Swiss Private Banking: Industry Evolution and Strategic Change

A study by KPMG and the University of St Gallen investigates how private banks react to recent changes in their external environment. To address this question, private banks from Switzerland, Austria, Luxembourg, Singapore and Hong Kong have been interviewed and surveyed. Results show that significant country variations exist in how private banks view their external environment, in particular whether banks consider regulatory, macro-economic and technological developments as threats or opportunities. Such categorizations in turn shape the type of actions they take in response, for instance, whether private banks aim for a global footprint or rather stay local.

This year's private banking study by KPMG and the University of St. Gallen (HSG) shows that Swiss private banks can remain successful in the future by innovating. Besides effective implementation of new regulatory requirements, key success factors will include innovative strategies and adaptations to business models, starting with more effective segmentation techniques, an open product architecture, transparent price structures and modern distribution and communication channels. Hardly any other industry has experienced as many changes in recent years as private banking. Times have been marked by uncertainty, volatility, dwindling margins and the increasing complexity of the core business. Now more than ever, private banks are being required to rethink their business model. The latest private banking study by KPMG and the Institute of Management at the University of St. Gallen, entitled «Success through innovation - achieving sustainability and client-centricity in Swiss Private Banking», analyzes the major, sometimes existential challenges facing Swiss private banks and ventures a glimpse forward to how the private banking industry will look in 2022. Compensating for low profitability through innovation Swiss private banks will be driven primarily by two trends in the period to 2022. Firstly, private banks will need to compensate for low profitability through consolidation and the related economies of scale, through international expansion and through investment in technology. Secondly, private banks will increasingly seek technology-driven partnerships in the finance industry that will open up new ways for them to position themselves in the market. To achieve critical mass, many private banks need to grow substantially. Around two-thirds of the bank representatives surveyed believe that future survival will require an average two-fold increase in assets under management - firstly, because client requirements are becoming more complex and diverse and are necessitating heavy investment and, secondly, because growing regulatory requirements are favoring larger competitors. The study shows the areas in which private banks need to take action in order to remain competitive. Small, focused private banks, which historically have benefited from a very clear client focus and brand reputation, should continue to cultivate their advisory excellence. However, they need to pay increasing attention to their cost structure. Networking, partnerships and greater use of technology can help to compensate for smaller economies of scale compared with larger competitors. Large, diversified private banks, on the other hand, have an increasingly important cost advantage. They should continue to leverage that advantage. At the same time, however, they need to take measures to maintain and extend their client focus. Alliances and potential acquisitions should therefore be used primarily to develop a brand portfolio and address client segments in a more targeted manner. The dual task of cutting costs while overhauling the core business will remain a major challenge for private banks. To tackle the imminent transformation necessitated by the changing environment as successfully as possible, banks need to review their strategic vision to determine whether it can withstand the disintegration of the standard industry value chain and industry consolidation. http://www.kpmg.com/CH/en/Library/Articles-Publications/Documents/Sectors/pub-20133110-private-banking-survey-2013-en.pdf