To survive and thrive, big banks need to collaborate and adapt - by Jürg Zeltner
It has become so widely accepted that financial technology start-ups are bold, nippy, innovative predators, and the big financial institutions are their lumbering, sclerotic – and probably doomed – prey, that what I am about to say will be seen by many as a shocking heresy.
I believe that some sorts of technological change are better done by the banks themselves.
That goes against the belief that large institutions are bad at innovation. And of course some traditional banking functions are being revolutionised by new entrants offering peer-to-peer lending, crowdfunding and money transfer.
But the relationship between the fintech firms and established financial institutions is not one between predators and prey. The big institutions that survive and thrive will be those that see how to do innovation well themselves but are also eager to learn from and collaborate with the best of the start-ups and established digital players.
That is our approach at UBS. And an important part of it is recognizing our strengths.
Where the big banks have an edge is where technology meets the client experience. The best banks have a truly deep relationship with clients, which informs what will work. While much of what we think of as traditional banking services will be transformed by technology, there is one thing that I do not believe can be disintermediated easily, if at all. That is the personalised, expert advice that comes from a deep knowledge of clients and a true appreciation of their best interests.
Of course, banks already embrace technology and are making major investments. UBS developers have built a smart digital product as part of our UBS Advice proposition. It tracks a client’s portfolio, tests it against critical risk factors and flags when it deviates from the client’s investment strategy or when something goes off track. It takes massive infrastructure and huge computing power, but it delivers a personalised service to a client every morning. And that happens across 650,000 portfolios every night. Without a massive investment in technology, this kind of unmatched capability wouldn’t be possible.
We have just opened the UBS Centre for Design Thinking and Innovation in Singapore. In this Innovation Centre, we are specifically looking at ways of giving the client a better experience; generating client insights using analytics; and helping our client advisers become more productive. Essentially, it is all about putting technology at the service of our clients.
But there are also some areas that we in banking should cede to start-ups, often at the tech-intensive end. So in London, we focus on collaboration with tech start-ups in emerging technologies.
Level39 in Canary Wharf is Europe’s largest technology accelerator space for finance, cyber-securities, retail and future cities technology companies. Our team there is investigating Blockchain and other Distributed Ledger technologies as well as Smart Contracts.
How we create this technology matters. Some banks sponsor the development of new fintech companies with the aim of buying their products down the road. Others treat fintech as a pure investment opportunity and are investing in and buying start-ups to make a profit and gain new technology. Fintech investment is at record levels, at $12 billion last year against $3 billion in 2013.
Ultimately, I do not see simply buying your way to a digital future as a sustainable strategy. The process can be much richer if you can create an infrastructure that encourages collaboration. When we work with start-ups, we can learn from each other. Start-ups break a problem down to first principles and approach problems in a way that bankers may never consider.
But those same start-ups don’t necessarily understand what our clients want. We can bring that understanding and together we can create a richer technology experience for clients.
History teaches us that technological innovation forces companies to adapt or die. Those that succeed will be those that put technology at the service of their clients. We must think about old things in new ways; be humble enough to learn from outsiders; and always make sure we keep our clients’ best interests front and centre.
Juerg Zeltner is President of UBS Wealth Management