The trend to tie technology overhauls to restructuring blueprints has been particularly prevalent among private banking units globally, and in Asia, over the last year. Delving in to this trend, Asian Private Banker asks industry insiders for the rationale behind the strategy and their thoughts on its overall effectiveness.
“The move to use one platform helps the bank handle various offshore markets and enables it to book easily in various jurisdictions. This drives economies of scale and is a key cost saver and efficiency booster,” explains Salomon Wettstein, manager at integration consultancy, Synpulse. He says that an increasing number of private banks turn to Synpulse as restructuring announcements trend upwards.
Strengthening the backbone of the bank is the first step many private banks take as part of its technologically-driven restructures, Wettstein explains. He sees many moving to build on its back office operations before its middle and front offices go under digital transformation. “It is important that private banks address the back office first in order to carry out a successful technology overhaul of its systems. For example, automating pre-trade lifecycle management as well as post-trade is important from a regulatory perspective,” he says.
Pathik Gupta, head of wealth management, Asia Pacific, at consultancy McLagan agrees, adding that new investments into external solutions have provided the impetus for private banks to tie its restructuring plans to technology. “Most of the legacy systems private banks had are incompatible with a new generation of technology required to address client needs and engagement. The only way to approach this is to think about a broader overhaul which a number of private banks have embarked on,” he says.
Indeed, wholesale restructuring remains an industry theme as private banks face market volatility, a shallow talent pool and a 40% increase in AUM threshold for survival. Turning to technology to lower operating costs has been a pivotal part of many such strategies.
RBC Wealth Management is considering a consolidation of its platforms in Hong Kong and Singapore in what is believed to be an effort to restructure and overhaul technology to increase efficiencies and slash operating costs. UBS Wealth Management also announced it is planning to merge parts of its back and middle office functions to cut back on costs and streamline internal IT operations. Last October, Deutsche Bank split its asset and wealth management arms into standalone businesses and pledged to uproot its existing legacy systems in a five-year technology overhaul.
But with such sweeping technology restructures, comes the redundancy of many middle and back office positions at private banks.
“As a result of such large tech plans in place, we will see a natural loss of IT staff at private banks in the middle and back office. The front line will remain unchanged, but will be further enabled through the platform,” says Wettstein.
“The front line will remain unchanged, but will be further enabled through the platform”
To this point, an industry insider told Asian Private Banker that the combination of a technology overhaul and business overview at RBC Wealth Management “may result in operational headcount cuts”. Similarly, a number of job losses were expected at UBS Wealth Management. And, last October, Deutsche Bank axed 15,000 jobs globally as a result of its five-year plan.
Will it work?
“It has become a matter of competitive survival.”
While automation and the subsequent effect of slashed headcount are cost-cutting exercises for private banks, Gupta believes that the hefty investments born out of such technology overhauls will not result in lowered costs.
“I don’t think technology investment is going to lower cost in the near future as these are expensive investments,” he says. The move to “embrace technology” is not a question about revenue generation or cost reduction anymore, Gupta explains. “It has become a matter of competitive survival.”
But, in agreement with Wettstein, he adds that it will help front office efficiency.
“However I think that there would be an impetus on banks to use the investments to drive higher frontline productivity.”
As private banks continue to conduct internal reviews of its business in the face of squeezed margins and volatile market conditions, technology investments will be integral to them, the experts conclude.