The isolation created by the Covid-19 pandemic has started a major transformation in the delivery of private banking services. Private Banking involves providing customized financial services to high networth individuals. The products are bespoke, tailored to individual client needs and involve extensive face-to-face interactions of relationshoip managers, group leaders and senior management with authorised personnel of clients. The key factor in this relationship is trust and once a level of trust is reached the clients normally remain stable and linked to the banks. Being a fee or commission based lucrative service, banks are driven by self interest to provide the best services to these cream clients. Needless to say, the competition in this sector is high and understanding the true needs of the customers provide the bedrock for a robust private banking business.
The delivery model seems to be undergoing transformation with the restrictions imposed by the pandemic and the growrth of digitalization. What was once a personalized face to face service is turning digital and the banks are facing challenges to embed technology in the provision of services. The adoption of digitalization is a two way traffic, it requires readiness both on part of the Banks as well as clients. Replacing human interaction is becoming problematic and Banks are unsure about the technology that will be required in the longer run when the Covid-19 threats recede.
On top of that, the regulatory requirements have not seen any sign of relaxation. KYC norms remain as stringent as ever, and growing geopolitical risks are resulting in stricter enforcement of AML/CFT regulations. The product design is therefore undergoing transformations. New operational risks are emerging while manual processes are substituted by artificial intelligence. This leads to operational challenges at the Bank level – in marketing products, revisiting delivery mechanisms and ensuring service satisfaction of customers.
In the evolving banking landscape, private banks are also faced with a growing demand for sustainable products. Green Bonds, Green Sukuks and sustainable private equity products are attracting the interests of private banking clients. Not only the Bank’s own carbon footprint is under the scanner , so is their overall emphasis on integrating ESG in their business strategy and banking practices.
The traditional challenges of private banking that continue to drive private banking include the need to achieve a higher than average rate of return in a consistent manner. Significant market volatility and growing geopolitical threats require effective asset allocations to achieve the desired rate of return.
Understanding the new risk appetite and business consduct expectations of the clients pose challenges in front of private banking. An agile banking strategy is thus the need of the hour.
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