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Implementation of e-private banking in a Swiss private bank


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Implementation of e-private banking in a Swiss private bank

  1. 1. Banking Implementation of e-private banking in a Swiss private bank Olaf Schwarz Head of e-Banking, Bank Vontobel Abstract Since 2001, Bank Vontobel, a medium-size Swiss private bank with activities in private banking, investment banking, asset management, and investment funds, has been offering its pri- vate banking clients an e-private banking application that is tailored to the specific needs of high net worth individuals. The following article focuses on the development of the e- banking strategy as well as its implementation. Furthermore, it describes how this new communication channel has been received by clients and client advisors. 43
  2. 2. Implementation of e-private banking in a Swiss private bank How do Swiss investors use the Internet? increasingly difficult to turn a blind eye to the Internet. To what extent do investors in Switzerland use different chan- nels such as the print media, TV, or the Internet to gather How do Swiss private banking clients use the financial information? In 2000 – at a time when Bank Vonto- Internet? bel drafted its e-private banking strategy — the Swiss Banking We find that investors can be typically placed into three cate- Institute at the University of Zurich1 answered this question gories with regard to their Internet habits: extensively with its comprehensive study ‘Equity Ownership in Switzerland’. So, how did the Internet fare with other well ■ Internet informers only — those who browse the web to established channels in different age and income groups? gather bits and pieces of information relevant to their investment decisions. 44% of Swiss private banking They found that more than half of those under the age of 40 clients fall into this category. In comparison, only 24% of seeking financial information turned to the Internet. However, retail banking customers fell into this category, indicating the percentage of those switching on the TV (60%) or read- that private banking clients have an above average affini- ing a newspaper or magazine (90%) to get information on the ty for the Internet when it comes to financial matters. financial markets were still higher, indicating that the Internet ■ Internet investors — those who also use online brokerage is used largely as a complementary channel by the younger accounts to place orders over the Internet. This groups generation. Only one in eight investors in the 60-76 age brack- represents 15% of the clients of Swiss private banks. et accesses financial information on the web. These results ■ Old fashioned investors — investors who stick to tradi- seem to confirm the long held preconception that the younger tional offline channels. This group represents 41% of the generation is generally faster in embracing new technology. In clients of Swiss private banks. addition to substantiating this generally accepted assertion, the study generated a number of results that were quite unex- Focusing on client needs: Information or transac- pected. For example, it found that while only a third of Swiss tions? investors in the lower income bracket (income of up to CHF Private banks that intend to invest in an Internet banking serv- 6,000 per month) use the web to retrieve information on the ice aimed at high net worth individuals ought to focus on the financial markets, more the half of those in the upper income primary needs of this client segment and thus above all pro- bracket (more than CHF 10,000 per month) turn to the elec- vide a wide array of high quality financial information and tronic channel prior to making investment decisions. This comparatively high Internet usage among the affluent and Print media TV Internet high net worth individuals comes first and foremost at the expense of television; newspapers and magazines remain the % of respondents 92% 63% 40% favorite source of information for this group with a rating of Age of respondents well above 90%. 18-29 88% 64% 61% The study further shows that in 2000 younger Swiss investors 30-39 90% 56% 56% with above average incomes used the Internet much more 40-49 95% 71% 47% intensively to retrieve financial information than their older or 50-59 94% 67% 33% less affluent peers. As this young and affluent segment of the population is one of the prime target groups of Swiss private 60-76 93% 63% 12% banks attempting to reduce the median age of their clientele Figure 1: Usage of different channels in Switzerland as sources of financial information and to expand in the onshore market, these institutions find it according to age 1 Cocca, T., and R. Volkart, 2000, ‘Equity Ownership in Switzerland’ Versus Verlag, 44 Zurich
  3. 3. Implementation of e-private banking in a Swiss private bank Print media TV Internet manager and that most of our clients have accounts with retail banks to process most of their regular payments, we Monthly income decided not to provide online payment processing. Less than CHF 3000 94% 67% 33% CHF 3000 - 4500 83% 69% 31% E-private banking: An essential part of a high CHF 4500 - 6000 94% 67% 29% level of service CHF 6000 - 8000 91% 61% 42% PricewaterhouseCoopers stated in the 2001 edition of their CHF 8000 - 10000 96% 68% 51% ‘European Private Banking/Wealth Management Survey’ that CHF 10000 - 15000 90% 54% 52% service quality is the single most important factor for select- CHF 15000 - 20000 96% 71% 50% ing a wealth manager by private banking clients. The second and third most important factors were the image of an insti- More than CHF 20000 100% 41% 53% tution and the quality of its staff. The quality of service has Figure 2: Usage of different channels in Switzerland as sources of financial information topped this ranking in the survey for some time now and is according to income expected to do so for the foreseeable future. advice. Attempting to lure active Internet traders with fancy online trading facilities will be very difficult as medium size Studies that analyze why private banking clients switch wealth private banks will find it hard to compete in an online broker- managers find that the reasons given most often by dissatis- age market that is dominated by bigger players who can ben- fied clients are poor service (29%), poor investment perform- efit from significant economies of scale and thus offer lower ance (25%), consolidation of assets (20%), and lack of proac- transactions costs. tive service (18%). Those Swiss private banks offering online brokerage to high Many different elements contribute to what is perceived by net worth individuals have often found to their dismay that clients as 'good service’ and they each have to be addressed clients will check their accounts and custody accounts online by different means. However, some important aspects of good only to call their client advisor on the phone in order to place service can be provided by an e-banking solution, convenience, a stock market order rather than use the online facilities pro- and access to comprehensive information and advice. vided by the wealth manager. There are two main explana- tions for this client behavior. On one hand, clients seek reas- E-private banking: A client retention tool surance regarding their investment decisions from their per- Acquisition costs in private banking continue to rise as com- sonal investment advisor prior to placing an order, which is petition intensifies especially in the onshore market; hence, why most of them chose a private bank in the first place. On retaining the existing clients becomes ever more important the other hand, clients prefer to transfer the work as well as for the long term success of a private bank. While exact fig- the risks associated with manual order entry to the bank. This ures on average acquisition costs in the industry are hard to is especially true for some of the more complex transactions come by, it is generally accepted that acquiring a new private that are quite common in private banking. banking client is five to eight times as expensive as retaining an existing one. Therefore Bank Vontobel’s primary strategic Based on the available information on client behavior and goal in implementing a comprehensive e-private banking solu- preferences available, we took the decision to focus on the fol- tion is to raise the quality of service that it offers to its clients, lowing functionalities in our e-banking: detailed client report- thereby improving client loyalty and raising the client reten- ing, stock quotes and financial news, and equity and mutual tion rate. As the Internet becomes ever more pervasive in fund research. Given that our bank is positioned as a wealth daily life and younger clients increasingly regard e-banking as 45
  4. 4. Implementation of e-private banking in a Swiss private bank a 'must', the ability of private banks to attract and retain the ■ Increased strength of the Vontobel brand. younger generation of private banking clients depends increasingly on the ability of an institution to offer an attrac- While the penetration rates of e-private banking applications tive Internet package. at most Swiss private banks remain well below the somewhat overoptimistic expectations that were formed during the hey- E-private banking vs. e-retail banking days of the Internet bubble, the number of active users does Many retail banks embrace e-banking because it allows them rise continually. As the amount of money that is passed on to to substantially reduce the number of routine transactions younger generations with higher Internet affinity increases processed by their branch network. Furthermore, some labor steadily, as a result of current demographic trends, the per- intensive tasks, such as entering payment instructions or centage of clients using e-private banking will climb further in stock market orders into the back-end systems of a bank can the coming years. be transferred back to the customer through an e-banking application resulting in significant cost savings. Implementation of the e-private banking strategy In autumn 1999, a group of senior managers and client advi- Most small- to medium-size private banks face a very different sors at Bank Vontobel formulated their vision of a perfect e- situation. The number of their clients is considerably lower, private banking application tailored exclusively to the needs most of them do not have a large and costly branch network, of high net worth individuals. Early in the process it became and they focus on providing their clients with a combination evident that the investment in an e-banking application ought of advice and complex individual wealth management solu- to be leveraged by providing not just an e-private banking tions, rather than on selling a limited number of standardized application for the clients but also an enhanced look-alike products. desktop for the client advisors to ensure optimal collabora- tion. This ensures that clients and client advisors are working When setting out to design an e-private banking application with the same data displayed in the same fashion, thereby these banks face a situation that is very different from those greatly facilitating the communication and reducing possible of large universal banks. They do not have a legacy e-banking misunderstandings between the two of them. system tailored for the retail market, which can be adapted to the particular requirements of the private banking market. Once the vision had been drafted, a beauty contest was held While this might seem to be a disadvantage at first sight, it with potential suppliers of e-banking systems to determine also offers the private banks the opportunity to concentrate which of the ideas could be implemented at reasonable costs on the unique requirements of their clients. with the available technology. The beauty contest demon- strated that some of the requested features such as session Unrealistic expectations? sharing between client and client advisor or the extensive use What payback does Bank Vontobel expect from ‘Vontobel inter- of web cams were not yet compatible with either the available active banking’, its e-private banking application? bandwidth or the strict requirements of the bank regarding IT security. When reviewing the offerings in the market it quick- ■ Increased client satisfaction. ly became evident that no off-the-shelf product could meet ■ Increased client loyalty, resulting in higher retention rates. the bank's requirements regarding business functionality. ■ Higher efficiency of client advisors by reducing the num- Thus the bank focused on highly flexible frameworks that pro- ber of routine inquiries and thereby allowing the advisors vided basic business functionality and could easily accommo- to focus on higher value activities. date the additional requirements of the bank. ■ Increased acquisition of young onshore clients. 46 - The Journal of financial transformation
  5. 5. Implementation of e-private banking in a Swiss private bank After carefully weighing the pros and cons of the frameworks ommendations, warrants and options, as well as all research and systems on offer, the bank decided to opt for Hewlett reports on a particular stock, can be accessed through links Packard — Nimius e-banking solution, which had a very good from a specific custody account position. Furthermore, all track record in Switzerland and Liechtenstein. It had a number transactions (including corporate actions) carried out in a par- of successful e-banking implementations at private and retail ticular stock during the last two years can be displayed. Icons banks under its belt (Bank Sarasin, VP-Bank, Raiffeisen indicate on which stocks news are available and which stocks banks). are covered by Vontobel Research. The functionality The client-reporting module allows clients to view their assets During the specification phase of the project the bank decid- not just by asset classes but also by risk currency, sector, or ed to stick to its core competencies in wealth management; maturity. The portfolio can be displayed either as a conven- thus, no lifestyle or other non-banking elements were to be tional list or as a combination of pie (assets) and bar (assets & included in 'Vontobel Interactive Banking'. This turned out to liabilities) charts. Drill down functionalities enable clients to be a fortunate decision as most attempts in the industry to access information, such as details of a particular transaction, combine banking and leisure elements in an Internet portal very quickly. did not generate the hoped for enthusiastic response from clients. The asset analysis allows clients to analyze the structure of their portfolio by combining different criteria such as asset The most important and by far most popular functionality is a class, risk currency, or sector. comprehensive client reporting covering a client's accounts, as well as custody accounts. Since most private banking The stock market quotes and news module contains numerous clients consider time to be a very precious commodity, the ways to search and display the information. A multiple view bank put a lot of effort in ensuring that all relevant informa- window on each security displays not only the latest stock tion is easily accessible. What does this mean? A client who market quotes but also company news, customizable charts, has a certain stock position in his portfolio might ask some of analyst recommendations, as well as warrants and Eurex the following questions: options. The quotes & news module also allows clients to set up watch lists and virtual portfolios and to configure their per- ■ What is the position currently worth? sonal quote or news tickers using convenient drag & drop nav- ■ When has the stock been bought? igation. Stocks or news categories can also be dragged onto ■ How much was the last dividend and what is the yield? the desktop where they can be saved and thus easily accessed ■ What is the latest corporate news on this stock? at a later date. ■ What is the opinion of the Vontobel Research on this stock in particular and the sector in general? The equity research produced by the Vontobel Brokerage can ■ What warrants and options are available on this underlying be accessed through Interactive Banking. This can be done by asset? either starting out with a stock quote or a position in a port- folio and then activating the link to the research on this stock In order to provide quick and satisfactory answers to these or by going through the sector and company lists provided in and several other questions that a client might pose, all infor- the research module. Besides company reports, it also fea- mation on a single stock has to be closely linked, thus enabling tures sector reports and macroeconomic research. a client to get a full picture in a minimum amount of time. As a consequence, real time quotes, corporate news, analyst rec- Furthermore, the Vontobel Fund Research provides informa- 47
  6. 6. Implementation of e-private banking in a Swiss private bank tion on approximately 200 recommended third-party invest- can be considered as safe e-mail boxes. The general folder ment funds in more than 50 categories. This information contains documents that the bank regards as interesting for includes not only data on the performance of each fund in all clients. These range from the current investment policy to several reference currencies but also volatility figures as well press releases, updates on new products, and the latest stock as the Sharpe ratio. The latest fund fact sheets provided by and bond guides. The 'personal folder' allows the client advi- the (third party) fund managers could also be downloaded as sors to securely transmit documents to a particular client. The pdf-files while a direct link to the in-house fund database audio and video folder contains the 12 daily audio market exists for Vontobel funds. To ensure compliance with strict updates as well as the video interviews with analysts. legal requirements regarding mutual fund distribution, a client may see only the funds that are registered for sale in Early in the specification phase the bank had to decide his/her country of residence. whether Java or HTML would better suit the needs of its clients and client advisors. While an HTML-client is easier to When designing the application the bank wanted to harness handle (no installation required), it offers fewer possibilities the new opportunities offered by multimedia technologies. when it comes to personalization and it does not support fea- Several times a day, updates on the Swiss, German, and U.S. tures, such as 'drag and drop' navigation, which greatly bourses are provided in the form of audio files. Clients can lis- enhance the usability of the Java desktop. The extensive drill- ten to these through the Real Player which is provided as part down features, as well as the context menus offered by the of the whole software package. The audio files are sourced Java desktop, allow for a very intuitive navigation, thus great- from AFX and routed straight into the application without any ly reducing the amount of time required to access detailed manual intervention, thus ensuring minimal delay. Further- information. After weighing all the pros and cons, we decided more, video interviews with analysts or strategists are con- to opt for a Java desktop — a decision that has not been ducted whenever a major research report is released or unex- regretted to date. pected events happen in the financial markets. The first feedback from client and client advisors In order to justify the title ‘Interactive Banking', which implies After an implementation period that lasted nine months, the that this e-banking solution provides not just one way com- bank launched release 1.0 in April 2001. This version was made munication, a chatroom has been included in the application. available to a limited number of pilot clients and pilot client About once a month, an expert on a frequently discussed advisors. The purpose of the pilot phase, which lasted 6 financial topic (e.g. taxation, estate planning, stock market val- months, was to gather a maximum amount of feedback uations, macro-economics, investment policy, structured through questionnaires, usage statistics, and helpline staff to products, etc.) answers questions online that are submitted by enable the bank to determine which enhancements or adjust- clients either prior to or during the session. In order to ensure ments ought to be made for the next release. maximum confidentiality for the clients, all participants are required to chat under an assumed name. The transcripts of The first feedbacks from the clients showed that they were these discussions can be downloaded as pdf-files by the generally quite satisfied with the functionality, as well as the clients. quality and quantity of data provided. The fact that the some- what complex installation of the Java client on the home or In order to provide additional information to clients, the appli- office PCs and laptops of the clients did not pose any signifi- cation includes the so-called 'information folders'. These fold- cant problems came as a pleasant surprise. However, there ers which are capable of accommodating different data for- were quite a few clients whose PCs did not meet the minimum mats such as plain text, pdf, audio, video, or links to website requirements for hardware and operating systems. As a result, 48 - The Journal of financial transformation
  7. 7. Implementation of e-private banking in a Swiss private bank they were forced to either upgrade their PCs or defer the ed to installation problems or questions regarding specific installation of Interactive Banking. More than one and a half functionalities, such as printing. Although client advisors were years later this problem has almost disappeared as the mem- initially at hand to answer any questions related to banking ory available in the average PC has soared. Nevertheless, a issues, this service was not frequented by the clients who small minority of Apple enthusiasts remain disappointed as no were accustomed to dealing only with their personal client version is available for their favorite computer. advisors. Consequently, this service was quickly discontinued. The comprehensive documentation provided to the clients, The functionality group that was not only accessed most which included an 'installation & security guide', a 'quick ref- often by clients and client advisors during the pilot phase but erence guide', and a short introductory video was well that also got the best reviews was 'accounts/custody received. However, the calls to the helpline showed that only a accounts'. The second most popular functionality group was few clients actually turned to the manuals whenever ques- 'quotes and news'. It received mixed reviews as its feature tions arose. The same can also be said of the context sensitive content in the first release did not yet meet all demands. online help, which was hardly frequented. 'Equity and fund research' received some rather critical reviews as the structure of the information provided was The pilot users rated the usability of interactive banking as based more on the internal organization than on the needs of 'fair to good'. This less than enthusiastic endorsement result the clients. Since adjustments have been made in Release 1.1, came as no big surprise to the bank as some of the more com- which was released in November 2001, the popularity of the plex features that are considered a 'must' by expert users do research has risen considerably. The functionality group mul- at times tend to confuse the casual user. However, the fact timedia was and remains the least visited part of the applica- that the navigation is generally based on well established tion. While it has some dedicated followers, the majority of Microsoft standards, such as drop down menus and an explor- users prefer the more traditional text formats. er, makes it relatively easy for novice users to get started. The drag & drop feature, as well as the wide array of extensive per- What were the main enhancements that clients asked for? sonalization features, which are rather uncommon for this First and foremost, they desperately missed the opportunity type of application, continue to receive rave reviews from fre- to print account and custody account statements. The bank quent users. had decided to forgo this functionality because of the consid- erable costs involved in implementing a Java printing func- The competence and the friendliness of the helpline staff tionality that meets the high quality requirements of private were rated as 'very good'. Because the helpline staff had been banking clients. The second most frequent suggestion con- intensively involved in the project from the beginning and cerned the client reporting. While the detailed information on actually did a lot of the testing themselves, they were inti- the status quo was deemed very good, the users wished for mately familiar with the strengths and weaknesses of the more historical data on the development of their portfolio and application when operations started. This allowed them to the investment performance. While printing is now already solve many complex issues right away without having to available, the planning for an overhaul of the reporting mod- resort to the 2nd level support. The call volume was consider- ule will begin shortly. ably lower than expected; after an initial surge following the launch of the service, the number of calls dropped so far that Value added for clients and client advisors service hours were actually reduced from 08:00-22:00 to What value add has 'Interactive Banking' provided for its two 08:00-21:00 CET, while the Saturday service was discontinued main target audiences, the clients and client advisors during altogether. Most of the calls the helpline received were relat- its first year of operation? 49
  8. 8. Implementation of e-private banking in a Swiss private bank The clients generally appreciate the convenience that this of the major financial markets. During a normal workday, the service offers. They value the ability to access their accounts first users start to log in at around 06:30 am CET. After this and custody accounts around the clock and from any PC on time, the number of concurrent users increases steadily to which the software has been installed. Additionally, they reach a peak for the day at around 10:00 am. After a slight appreciate the near real-time access to all Vontobel equity slump between 12:00 am and 2:00 pm traffic increases again and fund research, as well as stock market quotes and the lat- and hits a second lower peak as the U.S. markets open in the est general and financial news. middle of the afternoon. Then traffic decreases steadily only to rise again between 8:00 and 10:00 pm — incidentally the The fact that clients and client advisors work with different period between the main evening news shows on Swiss TV. version of the same desktop greatly reduces the number of The overnight traffic generated by clients residing in different misunderstandings, thus making the communication easier time zones (Americas, Asia) remains marginal. and more efficient for both sides. Putting a lot of emphasis on this type of collaboration early in the project proved to be a The statistics show that a large number of clients obviously worthwhile decision. The client advisors also welcome the use the application from their offices as there is no other way simplified communication with their clients that results from to explain the high number of logins during working hours. seeing the same data presented in the same way. As clients This came as somewhat of a surprise as the bank had expect- can easily check account balances online or download docu- ed limited administration rights and restrictive firewalls to ments such as the current investment policy, the client advi- prevent successful installations on most office workstations. sors have to deal with fewer routine inquires, such as provid- ing information on account balances, and allows them to focus Lessons learned more on the actual advisory (high value added) part of their With hindsight what were the most important critical success job. factors in implementing an e-banking solution? Since account and custody account data, as well as stock mar- ■ A clear medium- to long-term strategy accompanied by a ket quotes and research reports, are closely linked, the client buy-in from the senior management. advisors can work more efficiently. In the old days they had to ■ The business rather than IT drove the project. switch between the Host (account/custody account data), the ■ Business and IT worked closely together toward a com- market data system (quotes, news), and the Intranet mon goal. (research, investment policy, etc.) to comprehensively answer ■ The system integrator cooperated closely with the busi- a question from a client. With Interactive Banking they can ness and the internal IT department. respond much faster, as all the information is contained in a ■ The system integrator was familiar with the banking sec- single application. tor and local customs. ■ Client advisors were involved at a very early stage. Usage statistics ■ A slow phase-in of the application gave the bank the During the early days, in spring 2001, most users logged on to opportunity to quickly react to client feedback and make 'Interactive Banking' during weekends. However, these days, the necessary adjustments before the application was weekends are the times when traffic is at its lowest. We find rolled out to a wider audience. that most of the traffic takes place during the opening hours 50 - The Journal of financial transformation
  9. 9. Implementation of e-private banking in a Swiss private bank Plans for the future The pace of the development has slowed considerably during the past year, as a result of a deteriorating investment climate. Nevertheless, Vontobel Interactive Banking will continue to be enhanced. Future releases will focus on adopting the more modular architecture of the latest version of HP Nimius, which should not only improve the maintainability of the system but also reduce the response times. The planned functional improvements will focus on an even better client reporting, as well as further upgrades of the 'information folders' that would allow clients to subscribe to news on specific topics. 51