Private banks wrestle with digitizing account opening
Banks are investing in digitizing the onboarding of clients, but hopes for a utility solution are unlikely to be realized.
This week DigFin is surveying the digitization of private banking – that most high-touch of financial services. Following yesterday’s overview, today we look at one of the biggest operational challenges: client onboarding. Plus an exclusive interview with Amy Lo of UBS. The week will continue with stories on challenges for apps, how private banks are using data and A.I., and how one bank is going digital.
Top private banks expecting rapid growth in Asia are investing more to automate customer onboarding, the costs and hassles of which threaten to spoil what should be a rosy outlook for the industry.
“Onboarding is important because it’s the client’s first impression,” said Claude Haberer, Asia CEO at Pictet Wealth Management.
But that first impression is often marred by the need to document wealthy clients’ source of money, verify their identities, and go through lengthy know-your-customer and anti-money-laundering checks.
Nor does the process end with setting up an account. Any money transfer now requires documenting its source, along with various declarations. Banks are responding by raising charges (which the bigger players will eat), and by diverting more of their relationship managers’ time toward unproductive paperwork.
The result for clients: red tape and a much longer time required to open an account: the old norm of 30 days is now on average 40 to 60 days.
But regulation is only part of the story. In Hong Kong’s case, account opening has become harder because most of the industry’s growth in this city comes from mainland Chinese clients. Entrepreneurs there are not used to undergoing this kind of due diligence. Nor are hurdles just about culture: older clients’ property deeds may have been destroyed by war or revolution.
Onboarding is the client's first impression
Claude Haberer, Pictet
“Clients complain that we asked them four times for the same information, or that we asked them four times for different pieces of information to do one deal,” said Kam Shing Kwang, CEO for Asia-Pacific private banking at J.P. Morgan. “It’s a nightmare for clients, especially if they don’t have a family office” to handle most of the work.
More banks are taking the initiative internally to automate what they can. Pictet, for example, is now rolling out a digital, more streamlined capability to handle digital signatures, for example – first in Switzerland, with Asia booking centers to come.
J.P. Morgan first began automating onboarding in 2016, starting in Asia, and is still working on digitizing any part of the process that doesn’t by law require a wet signature.
UBS, meanwhile, is using biometrics such as face recognition to create a smooth process among its own branches. Currently a client with an account in Hong Kong can’t automatically open an account in, say, Singapore. Such frictions impact the client experience.
There is also a growing interest in automation at the industry level, as most of onboarding is a compliance function, not a competitive advantage.
Florence Kui, managing director and chief operating officer of private wealth management at Goldman Sachs, says an industry group that she is part of is in conversation with Hong Kong regulators to study ideas around automation. This could include an industry utility for an electronic identity, or eID, she says.
It's a nightmare for clients
Kam Shing Kwang, J.P. Morgan
Private banks aren’t the only ones holding such discussions: the Hong Kong Monetary Authority has already begun exploring the idea of an eID utility with the Hong Kong Association of Banks. But this is more of a consumer-banking project. The needs of private banks are more complex: they must ascertain the origin of a client’s wealth, which means untangling complex webs of businesses, foundations, trusts and estates.
However, there are limits to what an industry utility can achieve, be it a theoretical one in Hong Kong or a blockchain project that Singapore’s government is pursuing in line with its MyInfo identity database.
Singapore’s experiment only works with resident Singaporeans. Hong Kong’s government is also introducing eIDs, but again, any bank utility would be limited to locals. This is fine for most consumer banking needs but won’t help private banks, whose clientele is overwhelmingly from somewhere else.
The essential parts are not available digitally
Claude Haberer, Pictet
And any utility or consortium will then have to face hard questions over who pays for it, who governs it, who builds it, who maintains the data, who protects the data, and who has access to the underlying data.
Such issues are difficult to resolve just within a single bank. On paper, a market-wide service to streamline account opening represents a huge win, and if one jurisdiction gets this right, it could become a competitive advantage.
Getting on with it
But it’s hard to see a utility emerging when private banks are still coming to terms with what digital onboarding means – not just from a tech perspective, but in terms of human skills and expertise.
“We’ve begun to use surveillance technology to monitor portfolios,” said Amy Lo, co-head of Asia Pacific at UBS Wealth Management. “We need to turn our compliance people into data analysts.”
A utility for KYC, authentication and other onboarding procedures is nowhere near reality for private banks in Hong Kong; the industry has decided to wait and see what the government comes up with for consumer banks before proposing anything specific.
Anyway, there is no substituting for the degree of digging that is still required. “The essential parts of this information are not available digitally,” Haberer said. “You have to hear it from the client.”