There is a conceptual difference between a Michelin star and haute cuisine. Michelin states that a Michelin star is awarded for the food on the plate – nothing else. The style of a restaurant and its degree of formality, or informality, have no bearing whatsoever on the award. On the other hand, haute cuisine is known as the cuisine of high-level establishments, gourmet restaurants, and luxury hotels. Haute cuisine is characterised by the meticulous preparation and careful presentation of food at a high price. Michelin is biased towards substance, while haute cuisine is more about form.
One advantage that incumbent wealth management providers potentially have is data.
Applying this analogy to wealth management, a Michelin approach is more about products, whereas haute cuisine is more focused on user experience. The challenge is to figure out how to combine and prioritise these approaches to achieve optimal results and meet the expectations of a new generation of customers.
One advantage that incumbent wealth management providers potentially have is data. If analysed properly, this data can give great insights into how best, i.e. most profitably, to transform. Stakeholders expect a return on investment and for business to be profitable. Putting customer centricity at the heart of profit/loss analysis is not always easy. Legacy banking platforms were generally built on a product-first philosophy, often with quite differing systems for each family of financial services instruments. For example, retail banking, corporate cash management, payments, treasury, forex and securities may each represent disparate sub-systems. As a result, the ability to have a holistic view of a customer’s data across all product groups was not natively built in.
To return to the restaurant analogy: A new competitor restaurant has opened up on the same street and the existing restaurant must revamp itself to remain profitably competitive. This could mean cosmetic or visual changes, or it could entail overhauling the menu’s contents and how the food is prepared. But before embarking on a course of action, the first step must be to understand the clientele. Which customers generate the most profit and why? What attracts them to the restaurant? Is it the decor, the service, the food? Do they bring the next generation with them? What will attract the next generation to keep coming on its own?
For wealth managers, this should sound like a familiar set of questions. Segmenting customers, and even the customers’ wealth, is key to understanding and defining the digital transformation journey. Investing in a sexy, new digital on-boarding service may bring very little reward, if all it does is encourage applications from customers that are either not suitable or not going to develop into a profitable relationship. Equally, implementing a new platform to support self-serve access to digital assets or crypto currencies may not achieve the desired outcome unless it encourages customers to move their core, low-risk investments to the same institution. This could then create opportunities to generate fee income from other products and services, such as private equity investments, management and advice, etc.
Segmenting customers, and even the customers’ wealth, is key to understanding and defining the digital transformation journey.
Digital transformation for wealth managers should include intelligently targeted improvements to the user experience through digital channels and, potentially, offering new blockchain-based digital assets or crypto currencies. However, while it may seem less obvious and more difficult, the real key to success is likely to be a transformation of the kitchen – the core system. Ideally, this should be an integrated, service-oriented, API-first solution, designed and built on a customer-centric philosophy. The design of products and services, whatever the underlying instruments, may then be targeted to the relevant customer segment, or customer wealth segment, to generate the best returns for both the customer and the provider.
In other words, the haute cuisine approach to digital transformation with a focus on form alone will not achieve profitable and sustainable growth, unless it is fundamentally underpinned by a desire to also earn Michelin stars. Revamping the core system and, in so doing, providing the substance behind the form – recognising that the core system is the backbone upon, and through which all aspects of a digital transformation are interconnected – is the key to providing the ultimate à la carte experience that will attract and retain customers for generations to come.
Alan Goodrich
Regional Sales Manager at ERI
Fellow of the IAP (Institution of Analysts & Programmers)
ERI is the supplier of OLYMPIC Banking System, offering award-winning levels of innovation, real-time process automation and compliance.