Avaloq, a Switzerland-based vendor to private banks’ back offices, is shifting its business towards a software services platform.
“Our origins are as a system of record,” said Juerg Hunziker, CEO. “With digitization, Avaloq is becoming a system of engagement,” which he hopes means the company extends its activities beyond clients’ back-office operations.
“We are doing more Software as a Service, and Business Processing as a Service,” he said.
This transformation away from selling mainframe-based products to wealth managers is taking several forms, such as an exchange of proprietary and third-party fintech APIs to bank customers to acquire or partner with.
Cloud computing underpins this and other initiatives. “Cloud is where we are investing,” Hunziker said. The company is rolling out a private cloud developed by IBM to support its SaaS and BPaaS activities.
Hunziker says this shift in business model is not about innovation in financial services and products, but in the way customers – Avaloq’s banks, and their wealthy investors – want to be supported.
I want it and I want it now
“Innovation in financial instruments and asset classes is basically done,” Hunziker said. “The way we book trades, client statements, products – they’re all the same as thirty years ago. What’s different is instant gratification.”
People decide they like or dislike apps very quickly. They want access to portfolio information in real time. Similarly, the old model of developing projects for banks used to take vendors years.
Hunziker says the prospects for wealth management in Asia are promising. He says as of the end of 2017, there were 6.2 million high-net-worth individuals, as defined by those with a certain threshold of bankable assets (Avaloq’s numbers didn’t provide the threshold). This figure is growing at about 6% per year.
The company predicts that by 2021, Asia’s wealthy will account for $12.6 trillion in assets – still a long way off from the $28.8 trillion in North America, but growing at a faster clip.
But where’s the revenue?
Banks, meanwhile, are using digital tech to offer private-like services to an expanding mass market. But already, digital channels are quickly becoming a must-have but not a differentiator. “Digital, if it’s a choice, is not driving additional revenue,” he said.
Hunziker predicts that customers with net assets at a bank of up to $1 million will in the future be given only one channel – the digital one. Relationship managers, call centers, instant messaging and human financial advisors (the omni-channel relationship, to use the jargon) will be reserved only for the upper tier of wealthy.
“To grow topline revenue requires advice,” he said. This may be a challenge to private banks in Asia that are often used as brokerages rather than multi-generational advisors. “Life planning is the biggest need,” he said. “You have to bring people on a journey.”
There is a contradiction in the ambition, though: just as banks (and their vendors) attempt to provide rich people with a longer-term view, they must do so using tools that are geared to instant demands.
Hunziker recognizes the challenge. “We’re trying to bring instant gratifiation together with the mission to go on a long-term journey,” he said.