Beyond the buzzword - Digitalisation and Luxembourg private banks

Digitalisation and
Luxembourg private banks
Findings from a joint KPMG
and PBGL research study
February 2019
kpmg.lu
Beyondthe
buzzword

2 Beyond the buzzword
Foreword

3Beyond the buzzword
Over the past two decades, the Luxembourg private banking industry has frequently been said to be
at a crossroads. In 2000, the Feira Agreement laid out for the first time the principle of “exchange
of information” between tax authorities. Then the financial crises of 2002 and 2008 significantly altered
the country’s banking landscape. Strong regulatory pressure has since led to the introduction of multiple
regulations lying behind esoteric abbreviations — such as CRD, MiFID or PSD — and this industry that had
remained relatively untouched until recently has increasingly been affected by consolidation. Most recently,
major players have been strategically repositioning themselves towards a more demanding clientele of
HNWIs and UHNWIs who require products and services of an enhanced quality. So, Luxembourg private
banks have indeed already encountered many a crossroads!
Today they stand at another junction — that of “digital transformation” — and it looks rather more complex
than its predecessors … What does it mean to “be digital” for a private bank?… Do we need to be a first
mover?... What do my clients want?… What is the competition doing?… In fact, what is the competition?
Ultimately, all this boils down to two major questions: What digital offering can private banks propose to
their clients? and: What digital offering do they want to propose to their clients?
Although the first question encounters multiple challenges — related to, for example, financial investments,
business cases, technology, cybersecurity, agility in delivery, resources, etc. — it remains the more minor
one. Or at least it remains very operational and actionable, since it amounts to simply defining a roadmap
and a project management approach, as with any other project.
The second question, however, is far more involved than it sounds, as it puts the focus on the heart of
private banks’ strategic ambitions. What exactly are the expectations of clients in terms of digital? Do
these depend on the client’s age, country of origin or amount of assets under management? Could offering
digital services to private banking clients risk weakening or even losing the sometimes very intimate
relationship between the client and their relationship manager? Is there a risk of cannibalisation when it
comes to, for example, “robo-advice”? Is digital truly a differentiating factor, or simply a commodity that
a bank cannot afford not to offer? In other words, just how far do private banks want to go in their digital
offering?
In this context, we felt it was timely and relevant to try to address these questions in a study in which both
the digital maturity and the digital ambitions of Luxembourg private banks could be assessed.
We hope you will enjoy reading this study as much as we have enjoyed researching and writing it.
Jean-Pascal Nepper
Partner
KPMG Luxembourg
Pierre Etienne
Chairman of the PBGL
Member of the ABBL Board
Serge de Cillia
Chief Executive Officer
Head of the ABBL Management
Board

Luxembourgprivatebanks
ontheirdigitalisationjourney
About this research
6 Executive summary
12
Digital strategy
16
A study by KPMG Luxembourg, in cooperation with the Private Banking Group Luxembourg, a cluster
within the Association des Banques et Banquiers, Luxembourg (ABBL)
Organisation & culture
24

Digital communication
52 Voice of core banking
system vendors and BPO
service providers
58
International perspective
64
Customer experience
34 Distribution & sales
42

Aboutthisresearch

7Beyond the buzzword 7Beyond the buzzword

Objective
The objective of this study was to assess how digitalisation has impacted the business and
operating models of private banks in Luxembourg so far — and what its future impact will
be.
More precisely, we wanted to answer the following two questions:
—— What is the digital maturity of private banks in Luxembourg?
—— What are the digital strategic ambitions of private banks in Luxembourg?
Timeline
Research for this study was carried out between September and December 2018.
Methodology
The methodology we adopted for our research involved:
—— One-to-one interviews with senior executives of 20 major private banks in Luxembourg,
mainly the members of the Executive Board of the Private Banking Group Luxembourg
(PBGL)
—— Desk analysis of publicly available information regarding the digital offering, branding
and positioning of these banks
—— One-to-one interviews with senior executives of core banking systems vendors and
business process outsourcing (BPO) service providers active in the Luxembourg
market
—— Thought leadership from the KPMG Global Wealth Management network, with a focus
on the private banking markets in the United Kingdom, Switzerland and Hong Kong.
20private
banks

In this study, we focus on the extent to which private banks are endeavouring to meet their clients’ needs
in terms of digital — and we analyse their maturity across five dimensions related to strategy, organisation
and culture, customer experience, distribution and sales, and communication.
For each of these dimensions we also highlight the characteristics exhibited by “champion” banks in that
specific area.
Digital
communication
We assess the formalisation of digital strategy
by Luxembourg private banks — and their
advancement in its implementation — taking
into account the importance given to digital
within overall business strategy.
We analyse how the organisation and
HR capabilities of private banks have
so far been adapted to their digital
strategy, as well as the effort being
put into developing an appropriate
digital corporate culture.
In this dimension, we assess how
far the banks have progressed in
the definition of their customer
experience, and the level of
digitalisation they want to offer their
clients.
The digital availability of products and
services is considered, as well as
the extent to which private banks are
leveraging technology to improve their
distribution and sales strategies.
We analyse the extent to which these banks
are building their online presence via digital
marketing channels — and whether they are
striving to build their digital brand.
Digital
strategy
Customer experience
Distribution & sales

10 Beyond the buzzword10 Beyond the buzzword

Bank Julius Baer Europe S.A.
Banque de Luxembourg S.A.
Banque Degroof Petercam Luxembourg S.A.
Banque et Caisse de l’Épargne, Luxembourg
Banque Internationale à Luxembourg S.A.
Banque Raiffeisen Société Coopérative
BGL BNP Paribas S.A.
CA Indosuez Wealth (Europe) S.A.
Delen Private Bank Luxembourg S.A.
Deutsche Bank Luxembourg S.A.
Banks who have kindly agreed to participate in this research:
DNB Luxembourg S.A.
Edmond de Rothschild (Europe) S.A.
ING Luxembourg S.A.
Intesa Sanpaolo Bank Luxembourg S.A.
KBL European Private Bankers S.A.
Pictet & Cie (Europe) S.A.
Société Générale Bank & Trust S.A.
UBS Europe SE, Luxembourg Branch
UniCredit International Bank (Luxembourg) S.A.
VP Bank (Luxembourg) S.A.

Executivesummary

Our clients tend to expect the same
level of digitalisation they currently
have with our mother company in
our home country
Senior management plays a key
role in diffusing a digital culture and
empowering local teams
We do not want to push work and
responsibilities to our clients. This
is not what we do; this is not who
we are
This is not only about the tool, it is
about the mindset
We want to remain relevant in the
digital field, but we do not want to
be leading the charge
You had... “augmented reality”, you
now have the “augmented private
banker”
Our clients are more and more
using WhatsApp to communicate
with their relationship managers.
How can we manage this going
forward?
How to collect the expectations
of our clients in terms of digital
and manage… the very same
expectations?
Digital brand positioning needs to
be subtle: we do not want to be
perceived as mainstream
A B2C robo-advisor is not, and will
probably never be, an option we are
willing to consider
Clients need to be given the tools to
engage with us when and how they
want
It is all about an intelligent mix of
traditional and digital banking
When private banks talk about digital ...

Digital strategy
Luxembourg is known as a country of subsidiaries. Consequently, when it comes down
to the definition of strategy — be it business, operational or digital — the often very close
connections with parent companies lead to integrated decisions. It was therefore no
surprise that, for almost all the private banks interviewed, their digital strategy is defined
at group level. In parallel, while the vast majority of private banks in Luxembourg consider
digital to be key for the development of their sector, their degree of advancement in the
definition — and, more importantly, the implementation — of their digital strategy shows
large discrepancies.
The organisational maturity level of private banks in Luxembourg is usually well correlated
with their development in terms of HR capabilities and culture. Those banks that have
already adapted their organisation and governance to today’s digital challenges tend also
to have initiated corresponding changes in their talent attraction and development, and
to have effected a shift in culture through channelled communication both internally and
externally. Conversely, private banks that are not as mature in terms of digital strategy have
not yet carried out such organisational changes, nor have they introduced digital-specific HR
practices or shifted their organisational cultures towards digitalisation.
Customer experience
Only a limited number of private banks in Luxembourg have redefined and digitalised their
customer experience — and fewer than a third have taken significant steps to implement
new client journeys focusing on digital touchpoints. However, this seemingly intransigent
stance can sometimes be due to very consistent strategic positioning being maintained.
About half of private banks have formally defined their clients’ customer journeys —
although this will not necessarily translate into their offering a highly digital experience,
since many banks insist that the very nature of private banking is “people business”.
Digital is — and is likely to remain — an enabler, and banks are carefully choosing which
touchpoints within the customer experience they will or won’t digitalise.
Private banks in Luxembourg currently make rather limited use of technologies to improve
their distribution and sales strategies. Those banks that have achieved a moderate level of
digital availability for their products and services have done so through well thought-out
strategic positioning.
Efficient use of customer relationship management (CRM) tools, and exploitation of data to
better target and approach clients with relevant offerings, are somewhat underdeveloped.
Very few banks are aiming to really project themselves as digital private banks — and
over a third of banks are not focusing on building their digital image and online presence
at all. Parent banking groups often play the principal role in designing and implementing
the communication strategy for their subsidiaries, giving some Luxembourg private banks
only a limited role to play themselves. Banks’ willingness to be perceived and position
themselves as “digital” is principally a matter of strategic positioning, as is their presence
on online channels. Universal banks tend to be more visible in this respect, strongly
capitalising on the developments of their cross-group and cross-service line marketing
teams — while pure private banking players tend not to benefit in the same way.

Digitalstrategy

Luxembourg is known as a country of subsidiaries. Consequently, when it comes down
to the definition of strategy — be it business, operational or digital — the often very close
connections with parent companies lead to integrated decisions. It was therefore no
surprise that, for almost all the private banks interviewed, their digital strategy is defined
at group level.
In parallel, while the vast majority of private banks in Luxembourg consider digital to be key for the
development of their sector, their degree of advancement in the definition — and, more importantly, the
implementation — of their digital strategy shows large discrepancies.
Champions in digital strategy exhibit the following characteristics.
—— Digitalisation is perceived as a source of competitive advantage for their private banking activities.
—— Digital strategy is fully integrated with the overall business strategy defined at group level, but takes
local specificities into consideration.
—— Market developments are actively tracked and acted upon.
—— Digital strategy has been translated into an actionable roadmap and implementation is on track.
Figure 1. Relative positioning of banks in digital strategy — implementation vs. definition
Implementationofdigitalstrategy
Definition of digital strategy

Defining digital strategy is essential for
business transformation
Almost all consider digital as key to the
development of the private banking sector in
Luxembourg, but also agree on the fact that digital
cannot — and will not — replace human interaction
in a world where the private banker remains pivotal
to the bank’s relationship with the client.
Digital is instead seen as a push towards
“augmenting” the private banker — that is,
helping them increase and improve client
Figure 2.The main objectives of digitalisation
Increase process
efficiency 89%
83%Improve client
experience
28%Free up relationship
manager time
22%Sell more services
22%Create an
omnichannel offering
11%Offer new means of
communication
11%Improve data
quality
11%Keep up with the
competition
acquisition and retention through a better
customer experience. This may take the form
of, for example: less burdensome administrative
tasks for both relationship manager and client;
enhanced customised services through better
client data management; more innovative banking
products; or smoother and more flexible means of
communication.

Digital is also considered a key lever to improve
operational efficiency in the front office — as well
as at middle and back office levels — thus allowing
banks to reduce operational costs while freeing
up more time for commercial and innovatory
developments.
Figure 3. Is digitalisation key to the development of the sector?
“ “Similarly to the notion of “augmented
reality”, we can talk here of an
“augmented private banker”
—— Research participant
14%Marginal
86%Important
Of course, all these investments cost money and
could impact the bank’s profitability in the short
term. But the cost of not adopting digital may prove
higher in the long run — particularly if not doing so
results in, say, (i) losing tech-savvy clients who are
looking for an enhanced customer experience, or
(ii) decreased profitability if potential efficiencies,
achievable through digital, are not exploited.

The vast majority of Luxembourg-based private
banks adopt the digital strategy defined at the level
of their parent companies. Indeed, banks strongly
capitalise on group level actions in general — be it
the improvement of customer experience, or the
development of specific technologies — reflecting
the appeal of an integrated digital strategy and the
necessity of distributing the high costs of digital
projects across group entities.
However, it is also worth highlighting that, for a
handful of the banks interviewed, the Luxembourg
entity does not seem to rank highly among
group priorities, which consequently hinders the
implementation of major digital projects in the short
term.
In terms of functional areas, unsurprisingly,
attention is mainly focused on investment
management and customer experience.
—— For investment management, the main priorities
are generally the enhancement of portfolio
consultation and reporting functionalities, with
the aim of offering dynamic reporting tools
to clients. For execution-only clients, some
banks also dedicate time and effort to the
transactional side, allowing clients to trade
securities on multiple markets.
—— In terms of customer experience, private banks
focus on trying to identify pain points in their
customers’ journeys and assessing where
digitalisation could bring increased value to
those journeys. The digitalisation of the MiFID II
questionnaire — and, more widely, of the entire
end-to-end onboarding process — is often
cited as one of the main priorities in improving
customer experience.
—— Champions usually go a step further and also
focus on data quality and data management in
order to improve their customer knowledge, as
well as their distribution and sales strategies.
• Definition of customer journeys
• Digitalisation of the MiFID II questionnaire
• Development/enhancement of CRM tools
• Building of customer intelligence capabilities
• Digital branding
• Increase in online presence
• Mainly data quality and data management
define at local level
and leverage at
group level
define at group
level, with local
initiatives
define at group
level
Figure 4. Strategic focus areas of digitalisation
Figure 5. Level of digital strategy definition
33% 62%
Investment management
Customer experience
Other
• Dynamic tools for portfolio consultation and
reporting
• Securities transactions on multiple markets76%
71%
29%
18%
18%
5%

Figure 6. Keeping track of market developments and innovation
Monitor market developments
and best practices only on ad
hoc/needs basis
57%
Participate in relevant events and
conferences
38%
Do not monitor market
developments at all
33%
Use a dedicated internal unit for
constant market monitoring
29%
Work with an external specialist
organisation
24%
and
c or
“ “
We want to remain relevant in the
digital field, but we do not want to
be leading the charge.
— Research participant

Implementation is under way … or is it?
Most banks started to implement some elements
of their digital ambitions around 2015. Some others
started later but with greater support behind them,
and were already making major achievements by
2018.
Almost half of private banks consider that they are
lagging behind the competition with regard to their
organisation’s implementation of digital.
This is an intriguing result, as the digital ambitions
of most private banks are very heterogeneous —
hence there is no real baseline for them to compare
themselves against. So, what may look like “lagging
behind” may actually be a result of their own
strategic positioning — for example, a strategic
decision not to offer clients the ability to trade
securities or make payments, as opposed to the
late implementation of this functionality.
Another key element we observe in the digitalisation
of the private banking sector is of course the
emergence and growth of fintech businesses, as
many of these focus on developing solutions for
private banks. However, at this stage, although
Figure 7. How advanced do you feel your digital achievements are compared to the competition?
Lagging behind competition
Ahead of competition
At the same pace with competition
Far ahead of competition
43%
14%
38%
5%
fintech is a word that regularly pops up in our
financial reading, the number of private banks that
have genuinely identified, analysed, selected and
implemented a fintech solution remains rather low.
Within the private banking world, activity with
fintech companies seems to remain limited
to market or competitor monitoring, events or
conferences and a (very) large number of “one-day
stand” demonstration sessions.
One of the possible explanations behind this is that
fintechs often design solutions aimed at addressing
a direct B2C issue, whether it be in the area of
investment management or customer experience
(e.g. robo-advisors dedicated to end clients), while
private banks are still considering just how digital
they really want to be in their client relationships.
Private banks, it seems, may be more open to
solutions that would improve their internal operating
models, allowing them to better serve their clients,
e.g. a robo-advisor that would push investment
recommendations to the relationship managers, not
to the clients.

Organisation&culture

Those banks that have already adapted their organisation and governance to today’s digital challenges
tend also to have initiated corresponding changes in their talent attraction and development, and to have
effected a shift in culture through channelled communication both internally and externally.
Conversely, private banks that are not as mature in terms of digital strategy have not yet carried out such
organisational changes, nor have they introduced digital-specific HR practices or shifted their organisational
cultures towards digitalisation.
Champions in organisation and culture exhibit the following characteristics.
—— Digital initiatives are steered centrally, with the creation of dedicated leadership and teams.
—— Senior management is closely involved through direct reporting, and there is strong governance around
digital programmes.
—— Digital initiatives are actively communicated internally and externally, thus progressively embedding
digital into corporate culture.
—— HR has developed talent attraction and development strategies for digital skills, as well as awareness
about digital risks.
—— IT strategy is well aligned with business strategy.
Figure 8. Relative positioning of banks in organisation & culture — HR capabilities & culture vs.
organisational maturity
The organisational maturity level of private banks in Luxembourg is usually well correlated
with their development in terms of HR capabilities and culture.
HRcapabilitiesandculture
Organisational maturity

Leadership and governance are crucial
to establishing digital strategy
Only 38% of Luxembourg private banks have put
a specific structure in place for digital initiatives —
usually consisting of a dedicated digital team with a
clearly identified person in charge. In some cases,
a separate “innovation” team has also been set up,
focusing mainly on technological market monitoring.
This sort of structure is often seen among banks
that either have their headquarters in Luxembourg
or are universal banks with a digital unit that spans
all business lines.
Nevertheless, not having a specific digital team
in Luxembourg certainly doesn’t mean that
In over 50% of cases, digital leadership and teams exist at group rather
than subsidiary level
Figure 9. Luxembourg private banks’ overall organisational maturity
Figure 10. Heads of digital in the organisational structure
38%of banks have assigned a
specific leadership role in
charge of digitalisation
62%
do not have a dedicated
leadership role in
Luxembourg
50%
25%
12.5%
12.5%
The head of digital reports to the:
Head of private banking
CEO
COO/
CIO
Head of
strategy
digital is not on the agenda. More often than not,
digital leadership and teams exist at group level,
and Luxembourg entities can draw on tools and
capabilities developed by the parent group.
In 75% of banks, the digital lead reports to either
the head of private banking or directly to the CEO,
clearly showing how far digital has risen up the
business agenda, and highlighting that digital is first
and foremost a client relationship topic for private
banks.
Interestingly, only 12.5% of digital leads report to
the COO or CIO.
Nascent Somewhat mature Mature Very mature
38% 24% 14% 24%

In some cases, a certain disruption of the traditional
IT structure may be involved, as digital software
developers may be positioned on the business side
of the organisation. This is sometimes the case
when digital developments are deployed using
agile methodologies for software projects or in
dedicated “factories” — although the maintenance
of digital applications may in turn be handed over to
traditional IT teams in the industrialisation phase.
More generally speaking, half of the banks surveyed
have adapted their structures and governance to
the nature of digital projects, having implemented
agile methodologies in parallel with the traditional
“waterfall” approach to software development
which remains more relevant for standard IT
projects.
48%of banks have implemented
a dedicated digital project
structure and governance
Figure 11. Extent of cross-functional business collaboration within banks
little
19%
close
19%
none
24%
very close
38%
Cross-functional collaboration is
improving
As a rule, the level of collaboration between the
different functions within private banks mirrors their
overall organisational and cultural maturity — i.e. in
organisationally mature banks, efforts are combined
across business lines to successfully deliver digital
projects. Some banks point to the physical proximity
of teams enabling better and more efficient
collaboration.

More flexibility needed
With regard to the IT function, 68% of private
banks consider their organisation’s IT strategy to
be aligned with its overall business strategy. The
clearer the business’s digital strategy, the more the
IT strategy and organisation have been adapted to
deliver it.
However, the relationship between the standard
IT department — developing and maintaining
what can in some cases be an old, or very old,
legacy core banking system infrastructure — and
the newly-created business tech-savvy digital
teams can sometimes be a little challenging. The
IT department may well be tempted to think that
HR policies, including training and
education, play an important role in
shaping culture
Over 60% of banks identified a low level of local
HR maturity towards digital. Even when digital
momentum has clearly been created in the
business, HR strategies have often not followed this
development, with 50% of private banks still feeling
that they do not have the right digital skills in-house.
Figure 12. Alignment of IT strategy with digital demands from business
Figure 13. Flexibility of IT in responding adequately to challenges presented by digitalisation
completely aligned
29%
very flexible
29%
somewhat
aligned
9%
somewhat
flexible
9%
well aligned
38%
flexible
19%
not aligned at all
24%
not at all flexible
43%
Champions usually have an in-house IT department that gives them
a high degree of autonomy and flexibility
these digital natives hardly understand IT and do not
abide sufficiently by the rules, while the latter may
tend to view traditional IT departments as bound
by outdated conservatism. This situation becomes
even more complex when the IT is offshored or
outsourced.
Geographic proximity does indeed facilitate
operational agility, performance and speed to
market for digital products and services. Those
banks that depend heavily on their parent group
do not necessarily get their specific needs
implemented, and the digital roll-out roadmap is
often not within their control.
Banks are combining external recruitment and
internal training in an attempt to fill the gaps, but
ramp-up is not always as fast as expected. External
recruitment tends to be used for specific specialist
skills, such as user experience or user interface
designers.

Figure 14. How banks solve the issue of not having the right skills in-house
About half of banks are investing in targeted
education for their employees, but this figure
shouldn’t be taken at face value, as the coverage
and depth of the training vary widely between
banks. Less than 10% organise formal training or
information sessions about specific digital topics or
technologies — training at the majority of banks is
usually limited to guidance on digital risks or how to
use and behave on professional social media.
Most banks do not face any significant generational
problems when it comes to digital acceptance. In
fact, digital is often seen by relationship managers
of all ages as an enabler rather than a constraint or
a threat, especially for performing administrative
tasks. Nonetheless, only a limited number of skill-
transformation programmes have been formalised,
and very few digital change management initiatives
have been launched to assist client-facing staff in
fully embracing digital and adapting their ways of
working.
From an employee standpoint, younger relationship
managers may be keener on using digital tools for
business development, among other purposes. This
generation may therefore be tempted to choose
their employer on the basis of its capability to offer
state-of-the-art tools to both its private bankers and
clients.
50%have the skills
in-house
50%do not have right
skills in-house
Solutions
Digital risks
Most private banks feel they already have the right
security guidelines and adequate practices in place
when it comes to digital risks and cybersecurity.
The general impression is that banks are trusted by
clients on their ability to protect client information,
as few bankers have been questioned by their
customers on these issues.
Banks with strong guidelines on digital risks and
cybersecurity have generally defined them at group
level and imposed them on all group entities. These
same banks have also set up training programmes
to educate their staff members on digital risks.
Recruit from
outside the firm
Train in-house
resources
66% 83%

58%
have specific
guidelines
42%
do not have specific
guidelines
Figure 15. Banks’ guidelines on digital risks
have educated their staff
47%53%
Figure 16. Education of staff on digital risks
have not educated their staff

Figure 17. Extent to which digitalisation is embedded into corporate culture
Figure 18. Internal and external communication on digital vision
completely
embedded
well
embedded
somewhat
embedded
not at all
embedded
9% 24% 29% 38%
43%
Communicate
internally
57%
Do not
communicate
Out of which 56%
also communicate
externally

Company culture is a strong foundation
for catalysing digital transformation
There is still some way to go for banks to nurture
a truly digital culture — only about a third consider
that digitalisation has taken root in their corporate
culture. Banks emphasise the key role that senior
management has to play in communicating and
promoting such a culture — and in empowering
local teams to experiment and launch new
initiatives. Some groups have a strong innovation
culture, but this does not always have a spillover
effect on their Luxembourg subsidiaries.
A strong digital culture is initially created by the
transmission of very clear and consistent internal
Success
stories
Effective
communication
Strategic
branding
Change
management
Behaviours
Beliefs
Values
Attitudes
communication messages, raising awareness
among staff about the organisation’s activities
and success stories. Strategic brand positioning
and external communications also create a very
influential basis on which to build a digital culture.
In Luxembourg, the banks that are actively
communicating both internally and externally on
their digitalisation developments are more often
universal banks, with fewer than 10% of “pure”
private banking players doing so.

Customer
experience

About half of private banks have formally defined their clients’ customer journeys — although this will not
necessarily translate into their offering a highly digital experience, since many banks insist that the very
nature of private banking is “people business”. Digital is — and is likely to remain — an enabler, and banks
are carefully choosing which touchpoints within the customer experience they will or won’t digitalise.
Interestingly, among the 43% of private banks that have not yet put significant effort into defining or
improving their customer experience, two thirds are awaiting the roll-out of their parent group’s digital
initiatives in Luxembourg.
Champions in customer experience exhibit the following characteristics.
—— Clients’ digital expectations are canvassed and addressed effectively.
—— Customer journeys are mapped out and touchpoints are digitalised according to digital strategy.
—— Investments are made to improve apps and web experience.
—— Communication channels are developed to maximise the bank’s availability “anywhere, anytime”.
Figure 19. Relative positioning of banks in customer experience — level of digitalisation vs.
definition
Only a limited number of private banks in Luxembourg have redefined and digitalised
their customer experience — and fewer than a third have taken significant steps to
implement new client journeys focusing on digital touchpoints. However, as seen earlier,
this seemingly intransigent stance can sometimes be due to very consistent strategic
positioning being maintained.
Levelofdigitalisationofcustomerexperience
Definition of customer experience

Clients’ digital expectations are not
systematically sought
Several private banks in Luxembourg have a
rather limited knowledge of their clients’ digital
expectations, with only a third collecting information
on these views. But when these banks do canvas
expectations, information sourced from relationship
managers is used as much as direct feedback
from clients — a practice that could well result in
unconscious bias in the results.
Perhaps surprisingly, generation and age are not
seen by the banks as key differentiators for client
expectations, apart from for clients over 80 years of
age.
Geographic origin and country of residence seem to
have a bigger impact: Luxembourg-resident clients
can seem to have fewer needs in terms of digital,
while non-residents may find the ability to remotely
Figure 20. Collection of client expectations information
Only 24% of the banks that seek client feedback have observed an increase in the scope of the online
services that their clients expect — these include:
—— paperless client onboarding and management of client data
—— availability of new means of communication, enabling the client to contact their bank “anytime,
anywhere, anyhow”.
33%of banks canvas client
expectations through
67%
do not seek client feedback
in a structured manner
43%
43%
43%
How do you collect client feedback?
Relationship managers
Client panels/ interviews
Recurring surveys
manage their accounts very appealing. Non-
residents may also have more basis for comparison,
if they also use private banks located in their
countries of residence. Asian and Nordic clients, for
example, were cited several times as particularly
keen on digitalisation, as the level of digital maturity
in their countries of origin is already very high.
Factors such as profession and investment profile
also heavily influence clients’ appetite for digital. For
instance, entrepreneurs and self-directed clients
of all types are often likely to opt for advisory or
execution-only services, and thus tend to expect
greater access to financial markets via online
transactional functionalities. This will, of course, not
be the case with discretionary management clients,
who might merely need portfolio consultation and
reporting functionalities.

Figure 21. Clients’ expectations in terms of digitalisation
Client onboarding and the management
of client information are the highest
digital priorities for private banks
Even though client onboarding is seen as the most
important journey to be digitalised for clients,
roughly half of banks have not yet formalised an
initiative for this — and only 14% have reached the
level of digitalisation they aim at.
Contrary to the situation in retail banking, it is very
clear for the vast majority of private banks that
they will never fully digitalise the client onboarding
process. With regulations imposing very strict
“know your customer” (KYC) standards, and the
complexity of the wealth structuring exercise,
allowing HNWIs to open private banking accounts
themselves, online, is simply not an option. The
rare cases where it might be considered would
be for very straightforward client situations
(e.g. for resident clients with all their assets
in a discretionary mandate) — but even then,
private banks consider this would be losing a very
privileged touchpoint with the client. However,
banks can foresee the possibility of having a
“remote” onboarding process by developing digital
tools which will allow relationship managers to
76%Paperless client onboarding and
management of client data
65%New means of communication
59%Transactional functionalities
47%
Digital content (market analyses,
investment strategy, expert
points of view, etc.)
perform all related administrative tasks during client
meetings held outside the bank.

Communication channels require more
attention from private banks
Private banks seem to have put little effort into
developing new means of communication for
clients so far, despite 65% of banks considering
that their clients expect such developments.
Clients are increasingly contacting their relationship
managers via tools such as iMessage, Messenger
or WhatsApp, which can represent a significant
compliance versus client experience issue. Most
private banks’ procedures still require orders
to be placed on a fixed line or in writing, which
necessitates making a phone call, or using secure
email or a chat function accessible through either
Strict regulations — in particular MiFID II — have
made the client onboarding process a highly
complex exercise for both the relationship manager
and the client. Onboarding is sometimes viewed
by the client as a stressful experience — and the
signing through a pack of dozens of pages, that
few actually read, can seem unpleasant. This is why
most private banks focus primarily on digitalising
the gathering of client data and the MiFID
questionnaire. They also aim at allowing document
uploading and verification via digital channels.
Electronic signature is an element that is being
considered by 57% of banks, in order to speed up
administrative tasks. However, they point to the
fact that “qualified” electronic signatures — the
only type of e-signature that is legally equivalent to
a hand-written signature — require a face-to-face
verification of the person’s identity, which hinders
their implementation in “full digital” use cases. To
support such use cases, certain institutions are now
satisfying themselves with “advanced” electronic
signatures, thanks to the recent entry into force
of a harmonised European legal framework
on electronic transactions (i.e. the EU’s eIDAS
regulation). Biometric-based identification is being
contemplated by 40% of banks.
Figure 22. Banks’ approaches to digitalisation of client onboarding
the bank’s online banking platform or a dedicated
banking app. But from a client experience
viewpoint, using e.g. WhatsApp is of course far
easier, more convenient and less time-consuming
than connecting to a bank’s token-based online
banking platform.
Many private banks are still pondering the best way
to tackle this issue, with the main solutions being
to better educate the customer on the dangers of
potential security issues or to design a more user-
friendly secure communication channel.
do not
intend to
digitise client
onboarding
process
have digitised only
some parts of client
onboarding but will be
digitising more
have digitised
some parts
of client
onboarding but
don’t intend to
digitise more
are studying the use case/thinking about it/
haven’t yet started
14% 48% 24% 14%

Figure 23. Digital communication channels currently offered or planned to be offered to clients
81%Secure email
Dedicated secure mailbox accessible
through the bank’s online banking
platform or dedicated bank app
Private chat accessible through the bank’s online
banking platform or dedicated bank app33%Instant secure chat
14%Video capabilities
10%WhatsApp / iMessage
The majority of private banks are
investing in improving their mobile apps
and web portals
For those striving to enhance digital customer
experience, the collection and analysis of
browsing data could be a very insightful source of
information. Some banks are currently working on
this, but it is considered a challenge, as it requires
the development of dedicated capabilities which
are not always seen as a priority. Nevertheless
the value of these analyses is recognised, as they
would allow banks to assess the true return on
investment of their extensive existing digital content
“ “Our customers are more and more using WhatsApp to communicate with their
relationship managers. How can we manage this going forward?
Figure 24. Extent to which client advisors can be reached anywhere, anytime via digital means
very large extent
5%
limited extent
52%
large extent
29%
not at all
14%
(the market analyses, investment strategies, etc
that they publish on their websites).
Very few banks actually analyse the bounce rate of
their website (i.e. the percentage of visits in which
users click away from the website landing page
without browsing any further), even though this
sort of data could help in judging the quality of the
site’s content and how well they are targeting their
communications.

Figure 25. Extent to which private banks invest in improving their mobile apps and internet banking
portals
Figure 26. Availability of digital client administration and communication capabilities
Open an account 100% online
Offer e-signature
Give online feedback to the
bank on the level of service
Initiate an instant
conversation with a banker
Access online peer-to-peer
communication platform
We are already
doing it
We intend to
do it and it is an
ongoing project
We intend to do
it and it is in our
pipeline
We are studying
the use case or
thinking about it
We do not
intend to do it
at all
4515
15
5
5
55
2010
10
10
33
33
38 14
15
24
29 61
28
70
10
very large extent
28%
large extent
29%
limited extent
29%
not at all
14%

Distribution&sales

Private banks in Luxembourg currently make rather limited use of technologies to improve
their distribution and sales strategies.Those banks that have achieved a moderate level of
digital availability for their products and services have done so through well-thought-out
strategic positioning.
Efficient use of customer relationship management (CRM) tools, and exploitation of data to better target
and approach clients with relevant offerings, are somewhat underdeveloped. In terms of the online offering
of products and services, private banks have a very different strategic positioning to retail banks, the main
difference lying in transactional functionalities.
Champions in distribution and sales exhibit the following characteristics.
—— Tools are developed to support relationship managers and portfolio managers.
—— The potential use of advanced data analytics is explored in depth and relevant capabilities are being
developed.
—— Client data quality is improved and structured.
—— Clients are incentivised to act more autonomously, via the digital offering of a wide range of products
and services.
Figure 27. Relative positioning of banks in distribution & sales — leverage of technology vs. digital
availability
Leveragingoftechnologyfor
distribution&sales
Digital availability of products & services

CRM tools and their digital extensions
are not sufficiently developed to allow
remote private banking
About a third of the banks interviewed felt that their
CRM tools are not able to fully support relationship
managers in their day-to-day operations. Some
banks are in the process of replacing these tools, or
have plans to do so, while others refer to the lack of
good practice in feeding the tool with relevant client
information.
Even though tablet computers are made available
to relationship managers, very few of these devices
are fully connected to the banks’ platforms, thus
hindering what would be a fully fledged utilisation
in client meetings held outside the bank. Systems
portability and security concerns remain a strong
barrier to remote private banking.
Customer intelligence is not sufficiently
developed to effectively support
distribution and sales
Fewer than 15% of banks are exploiting client data
through the use of data and analytics, or artificial
intelligence. Banks mainly focus on internal static
and transactional data to analyse client behaviour
and measure attrition, and not to build predictive
and targeting models. Furthermore there does not
appear to be any real interest in enriching client and
KYC data with external data sources. GDPR is often
cited as a limiting factor for such data enrichment.
A few banks are exploring the data and analytics
option, but are often limited by the fact that they
do not always have access to sufficient historical
data to develop this capability. They usually strive to
at least clean and organise the data they have, to
“make some sense out of it”. About half the banks
are performing basic data mining through manual
queries and analysis, but this remains limited.
With regard to the digital behaviour of clients,
analysis remains at a superficial level, with little
being done beyond the analysis of internet
banking or mobile app take-up rates, and of online
operations.
Figure 28. Use of data and analytics
technologies to identify or anticipate client
needs
Figure 29. Monitoring of sales orders through
digital channels to adapt sales strategy
14%
48%
38%
used to a limited extent
used to a large or very large extent
not used at all
19%
NoYes
81%

The overall digital availability of products and
services remains limited, in part reflecting the
strategic orientation of private banks
The basic digital functionalities that are developed by all players
are in portfolio consultation and reporting. In general, banks put
significant effort into more dynamic consultation functionality,
including in their mobile applications. With regard to reporting,
three quarters of the banks already offer online access to
periodically-generated reports.
However, less than half are offering their clients dynamic
investment reporting tools, even though the banks themselves
perceive these to be of high added value for clients.
Figure 30. Use of digital tools for client investment
reporting
35%
dynamic data drilling
46 Digital in Private Banking
41%
provide access to dynamic
reporting (generated on
demand)
76%
provide online access to
periodically-generated
reporting

Figure 31. Digital functionality offerings
Receive investment
recommendations
Consult investment portfolio
Make investment simulations
Initiate a securities purchase
or sale order
Initiate a payment order
Simulate or request a loan
Update client ID data and
documentation
Access a social investment
platform
Provide account aggregation
9
5
5
5
29
24
9
14
10
14
19
48
52
19
5
5
5
5
5
5
33
81
33 67
86
38
38
24
24
19
14
71
57
5
9
9
We are already
doing it
We intend to
do it and it is an
ongoing project
We intend to do
it and it is in our
pipeline
We are studying
the use case or
thinking about it
We do not
intend to do it
at all

Transactional functionalities seem to be the most
prominent digital theme, with 62% of private banks
offering, or wanting to offer, clients the ability to
initiate securities orders — while 38% reject this
option altogether. For client-initiated payment
orders, 71% of banks are in favour, while about a
quarter have a clear negative position.
Conversely, the vast majority of banks are unwilling
to even consider making loan simulations or
requests available online. This is directly related
to the nature of private banking loans, which tend
to be complex and often require the calculation of
collateral or the factoring in of other assets.
There is also a wide consensus in not wishing to
offer investment simulation functionality, with about
two thirds of banks not prepared to consider this
option at all. Providing access to social investment
platforms — which enable clients to follow and
replicate other investors’ portfolios — is likewise
rejected by over two thirds of the banks.
Push notifications of investment recommendations
— which the client can then accept or reject online,
either via internet banking or a mobile application —
are usually seen as a nice-to-have functionality, but
not considered a top priority in the digital agenda.
Account aggregation as a high added
value functionality?
About half of private banks consider that the recent
coming into force of the Second Payment Services
Directive (PSD2) will have limited impact on them,
as they argue that they either do not offer payment
services at all or do not provide online access to
cash accounts.
For the 33% that see PSD2 as a business
opportunity for the wealth management sector,
the regulation is a clear first step to developing
an account aggregation service — this would
allow clients to have a holistic view of their
assets, whether deposited with banks, insurance
companies or other types of financial institution.
These banks are therefore investing in building the
right technologies and architecture in anticipation of
a wider opportunity in the future.
“ “We do not want to push work and responsibilities to our clients. This is not what we do;
this is not who we are.

Figure 32. Banks’ perception of forthcoming developments of “open banking” and PSD2
48%believe it will have
limited impact and
is not applicable to
wealth management
33%see a tremendous
opportunity for wealth
management
19%think that if they don’t
follow the trend, it will
become a threat
PSD2 – “open banking” is here
The revised Payment Services Directive introduces a number of key
changes compared to its predecessor — the most prominent being
mandatory access to (payment) accounts for third-party payment
service providers, at client request. Unsurprisingly, banks have
very different views on the directive and what it will mean for their
industry: these range from viewing it solely as a compliance burden
to foreseeing it as bringing strategic opportunities to develop new
products and services.
Depending on the business model of the individual bank, both views
are understandable. Traditional retail banks consider payments as
part of their DNA — with the payment account at the heart of the
client relationship — and their customers often have more than one
banking relationship, so may not be unwilling to share information
on their other accounts. Getting access to these accounts opens
up opportunities to cross-sell products and provide other valued-
adding services. Private banks, on the other hand, would not define
themselves via a payment service but rather a portfolio management
service — providing payment services is simply a means to offering
the investment business. Their client base may well be more reluctant
to share account information with third parties and hence, for those
banks, the implementation of the new requirements will mainly come
at a cost only.
Juergen Rieder
Partner
KPMG Luxembourg

Are “robo-advisors” a private banking
solution?
Only 15% of banks are considering offering a
B2C robo-advisor solution, and this would be for
mass affluent clients exclusively. The vast majority
of banks do not consider robo-advice a credible
option, stressing the fact that their clients primarily
seek a privileged interaction with their relationship
managers.
Nevertheless, many banks see some potential for
this type of tool, provided that it is implemented
Figure 33. Uses foreseen for robo-advisor technology
B2C: offer it as a new
service – effectively
a “cheaper advisory
solution”
15%
B2B: use it as a tool for
relationship managers,
to boost efficiency in
advisory services
55%
B2B: use it as a tool for
investment managers for
discretionary portfolio
management
30%
only in an internal setting — i.e. to support
relationship and investment managers, and
without any direct connection to the client. In fact,
while many banks are satisfied with their current
investment proposal engines, a robo-advisor could
provide added value by using advanced artificial
intelligence to enable appropriate targeting and
flexibility in the assessment of client situations.

Figure 34. Is serving independent asset managers part of your strategy? If yes, does digitalisation
help you attract them?
Third-party asset managers do not seem to be a
significant driver for digitalisation
Although 29% of the research participants recognise that serving
independent asset managers (IAMs) is part of their overall
business strategy, they do not see IAMs as a driving force for
digitalisation. In fact, some banks already offer them specific
access in order to manage their accounts and portfolios, and this
is felt to cover their needs. A few banks also observe that some
IAMs in Luxembourg tend to remain rather conservative in the
way they communicate with them, so conclude that digitalisation
would not necessarily be seen by them as a differentiating factor.
Yes
29%
Yes
14%
No
71%
No
86%

Digitalcommunication

Very few banks are aiming to really project themselves as digital private banks — and over
a third of banks are not focusing on building their digital image and online presence at
all. Parent banking groups often play the principal role in designing and implementing the
communication strategy for their subsidiaries, giving some Luxembourg private banks only
a limited role to play themselves.
Banks’ willingness to be perceived and position themselves as “digital” is principally a matter of strategic
positioning, as is their presence on online channels. Universal banks tend to be more visible in this respect,
strongly capitalising on the developments of their cross-group and cross-service line marketing teams —
while pure private banking players tend not to benefit in the same way.
Champions in digital communication exhibit the following characteristics.
—— Focus is put on building digital image and brand online.
—— Digital channels (own and social media) are fully utilised to communicate about the bank and its values,
in order to build trust and inspire confidence.
—— Leadership advocates the digital brand online.
—— Distinctions and awards that contribute to a positive digital image are actively pursued.
Figure 35. Relative positioning of banks in digital communication— marketing channels vs.
branding
Useofdigitalmarketingchannels
Digital branding

Banks’ digital branding is a matter of
choice
Only a fifth of banks focus strongly on building their
digital image — while well over 50% of them make
little or no effort in this regard. Banks with their
headquarters outside Luxembourg are, for instance,
not always able to exercise strategic marketing
decisions locally, as the communications strategy
and means of implementing it may be dictated
centrally, leaving little room for local initiatives.
But, in general, regardless of the size and autonomy
of the marketing departments of private banks, their
digital branding is primarily a matter of strategic
choice. Many simply do not wish to be perceived as
“mainstream” and they therefore choose instead to
Figure 36. Extent to which banks focus on building their digital image
“ “Digital brand positioning needs to
be subtle: we do not want to be
perceived as mainstream.
only 1/3 of banks
pursue efforts to
earn credentials in
digital
very large extent
19%
limited extent
19%
large extent
24%
no extent
38%
emphasise the many years of legacy and tradition
that lie behind their highly personalised client
service — something they may see as very far
removed from the notion of digital, which could well
be regarded as too impersonal or distant. In fact,
some banks, while offering products and services
that are digital by nature, and built using the latest
technology, even choose to avoid the use of the
word “digital” in their communications.
This may help explain why only a third of
private banks actively pursue efforts to earn
credentials, awards and distinctions for their digital
developments.

Communication channels as a way of
building digital presence
A significant majority of the banks — 71% — use
digital channels to communicate information about
their company, its values and history, with the aim
of inspiring confidence and building the trust of their
clients. The company website is the primary source
of communication about the bank and is often built
into the parent group’s website.
The level of information given on the Luxembourg
page of banks’ websites depends on the purpose
the banks assign to their sites. Some see a website
merely as a means for clients to locate initial bank
contact information; others use it as a tool to
display information about products and services.
Just over two thirds of banks are active on social
media, and 44% use their mobile app as a means of
communication.
Interestingly, 29% of Luxembourg-based private
banks do not have a dedicated department or senior
leadership maintaining an active presence online.
Amongst those that do, 60% have a dedicated
communications team as part of a structured
marketing activity.
It is worth noting that online channels are rarely
viewed as means of targeting or acquiring new
clients by these private banks — but rather as
a means of communication about the bank’s
activities.
Figure 37. Use of digital channels to communicate about the bank
do not use
digital channels
use digital channels
to build brand
29%
71%
29% of banks do not have a dedicated department or senior leadership
actively present online

Figure 38. Use of digital channels to raise brand awareness
Figure 39. Use of digital channels to
communicate about the company, in order to
build trust and inspire confidence
Figure 40. Level of online activity by senior
management or a dedicated department, aimed
at appealing to new and existing clients and
promoting the bank
Website 94%
69%Social media
44%Mobile app
Website
93%
Social media
67%
Mobile app
40%
Blog
7%
7%
Other online presence
42%
29%
29%
Decentralised online activity left to individual
initiative
Structured as part of the bank’s communication
strategy, with online activity defined, planned
and executed by dedicated communication team
No presence on social media

Voiceofcorebanking
systemvendorsandBPO
serviceproviders

As mentioned earlier, as part of our research for this report, we also
interviewed a number of core banking system vendors and business process
outsourcing (BPO) providers active in the Luxembourg market, in order to
understand their perceptions of the digital maturity and ambitions of their
own customers — i.e. the private banks.
Main areas of focus of private banks
Unsurprisingly, in the opinion of these vendors
and service providers, many “pure play” private
banks are still in the process of defining their digital
positioning, whereas private banks that are part of
universal banking groups are more advanced in this
regard.
From a general viewpoint, all private banks aim
at providing the correct balance between offering
relevant features, to the right client, on the
appropriate channel, and avoid pushing unwanted
responsibilities onto their clients.
In this sense, the current tendency is seen to be
more about exploring how to extend the banks’
platforms and applications on the bankers’ tablets,
than developing self-service features for the client.
Both vendors and service providers have observed
three clear areas of focus from their private bank
clients. The banks are:
—— exploring how to interact with their clients in
more seamless and more fruitful ways
—— betting on digital to achieve a higher operational
efficiency and simplify the banker’s job
—— striving to better equip their bankers with digital
tools for advisory and portfolio management.
Some vendors and service providers believe
that execution-only clients will probably move to
pure digital brokerage in the future.
According to vendors and service providers, many
private banks are still lagging behind in terms of
their data and analytics capabilities, as well as
in artificial intelligence (AI) — and for the very
same reasons previously highlighted by the banks
themselves, i.e. lack of data quality, and limited
use of information from CRM and transactional
applications. Banks do perform analysis of
transactional data, but are still building capabilities
for the development of decision-making tools.
Finally, vendors and service providers are inclined to
think that private banks could probably invest more
in the change management effort linked to the
implementation of a digital culture.

Private banks’ expectations depend on
their size and on their clients’ countries
of origin
Private banks have varying expectations of their
core banking system vendors or service providers,
depending on their own size and organisation.
Larger private banks usually have their own digital
teams and have already invested heavily in front
office solutions, including digital solutions —
they therefore want their providers to be able to
integrate these solutions. Conversely, smaller
banks tend to expect out-of-the-box and integrated
digital front-ends, for reduced costs and quicker
deployment. Finally, some private banks opt for
the hybrid option of developing their own user
interfaces, integrated into their existing portals.
Figure 41. Key areas of focus of private banks
Client
interaction
Operational
efficiency
Data &
analytics
Change
management
Advice &
portfolio
management
Vendors and service providers observe that
there can be significant differences between
the Luxembourg market and other locations. For
example, in terms of client interaction, Asian
private banks are developing online “chatbots”
to respond to the basic enquiries of their clients
— a feature which is, to date, barely an option in
Luxembourg private banking. Also, while advisory
and discretionary portfolio management are core
offerings in Luxembourg, it is noted that, in Asian
private banking centres, private clients tend to
favour execution-only services.

Vendors and service providers invest
heavily in the development of digital
solutions, with a strong focus on open
architecture
In general, digital ranks highly in the priority list of
service providers, which translates into a significant
effort and investment to deliver their digital
roadmap. Their challenge is not only to respond
to their clients’ demands, but also to strive to
anticipate how digital will continue to evolve.
They therefore put a strong focus on innovation,
be it with the creation of collaborative factories
with fintechs, or by playing the role of facilitator
for fintech selection by banks. They invest heavily
in open architecture and the development of
application programming interfaces (APIs), to
ensure that they will be able to integrate fintechs’
solutions in an agile manner when required. For
instance, there seems to already be a strong
demand for securities account aggregation, as
well as for client profiling and client onboarding
solutions.
All vendors and service providers stress their key
role in ensuring security for their clients, including in
the integration of external solutions.
BPO service providers also invest significantly
in developing efficiencies by means such as:
maximising business process automation, using
robotic process automation (RPA) and exploring
machine-learning technologies.
Finally, although demands with regard to data
and analytics so far remain limited, some vendors
and service providers are currently working on
the development of solutions that will enable
them to integrate data from multiple sources
and multiple countries — and are developing AI
capabilities towards “hyperpersonalisation”, as well
as more sophisticated analytical models — with
the objective of anticipating future demands from
private banks.
62 Digital in Private Banking62 Beyond the buzzword

Figure 42. Private banks’ expectations of their vendors and service providers in terms of
functionalities
Client interaction
—— Virtual meetings with clients (video, chat, screen sharing, shared documents)
—— Secure messaging
Advice & portfolio management
—— Real-time statements
—— Automated risk optimisation through algorithms
—— Solutions including regulatory constraints
—— Guiding the banker in the dialogue through to investment strategy
—— Online signatures for transaction authorisation
Client onboarding
—— Front office tools for more efficient processing, integrating AML/KYC, etc
—— Electronic signatures
—— Digital onboarding: upload of documents, verification of signature/ID
Transactions
—— Cash and securities transactions (to a limited extent). Fewer securities transactions on mobile
banking than web banking
—— More efficiency in transaction execution, taking into account regulatory constraints
—— Transaction simulations (cost, risk and impact on financial planning)
Security
—— Confidentiality and security
—— Authentication
—— Penetration tests

Internationalperspective

UnitedKingdom
Overview of the private banking and wealth
management market
The UK is one of the leading global wealth management
centres. The country has a sizeable onshore wealth
market estimated to comprise more than 700,000* HNW
individuals, with total financial wealth of US$2–2.5 trillion.
This includes about 8,500** UHNW individuals with
US$0.8–1 trillion of financial wealth.
Together with the Channel Islands, the UK also serves
US$1.25 trillion* of cross-border private client assets.
Whilst Brexit has created uncertainty, the structural
attractiveness of the UK — London in particular —
continues to attract cross-border wealth.
The UK is a highly competitive private banking and
wealth management market with a range of financial
organisations serving the needs of domestic and cross-
border HNW and UHNW clients. These include global
private banks, the private banking arms of UK universal
banks, independent wealth managers, HNW/UHNW-
focused asset managers, and single and multi family
offices. Over the last 3–5 years, a number of robo-
advisors and online discretionary managers have also
entered the market.
UK private clients: profile and digital
expectations
UK domestic HNW clients have acquired wealth through
a range of sources. Entrepreneurs are a key segment
for much of the private banking industry. Discretionary
mandates focused on wealth preservation and wealth
planning propositions are popular with UK HNW clients.
Typically, UHNW clients seek cross-border solutions
and have sophisticated needs requiring capital market-
focused solutions and access to a broad range of asset
classes. To accelerate revenue growth, private banks are
focused on growing lending to HNW and UHNW clients,
with investment-backed lending and high-value residential
mortgages being key propositions.
Private clients are increasingly more digitally connected,
using multiple devices — and their expectations of digital
capabilities continue to be shaped by their experiences
outside of financial services. Many organisations focused
on HNW and UHNW individuals, including luxury brands,
have delivered or are developing digitally-enabled client
experiences that seamlessly blend digital and human
interactions.

While the usage intensity of digital engagement
mechanisms may differ between individuals, the majority
of HNW clients demand and expect “always-on” digital
capabilities from their financial advisers and wealth
managers.
The scale of the opportunity associated with the expected
intergenerational transfer of wealth is also a key catalyst
for investment in digital capabilities by private banks and
wealth managers. A recent study*** estimated that more
than £200 billion of wealth will be transferred by HNW
individuals (millionaires) over the next 10 years.
Response to changing expectations and
digital disruption
Over the past 10 years, most UK private banks and
wealth managers have focused on addressing regulatory
changes and have benefited from a growth in assets and
revenues on the back of a sustained bull market.
The industry has recognised that it is not measuring up
to client expectations of experience in the digital age.
We have seen the first wave of investments appear on
the digital agenda. These have mainly been focused
on delivering capabilities and features that help clients
and prospects to: enhance their connectivity to the
private bank (e.g. mobile apps, responsive websites,
digital availability of knowledge and research); be
better connected to their holdings (e.g. online client
reporting); and access basic transactional and self-
service functionality. These investments have delivered
some improvements in the client experience. However,
as most of the investments have been oriented toward
foundational aspects of the client experience, they have
had limited impact on financial performance for most
players. Another characteristic of the industry’s approach
to digital to date is that it has typically been pursued as
a separate initiative or programme. There are differences
in the maturity of industry participants in delivering these
foundational capabilities — however, at a macro level,
this variable digital maturity of private banks has not
yet translated into material differences in operational
performance or market share.
Going forward, we see an imperative for the digital
agenda to be at the heart of reshaping the business
and financial performance in the context of challenging
markets, evolving client expectations and growing
pressure on revenue margins (driven by transparency,
sustained competitive intensity and acceleration of low-
cost, digital-first propositions), against a backdrop of high
levels of regulatory scrutiny.
More than ever before, the success of private banking
businesses will be determined by how cohesively they
reimagine their businesses for the digital age, rather
than pursuing a separate digital agenda. Some private
banks have recognised that the shift from “pursuing
a digital strategy” to “operating in the digital age” is
profoundly transformative, requiring businesses to build
on their strengths while being prepared to fundamentally
challenge — and, where appropriate, change —
everything from how they attract and serve clients to
how the organisations are configured — and, indeed,
even how they deliver change. While enhancing the client
experience will remain an enduring agenda, we see this
refreshed approach to digital as having a broader scope
and being more oriented toward delivering business
outcomes rather than features. Some of these outcomes
will be transformative in nature, such as: helping the
industry increase in relevance for specific cohorts of
clients (e.g. women, Next Generation); helping private
banks capitalise on open banking, reducing the cost of
compliance; and creating a more agile, engaged and
diverse workforce.
Robo-advice in the UK
The UK has seen a proliferation of robo-advice and digital
discretionary management propositions from both new
entrants and established industry players. Most of these
offerings have been targeted mainly at serving the simple
investment needs of mass-market investors, with some
organisations focused on “democratising investments”.
However, these propositions are capable of serving
the simpler investment needs of individuals across the
wealth spectrum. Their take-up has so far been limited
though — and one global private bank has even closed its
robo-advice proposition. Some robo-advisors are evolving
their offerings into more of a hybrid model that blends
algorithms with human contact. At the same time, we
continue to see sustained investment in robo-advice/
digital discretionary propositions, along with some new
entrants entering the market.
These developments are characteristic of the early stages
of innovation in most industries. It is therefore premature
to opine on the likely success or failure of robo-advice/
digital discretionary businesses. While customer
adoption of these models is still evolving, the increasing
mainstreaming of robo-advice has catalysed focus on low-
cost investing and a compelling user experience across
the industry.
“
“
More than ever before, the success
of private banking businesses will be
determined by how cohesively they
reimagine their businesses for the digital
age, rather than pursuing a separate digital
agenda.
—— Abhijit Rawal, Partner,
KPMG UK
* Credit Suisse Wealth Databook, Global Wealth Report, Statista, ONS, KPMG analysis
** Wealth-X Ultra Wealth Report, Knight Frank Wealth Report, KPMG analysis
*** Global Data, KPMG analysis

Switzerland
Overview of private banking market
Switzerland is the world’s largest offshore private wealth
manager and continues to attract wealth from all over the
world, even since the implementation of the automatic
exchange of information.
Over the past eight years, there has been a strong
wave of private bank consolidation, driven by the
appetite for growth and modernisation of half a dozen
consolidators, and by the exit of foreign banks’ wealth
management arms. As a result, close to 60 private banks
have disappeared, mostly smaller (<$5bn AuM) players
weakened by the 2008 financial crisis, and struggling to
adapt to the current regulatory and tax environment, and
the IT spending needed (for more modern and digital
core banking systems). With dozens of private banks
remaining, there is still a rich and varied ecosystem that
includes smaller players, some of them very successful in
their niche.
The large change efforts made at many banks, together
with support from the financial markets, have led to
stabilising profit margins, and Swiss private banks are
optimistic about the future.
Swiss private clients: profile and digital
expectations
Swiss private banking clients are on average over 60
years of age, and the banks’ view is that only 2% of
clients “want digital”, according to the latest KPMG
Switzerland survey. Even for the “next generation” (i.e.
45–60 year-olds), this figure is put at only 15% by the
banks.
But while clients still mainly expect human interaction
with their relationship manager — i.e. not (yet) a robo-
advisor — they are becoming more demanding: they want
instant access to information, greater and customised
investment advisory and portfolio analytics, the ability to
interact in real-time with advisors and, increasingly, tax
reports.

digital disruption
We see a bifurcation in the market.
—— The stronger banks make the needed investments
into software, data cleansing, process
standardisation and staff training which build the
basis for the future.
—— The weaker ones move more slowly and continue to
stress the strength of their client relationships, older
clients’ lack of clear digital demand and cybersecurity
concerns.
92% of banks state that they want digitalisation to
improve the client experience (just 27% intend to use it
to reduce costs). They are most advanced in e-banking,
mobile banking and communication tools, while starting
to move on digital onboarding (18% have at least partially
implemented this, and another 33% have planned it).
Digitalisation of advisory
In the wake of regulatory pressure from MiFID II and
internal revenue increase goals, most banks have formally
defined their advisory products in the last three years.
The more advanced are now digitalising their delivery
while still keeping the human interaction element central.
For example, in order to support relationship managers
in effectively delivering promised services — and to
minimise the risk of both non-compliance and wrong
advice — some have built software that assesses client
portfolios nightly against market moves, client wealth
level/risk profiles and goals, the bank’s investment
views etc. Based on this analysis, the system suggests
investment ideas to the RM, who can then discuss these
with their clients. Providing relevant discussion content
like this makes the RM much more effective, and reduces
the risk to the bank of giving advice that is not in line with
the house view or the investor profile. Some banks go so
far as to give clients online access to these suggestions
or even to send suggestions directly to clients.
Digital client onboarding
FINMA, the Swiss financial regulator, has allowed video
identification of clients since 2016. This, and the progress
of service providers in client identification, allows
banks to offer fully digitalised online client onboarding.
Elements include: a questionnaire-assisted KYC process
with partly automated checks; dynamic contracting
based on information gathered; e-signature; a complete
digital journey eliminating manual completeness checks,
scanning and archiving; and automated client and account
creation in the banking systems. As this allows fully
automatic processing in the majority of cases, it can
dramatically speed up the process and save costs. The
new onboarding journey typically reduces the account
opening time from sometimes 10–15 days to 1–2 days.
However, so far only the large wealth managers are
advanced in implementing this. Behind the digitalisation
of the onboarding process a preceding IT infrastructure
modernization is often needed to allow for straight-
through processing.
“ “Digitalisation of advisory makes the
relationship manager much more effective.
—— Martin Brändli, Partner,
KPMG Switzerland
Figure 43. Banks’ views on clients’ interest in
digital
Source: KPMG Switzerland survey
46-60
years old
>60
years old
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15%
2%
15%
50%
73%
10%
27%
8%
Clients will appreciate this
Clients want this
Clients have no interest
Banks do not know

HongKong
Overview of the private banking market
Hong Kong, as one of the global financial centres, is also
home to a well-established private banking sector. Due to
its proximity to China, Hong Kong is a key booking centre
for Chinese offshore assets, catering to sophisticated
private banking clients with global investment needs
across a wide array of products, currencies and deal
flows. An observable trend is the growing importance of
non-investment related wealth services such as wealth
and succession planning, family governance advisory
and philanthropy services. This trend is underlined by the
increasing number of family offices being set up in Hong
Kong.
With a new billionaire being minted every three days,
wealth creation in China is at a global peak, which
certainly also impacts the growth of the Chinese offshore
asset base. Of particular importance for Hong Kong is its
immediate proximity to the Greater Bay Area, which is
among the most dynamic and innovative growth regions
in China.
Competitive pressure for Chinese offshore assets is
increasing, mainly driven by new entrants from within
China. These newcomers are established banks branching
out into private banking, as well as pure-play Chinese
wealth managers beginning to expand their offshore
capabilities.
Hong Kong private clients: profile and
digital expectations
From a client experience perspective, financial services
clients in China are among the most demanding in
the world regarding (mobile) technology. Whether it is
payments, buying and selling of financial products or KYC
and onboarding, technology is always centre stage, and
the penetration of cutting-edge solutions among users is
likely higher than anywhere else.
However, compared to their onshore peers, Chinese
offshore clients tend to have more complex and more
global product and services needs, which may not — at
least not currently — be entirely automated or digitised.
Consequently, in expectations with regard to offshore
private banking services, the human element continues
to play an important role, particularly in the context of
complex financial products or high value-added wealth
services. That said, digital client experience expectations
regarding plain vanilla transactional products, payments,
and client-banker interactions are certainly increasing.

digital disruption
Private banks have recognised the opportunities, but
also the threats of emerging technologies and new
business models for their business. Reactions to these
developments are not uniform and can range from
partnerships with fintechs, or insourcing via white
label technology solutions, to the setup of banks’ own
innovation labs with the mandate to develop in-house
solutions. However, the general perception of established
banks in Hong Kong is that their digital offering is not
meeting client expectations (KPMG – PWMA HK Private
Wealth Management Report 2018).
Another strong indicator of banks’ recognition of the new
reality is the great interest being shown in applications
for virtual banking licences, authorised by the HK banking
regulator HKMA in 2018.
Virtual banking licences
In 2018, the HK banking regulator, HKMA, called for
the submission of virtual banking licence applications.
This was received with great interest by the financial
services community and resulted in the submission of
29 applications in the first batch which will be evaluated
for approval by Q1 2019. This is a clear indicator of the
recognition of the importance technology plays in core
banking services by both the regulator and the financial
sector, as well as of the importance of new business
models in finance.
Client experience
Clients are clearly increasingly demanding mobile and
digital access to core banking services such as payments
and transfers, as well as for buying and selling plain
vanilla financial products. Many of these demands
can be covered by e-banking services — however, the
latter tend to fall short regarding brokerage capabilities
and portfolio analytics. Additionally, in order to enjoy
e-banking and brokerage services, clients still need to
go through onerous and lengthy KYC and onboarding
procedures in order to open an account. This is another
area where technology can clearly improve the client
experience, by reducing onboarding time and easing the
onboarding experience (e.g. by using remote KYC via
facial recognition).
Cybersecurity
Embracing emerging technologies inherently increases
the vulnerability for cyber attacks. Hence, the importance
of cybersecurity, mitigation, threat response and forensics
services has increased exponentially. Due to its increasing
prominence, cybersecurity has moved into the C-suite
and has become a topic of strategic importance, not only
for financial institutions. Cybersecurity has also moved
firmly onto the agenda of the HK regulator, increasing
the requirements for protective measures, cybersecurity
governance and breach disclosure measures.
Figure 44. Growth in private wealth AUM in
Hong Kong (US$ billion)
Source: KPMG – PWMA HK Private Wealth Management Report 2018
CAGR:
680
2015
790
2016
+20%
990
2017
“
“
Financial services clients in China
are among, from a client experience
perspective, the most demanding in the
world regarding (mobile) technology.
—— Ricardo Wenzel, Director,
KPMG Hong Kong

The information contained herein is of a general nature and is not intended to address the circumstances of any particular
individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular situation.
© 2019 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.www.kpmg.lu
KPMG Luxembourg,
Société coopérative
39, Avenue John F. Kennedy
L-1855 Luxembourg
T: +352 22 51 51 1
Yourcontacts
Jean-Pascal Nepper
Partner
KPMG Luxembourg
T: +352 22 51 51 - 7973
jean-pascal.nepper@kpmg.lu
Stanislas Chambourdon
Partner
KPMG Luxembourg
T: +352 22 51 51 - 6206
stanislas.chambourdon@kpmg.lu
Yu-Ying Chap
Senior Manager
KPMG Luxembourg
T: +352 22 51 51 - 7505
yu-ying.chap@kpmg.lu
Nicolas Fedenko
Associate Partner
KPMG Luxembourg
T: +352 22 51 51 - 7229
nicolas.fedenko@kpmg.lu
Ekaterina Iuraga
Senior Advisor
KPMG Luxembourg
T: +352 22 51 51 - 7420
ekaterina.iuraga@kpmg.lu

Beyond the buzzword - Digitalisation and Luxembourg private banks

Recommended

Recommended

More Related Content

What's hot

What's hot (19)

Similar to Beyond the buzzword - Digitalisation and Luxembourg private banks

Similar to Beyond the buzzword - Digitalisation and Luxembourg private banks (20)

More from Paperjam_redaction

More from Paperjam_redaction (20)

Recently uploaded

Recently uploaded (20)

Beyond the buzzword - Digitalisation and Luxembourg private banks