Banking and FinanceIssue 01 - 2023MAGAZINE
GBO_ Digital Private Banking

Private Digital Banking: The future is here

The cost disparity explains why exclusive private banks will soon be replaced by digital private banking

Fintech technologies are transforming how we interact with financial institutions as the banking sector undergoes rapid change. The modern banking experience emphasises ease, security, and style in their operations.

More than ever, customers are demanding quick and accurate responses to concerns about money-related matters, but traditional banking resources aren’t keeping up with the trend.

To address this, several businesses have already begun offering digital solutions to meet these constantly shifting consumer expectations.

Before the present trend of giving financial services online, banks used to offer these conveniences to wealthy customers who could afford private bankers. The benefits of a traditional personal banker formerly made high-level, customised service and wealth management available only to the rich. However, individualised financial management instruments are starting to appear to make it easier for ordinary people to get such solutions.

Advantages offered by private bankers

They establish a personal connection with their customers, streamlining and reducing banking stress. Because of their intimate relationship, customers working with these personal bankers frequently receive the best rates, conditions, and swift loan approvals. In addition, there is never a need to wait in line to address problems as banks may swiftly resolve any troubles they encounter over the phone or by email.

Wealth management is an essential service private bankers provide, and a team is often available to help with any potential investment options. To develop their equity, account holders can use these services to put their current assets to work. This is essential for long-term increased financial growth and generational wealth.

However, the cost of admission for these services is typically prohibitive. Depending on where you live, there may be different requirements for private banking, but in general, you need at least USD 1,000,000 in deposits or investments to be eligible. Sadly, this enormous “pay wall” has prevented most of society from accessing these premium wealth management benefits.

Changing banking and financial services in the digital age

Although individuals can succeed independently, making an informed choice takes far more time and effort. A professional may shorten the process and offer targeted counsel rather than having to figure out the specifics.

A personal banker would have been a luxury before the development of technology. However, with the development of artificial intelligence, machine learning, and other technologies, anyone can now access a private banker with ease.

Banks are rapidly creating better customer-focused technology and providing mobile apps due to customers’ growing desire for user-friendly financial services.

While getting expert counsel in person for your problem can be beneficial, digital banking services do away with the need for high salaries, enabling fintech apps to provide low-cost services to their users. In addition, anyone with an internet connection can use online services to profit from a private banker. These advantages include managing aggregate accounts, offering online payment and deposit alternatives, and receiving goal-based investing advice, all from the comfort of a smartphone.

Why is digital private banking the future of fintech?

Consumers need a smooth connection between online banking activities and financial instruments in the digital age. Moreover, they seek a seamless, practical experience tailored to their particular demands. In response, financial institutions have made investments in their digital infrastructure to let users manage their money from anywhere.

Fintech products can now use artificial intelligence to examine your accounts, investing goals, and spending habits, giving them a more thorough insight into your financial situation than a busy private banker ever could. These technological advancements enable more people to access previously restricted services and save expenses. The future of banking is already here, thanks to your smartphone’s instant access to specialised financial services around-the-clock.

An artificial intelligence tool would likely know more about you after 10 seconds of studying your financial habits than a financial counsellor would after an hour-long conversation.

Given the influence of digital innovation, this parallel could seem clear. But is it clear enough to change how you feel about financial institutions? It ought to be. The cost disparity explains why exclusive private banks will soon be replaced by digital private banking.

Undoubtedly, having a group of committed financial experts is advantageous. However, digitising banking can considerably reduce costs, apart from providing access to previously closed-off resources, and aid in creating individualised financial plans.

Most consumers use their banks for checking, borrowing, investing, etc. If you have a high net worth, you probably work with a private department of the bank that is only accessible to you. Likewise, most financial institutions have private banks that they only offer to their most valued clients. In two ways, this grants you access to superior goods and services:

White glove treatment clients of private banks interact with a team of professionals rather than a teller. They are constantly maximising your wealth in the background. It serves as your financial concierge.

Access to restricted sources

You can access resources through private banks that are unavailable to everyone else. For example, they provide access to various investments, lower loan interest rates, retirement and education planning assistance, charitable giving counsel, and more.

Simply putting “private” before “bank” provides an impression of exclusivity that appeals to the highly affluent. You’ve hired a group of people. Resources and ratings that others lack are available to you. At whatever time of day, you can depend on rapid responses. But, of course, whether or not you use it, that experience might cost 1% to 2% of your net worth annually.

Although an educated, well-paid person with the responsibility of optimising your account may be preferable to a digital offering, their services are substantially more expensive. People whose net worth is in the hundreds of thousands, as opposed to the hundreds of millions, cannot afford that.

More consumers can gain from a private banking experience on the internet. More and more people will have access to personal bank benefits because of digital private banking, which has various advantages.

Reasons to switch to private digital banking

Access to resources previously only available to wealthy people

High-net-worth individuals use their resources to further their financial objectives. They employ private banks to acquire reduced borrowing rates, special pricing, and alternative investments. Lower interest rates on credit lines, favourable currency rates, and chances to invest in specialised funds are a few examples of this.

Many of the same products and services can be found in a private digital bank but at far lower costs. For example, consider how fractional shares and low-interest borrowing against investments offered by internet brokerages have lowered the barrier to entry for trading. In addition, you can see how the digital ledger technology behind blockchain is transforming the payments sector and democratising access to digital assets.

The need for better financial resources is driving innovation in the sector. As a result, more people have access to unique private banking resources daily.

You may take control of your finances for a small fee

Any private bank you phoned with USD 1 million to handle would probably recommend investing in one of their total market funds. These have significant management costs, but you can buy similar funds for far less.

Most private banks have a threshold for individualised services due to their teams of skilled, highly compensated professionals who can only manage a small number of accounts. For instance, to obtain a separately maintained account, you must have a particular quantity of money (SMA). You can do this with the help of an advisor to choose your investments by hand. If you fall short of the requirement, your funds are invested in a public pool.

Many options are available, whether one has USD 100 or USD 10 million. Financial instruments driven by the software are less expensive since, once established, the programme requires far less upkeep than a financial advisor’s office does. Additionally, you can make your portfolio precisely what you want it to be. For instance, M1 offers commission-free portfolio management and a vast selection of assets.

Companies can do much more for more people when goods and services are 1s and 0s in a database. The equivalent of not paying management fees of 1% to 2% is making 1% to 2% more money. Undoubtedly, having a personal librarian handpick your books is preferable to using Google. But if you need a new book 99.9% of the time, Google is a perfect replacement.

Products and services for digital private banking will aid in removing extra profit and costs.

Tools that improve with time

If you declare, “I want to attain these high-level goals,” a team in private banking will work to make it happen. They download every transaction file you have, perform analyses, transfer funds, and watch for the markets to close.

Automation can result in the same thing. You don’t have to manually manage every financial transaction by creating complex rules like intelligent transfers and auto-invest. Instead, automated tools will apply your rules using high-level instructions, so you don’t need to worry about the specifics or stages.

Of course, it differs from the human touch. You can ask Alexa to buy the most recent iPhone for you or arrange for a personal shopper. Both arrive at your home. One is absurdly expensive, whereas the other is economical. Most individuals choose the option that saves them money and time while also allowing them to purchase a new phone.

The most significant benefit of automation is that it continually improves. Institutions are slow to innovate, while software does so quickly. Artificial intelligence is already transforming the banking sector thanks to fraud detection, virtual chatbots, and tailored suggestions. Whenever we change our platform at M1, hundreds of thousands of customers immediately benefit from it. Everyone benefits when the situation improves.

The experience of private banking online will only improve

Nothing prevents digital private banking from becoming a service that is available to everyone. However, giving more individuals a similar experience—not identical—is the only way to make this cost-effective. It won’t be a white glove, but it will assist you in choosing the best financial course of action for your unique needs and objectives.

With digital private banking, you can manage your money like a wealthy person without spending millions to access cost-effective tools or control your portfolio. Instead, a smartphone is all that is required.

Related posts

Restoring Lebanon’s financial credibility

GBO Correspondent

How is Japan re-emerging from despair?

GBO Correspondent

The AI wave hits website builders

GBO Correspondent