Do private banking apps need trading functionalities?

12 Jan 2018 A growing number of private banks in the region believe that it is necessary for them to include trading functionalities in their mobile apps. Clients apparently demand it and the ability to trade will only enhance the overall digital experience, so they say. Indeed, many private banks offer this functionality at a premium. But as the race to roll out cutting-edge apps continues, will private banks find themselves competing with online brokers on pricing?

App happy private banks

Initially slow off the marks, private banks in Asia are now rolling out mobile/tablet apps at a rapid clip to meet the needs of their increasingly digital-savvy clients.

In 2017 alone, six private banks launched apps for their clients in the region, according to Asian Private Banker’s App Map. Two included trading capabilities on their mobile apps for transaction-oriented clients, in addition to other features such as portfolio viewing, access to market data and RM recommendations.

By the end of 2017, only three private banking apps in Asia offered trading functionality.

At the moment, high net worth clients of Credit Suisse can execute orders for equities, ETFs, REITs and spot foreign exchange trades; BNP Paribas Wealth Management allows its private banking customers to trade US, Europe and Asia equities and DBS Private Bank’s HNWIs can trade stocks in seven markets using its iWealth app.

However, the recent push for trading-enabled apps is essentially a knee-jerk or “me too” reaction to client dissatisfaction stemming from private banks’ lack of digital savviness, according to Aditya Laroia, co-head of sales & head of institutional solutions business, APAC at ?Saxo Markets.

According to the 2017 Capgemini report, the demand is there, with 49.5% of HNWIs in Asia preferring automated/ self-service when it comes to executing simple investments such as ETFs and equities.

Online brokerage territory

However, private banks continue to charge clients 0.5% on each trade, and those with larger accounts receive a discount of up to half.

Thus, though adding the functionality serves its purpose as a box-ticking exercise, it marks a step towards online brokerage, where private banks run up against formidable competitors like Interactive Brokers (IB), which charges US$1 per 100 shares.

Already, a number of HNWIs are flocking to electronic brokers, IB’s APAC managing director David Friedland tells Asian Private Banker.

“Recently, we have noticed that next-generation clients are speaking to us more and are willing to open accounts as they are more hands-on with their finances and comfortable with using mobile apps –IBKR has a mobile app for trading too,” he said.

Friedland says that the switch from private banks to online brokers could be the down to clients becoming more tech-savvy and preferring to “do everything themselves at substantial savings”.

“For example, we are strong in FX and executing directly via IBKR and this may lead to such savings via tighter spreads,” he explained. For stocks and ETFs, IB earns US$0.005 per share with volume discounts available.

A “good portion” of IB’s 460,000 clients and US$120 billion of assets under custody are Asian HNW wealth, Friedland pointed out.

He attributes this penetration to the firm’s decision to remove custody fees, low overhead costs and high transaction volumes that do not require IB to factor in additional costs when setting fees.

Similarly, Saxo Markets’ Laroia notes that clients are growing increasingly vocal about their frustrations over pricing structures at private banks.

He says that private banks have been slow to re-price their offerings due to high costs stemming from their middleware, where straight-through-processing (STP) is not yet ubiquitous.

“To truly offer price advantages, the architecture at private banks needs to STP, as siloed pieces that run equity, FX and bonds separately can be extremely expensive,” Laroia said. “Just offering an app will not change the cost structure.”

Private banks provide the ‘whole package’

Still, DBS Wealth Management’s COO, Patrick Dreyfuss, argues that its private banking offering is “quite competitive” because unlike online electronic brokers, DBS provides integrated solutions.

“Brokers are generally focused on certain products and markets, whereas we provide integrated solutions that address the full scope of what our clients need – wealth planning, wealth management products, and even daily banking needs – which is a unique offering in Singapore and clearly differentiates us,” he said.

Further, from a pricing standpoint, it is important to consider the bank’s overall cost which includes FX and the cost of leverage, he adds. Dreyfuss also points to the value provided by the bank’s chief investment officer, who provides views and research through the app.

 “Our customers also benefit from equity tactical calls and Asian insights and expertise provided by our chief investment officer and DBS Group Research ... [and they] can also easily access articles and recommendations related to their portfolio, and subscribe to topics to receive alerts,” he said.

But for clients looking for more bespoke offerings, Laroia believes that that smaller, boutique setups such as independent asset managers (IAMs) are a better alternative to larger-scale private banks.

“Clients seeking competitive pricing and bespoke offerings will go to the smaller boutique players where you get both a sophisticated level of servicing and product offering and price advantages,” he said.

A trend to stay or stop?

Given the high degree of competition in the self-directed trading space, are private banks in the region likely to push ahead with plans to implement trading capabilities into their client-facing digital solutions?

If performance in terms of trading volumes and the adoption rates of these apps are any indication, the answer is a resounding “yes”.

Dreyfuss reveals that since trading was added to its iWealth platform, there has been a 40% increase in average logins per month on mobile, and an overall increase in the volume of online transactions.

Similarly, Credit Suisse Private Banking’s COO, Christian Huber, told Asian Private Banker in November that FX and equity transactions in Hong Kong and Singapore on its digital private banking platform have quadrupled since the start of 2017.

And Bank of Singapore’s Eddy Tai said that the bank plans to add various functionalities including trading capabilities to its client-facing app which it rolled out in Singapore and Hong Kong last year.

Even so, an Asian Private Banker survey of the region’s private banking COOs found that the industry remains uncertain as to what a definitive, client-facing digital strategy looks like.

83% of respondents said that their respective client-facing apps have portfolio review features, 75% said they offer access to research and market reports, but only 42% said that clients can transact products via their mobile apps.