or Pay-Pal alongside mobile payment and wealth management services. This diversification provides the tech giant Tencent with comprehensive information about customer behavior. With the help of self-learning algorithms, future customer needs can be optimally identified.
"Chinese super-apps integrate everything you need - from health to wealth"
We must find ways to analyse the digital preferences of consumers in the new growth markets and take them into account in our solutions. The art will be to reconcile the new with the traditional values of private banking and, despite all the new possibilities, to keep an overview and focus on what is essential – the satisfaction of customer wishes. The experience that the customer makes during this process can best be managed when wealth managers become data specialists. Therefore, it is pivotal to link the findings from historical investment data and behavioural finance with other consumer activities.
The private banker of the future
The days are over when asset managers were able to operate exclusively in their traditional markets. The client journey has become more complex and we need to figure out how the creation of value with different actors can be orchestrated. Collaborations with players outside the industry to enter into this relationship makes sense. This gives us access to resources, diversified knowledge, and new markets.
"Banks must invest in platform-led ecosystems as a part of their digital transformation"
Find out who offers your company the relevant access to a digital ecosystem and which players you need to partner with. Because only those who face the challenges early on, think openly and act agilely will find the right cooperation partners and reinvent private banking with them. Otherwise, they will face decreasing profits or at least disappear from the private banking map of young, wealthy Asians.