Vanilla banking is increasingly digital, automated, and self-service. But, while this shift has been inevitable and amplified thanks to technologies like machine learning (‘artificial intelligence’) layered on top of the tremendous amounts of data customers are producing daily, sometimes we just need a human being to help. Nowhere is this as important as in the high-end private banking space, where clients have very specific and very non-vanilla needs.
More than two decades ago Investec redefined private banking in South Africa. Now, it appears, it is doing it again in a bid to retain and grow its share of what is a very lucrative market, both in South Africa and the UK. And it is doing so by combining the best that digital technology can offer, without losing the personal touch.
Devina Maharaj, head of Investec Digital SA, says that there is a perception in the market that “all young professionals want only digital” and that older clients don’t want digital. This is not true. Younger people want the best of both worlds: a slick digital interface which allows them to perform transactions as and when they want, plus the ability to speak to a human being. Nowadays, “the client is dictating the channel of choice”. For Investec, this means providing access to clients in as many channels as they expect.
Ciaran Whelan, Global head of Investec Private Banking (and soon to be the bank’s Directorvof Risk) adds that the market is “high tech and high touch”, a fact that is particularlyvimportant in the UK. “Banking has become a really tough place,” he says.
Central to Investec’s digital strategy is its One Place mobile app. However, getting the app to market required a profound change within the business. “We had to figure out how private banking and wealth and investment could build out an offering that was more client centric. This was about how we could engage clients not just in one place but as one business,” says Cumesh Moodliar, head of Investec Private Banking, SA.
Henry Blumenthal, the head of its Wealth & Investment unit in South Africa echoes this: “One Place is not about the app! This is a partnership between two very different businesses – private banking and wealth and investment – made better by the app”.
He says that Investec saw the need to bring domestic and foreign banking, as well as domestic and foreign investment needs together for clients decades ago. “There was an opportunity for our private bank and we’re in a unique position in that there is no other South African institution that can offer this all in one place”.
“Typically”, he explains, “you’d have a relationship manager who would be a client’s main interface for banking and investment. He or she needed to be a specialist in everything, which is not possible.
“The philosophy of One Place is that we give you access to a specialist banker and a specialist investment manager, which brings together the best of what Investec has to offer.”
Moodliar says this was a market-first at the time, offering a very personal but digitally based primary channel for clients. On top of this, it leverages its 24/7 global client support unit. He makes the point that this is not your average call centre. Agents are university graduates who are empowered to do a lot more to help clients. Interestingly, it operates on a regional model, which ensures decisions are made closer to clients. Most of its competitors have centralised these functions, but Moodliar says the bank wants to take decisions, such as those around credit, back to the regions.
The strategy is working. Since 2013, the overlap of private banking, and wealth and investment clients has doubled. In other words, there are more traditional private bank clients accessing investment products and vice versa. It is this cross-selling that is the real opportunity in this segment. Providing a bank account and a private-clients-type experience is one thing. Doing that and managing their wealth is quite another.
The private banking space seems an intense battleground, but is generally far stickier than other segments. The key, of course, is to gain and then keep those customers who are on track to be in a private wealth customer in a decade or two’s time, and ensure they move up the bank’s product stack. Investec has been brilliant at attracting young graduates in targeted sectors, such as accountants and medicine, and keeping them for life. This has left the other banks to largely fight over customers in other professions and business owners, in a not-very-large market. SARS tax statistics show just how many people earn above the kinds of thresholds that are needed for a private clients-type bank account. The addressable market is in the low hundreds of thousands.
The full-service banks, led by FNB, have successfully driven private banking type experiences and benefits down into parts of the rest of their client bases. FNB’s groundbreaking Slow Lounge benefit for Premier (platinum) customers is the most obvious example.
But the upper end of the market is a lucrative one. So much so that all four full-service retail banks speak of these ‘affluent’ segments – think Platinum accounts upwards – as “key”. To be fair, this is the only part of the market that has been growing and – crucially – where banks have pricing power. Despite the typically more demanding requirements, the margins on servicing a customer paying around R500 a month per account (excluding fees on any additional or more specialist products) are obviously a lot more than on one paying R100 for an all-in-bundle in the middle market.
It is surprising that aside from RMB/FNB (with Private Wealth and Private Clients offerings),
none of the other banks have really pushed aggressively in this space.
“On paper, this should’ve been the domain of Absa/Barlcays because they had everything,”
Investec is comfortable with its position and proposition both in SA and the UK.
It is, perhaps, a little less comfortable with what the bank and its clients look like in future. Says Maharaj, “We know who our traditional client base is. The conversation inside Investec has shifted to: ‘What are the new professions of the future? What are the new target segments?”