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Fintech Adoption in the Private Banking Industry

Updated: Dec 11, 2023

The rise of Fintech in private banking

Traditional private banks are starting to turn to fintech to help augment their businesses by introducing innovative ways to serve their exclusive clientele after navigating a tough environment in recent years.


Interest rates have risen steeply, investment performance has become unpredictable, and a younger generation is set to come into great wealth, with markedly different financial needs and desires to their parents. These won’t be met unless private banks innovate.


Lombard Odier shares the result of a survey by Banque Neuflize OBC and the consulting firm Asterès, which found that more than 90% of the wealth generated between 2026 and 2036 will be by younger generations and that virtually every person who becomes a millionaire will have been born after 1980. This is a huge potential client base that private bankers need to win over, but also clients that will be far harder to please and more likely to switch banks even if their family has banked with a particular company for decades.


The challenge facing what has always been a high-touch industry is introducing fintech solutions that elevate private bank offerings without losing the connection with private bankers. Private banks also need to continue to service existing clients, many of which may not be digital, while positioning themselves to capture the new wealth.


Fintech has seen a new term introduced to the private banking world – phygital – combining the best of physical communication with digital interactions. The EY Global Wealth Research Report 2022 confirmed that millennials (some 80% of those surveyed) want private banks to increase the number of digital tools for interacting with their wealth manager. That compares with 30% of baby boomers.


Thus, adding virtual conferencing and keeping in touch via digital channels but maintaining human contact where needed satisfies millennials’ desire for phygital engagements with their private bank. Traditional private banks have made efforts to digitalize but providing a seamless and effective first-class omnichannel service to private bank clients requires more than adding digital solutions to private banks’ existing technology infrastructure.


The strategic intention to transform their private sector offerings is evident in the amount of money banks plan to invest in technology. McKinsey found that European private banks intend to triple their spending on technology from 2% in 2019 to 6% in 2023.


The consulting business pinpointed where the investments are expected to be made, including catching up on cloud, data and distributed-ledger technology, like blockchain. Time will tell whether their more cautious stance towards investing in digital assets, Web3 and the metaverse changes – but customer demands and competitive forces are likely to determine the extent to which they incorporate these into their offerings.


The need for wealth management platforms

Wealth management is the most profitable segment in the private banking industry. It thus is likely to be one of the areas that sees the most innovation and investment in alternative technologies and digital platforms that extend the investment offerings away from traditional listed asset classes into alternatives like venture capital, private equity, impact investing and crypto assets.


The younger generations are expected to have more appetite for alternative investments. However, interest in these asset classes is also rising in the high-net-worth and ultrahigh-net-worth client bases.


Digital wealth management platforms allow private banks to differentiate themselves by offering personalized investment strategies, easy accessibility to a broad range of traditional and new, innovative asset classes and 24/7 customer services and experience. According to McKinsey, private banks will also need to satisfy the wealthy clients’ desire to get prioritized access to sought-after asset classes. For instance, getting early access to an exciting venture capital investment that stands a chance of becoming the next $1 billion unicorn.


According to McKinsey, many larger private banks develop their IT in-house and share proprietary applications with retail and corporate banking. However, given how the fast pace of innovation in the banking sector, there is another alternative that enables private banks to continually evolve and scale their digital offerings and services without the considerable expense and time of developing it in-house and ensuring the technology team is equipped to deliver next-level innovations that maintain the private bank’s competitive edge.


How Velmie can help

Velmie’s recently launched platform offers private banks a customizable cloud-based wealth management solution that can be incorporated into a bank’s existing technology infrastructure and is up and running in months rather than years.


The platform embeds digital wealth infrastructure into a private bank and vertically

integrates asset servicing infrastructure that combines modern brokerage, custody, clearing and cash management functionalities into an innovative wealth management offering.


The microservices approach, modern techs such as Golang, and other unique software architecture features provide the client with ongoing capabilities to extend the platform offerings and markets by introducing new modules or partner APIs. The platform is entirely cloud-based and hosted on AWS servers, providing a highly scalable offering in the most flexible and secure cloud computing environment.


Velmie completed an advanced wealth management and brokerage platform for TAPP Engine, which wanted to deliver a best-in-class omnichannel experience for individuals and members of their families, business owners, and their partners/employees from the US, who are focused on diversifying their investments and better structuring their wealth management goals.


Essential requirements for the platform were multi-asset trading, connectivity to core banking systems, robust security, and compliance tools. The platform also needed to provide clients with a simple and efficient user interface and a seamless experience.


Tosin Osunsanya, Founder & CEO at TAPP Engine, says he was happy with the wealth management platform. “It significantly reduced time-to-market and said a huge advantage was the availability of customizations and the API middleware that allows fast connectivity to partner banks.”

The future of private banking

Partnerships like these, where private banks team up with innovative fintech companies, will facilitate the industry's evolution and contribute to its ongoing growth. Private bank relationship managers and financial intermediaries that offer advisory services will continue to play a crucial role in the industry when high net-worth clients want to engage with a human on matters that require careful thought and discussion.


Millennials, in particular, want to understand investments and the potential opportunities offered by these instead of investing purely on the advice of a financial intermediary, according to Lombard Odier’s research. It notes: “Millennials have a strong desire to learn, and take nothing as a given. Their age, lack of financial awareness (which they freely acknowledge), and habits as media consumers mean they expect clear, deeply-researched explanations, preferring bite-sized, digital formats.”


Private banks that incorporate wealth platforms into their businesses can deliver on these needs through a combination of digital communication and investment education, and physical interactions with investment experts.

Victor Matarranz, Santander's global head of wealth management and insurance, also foresees a complementary relationship between technology and private bank relationship managers and financial advisors. He says: “Of course, financial advisors will remain central to wealth management. But robo-advice will add new capabilities that wealth management firms must adopt and integrate. It will complement, rather than displace, relationship managers and advisors.”


 

About the author


Paul Shumsky, CMO

Paul Shumsky is the Chief Marketing Officer (CMO) at Velmie, a leading fintech and banking technology solutions provider. With a passion for driving innovation and customer-centric strategies, Paul brings over two decades of expertise in the realm of marketing and technology.


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