Setting its sights on the Australian market with new office openings this week, plus a fair weight of institutions using its digital banking platform, Dutch fintech Backbase talked to this news service about where wealth managers fit into this digital rearming brought on by the pandemic.

The march continues for digital banking software provider Backbase as it launches new offices in Sydney and Melbourne this week, tapping the growing Australia and New Zealand market. The Netherlands-based fintech recently opened a Singapore hub to manage growth in Asia Pacific.

Global research group IDC has forecast that a 100 new financial institutions will set up in the region by 2025 as Asian markets continue to liberalise and issue new licences. Although the ‘big four’ banks in Australia and New Zealand are expected to stay dominant, in spite of a rocky time with regulators over money laundering, digital challengers look to mop up some of the 35 per cent of total budgets that Tier-1 and Tier-2 banks are reportedly intending to spend on digital upgrades for customers in that region.

This news service spoke to Backbase’s business strategy lead Tim Rutten about what wealth management clients are demanding of fintechs now that the pandemic has put digital services in the full industry glare.

Rutten says since the crisis, the conversation with private banks and wealth managers “isn’t about a project taking a few years anymore but how can we get it live within six to twelve months.”

The firm has around 150 banks using its platform and has seen a huge spike in digital usage from business retail and private wealth clients over the last few months. “We have never had so many RFPs coming our way," he said, with some delight, over a video call. "Banks and institutions are waking up that ‘we need to go even faster, and let’s not build it ourselves, let’s not kick the can around and wait,’” he said, capping the momentum felt by many wealthtech firms as COVID-19 becomes the mother of all disruptors.

Regarding interest in the platform from the wealth sector globally, Rutten says he hasn't "seen any regions that are behind the curve,” adding that not a single institution working with the firm has put the brakes on a project in a “wait and see” approach.

At the height of lockdown confusion, technology and telco providers availed themselves as governments dispersed billions to keep businesses and economies afloat. Backbase said that it worked with dozens of US institutions early on to get initial funds disbursed inside a week. Likewise in Canada, it helped firms using the platform to arrange mortgage holidays and refinancing.

But it saw the biggest push in consumer banking, where seven times’ as many users were onboarded among its retail clients.

Fears over privacy and cybersecurity from the flood to home working and new digital accounts being created has already caused a surge in fraud activity. Questioned about security and privacy issues arising from all the fast tracking, Rutten said it hasn't been a challenge from a pure tech standpoint. "The checks are all there and all proven in many different markets. But it has been a shift for wealth management. Adding a new client to a wealth firm, the KYC flow is a bit more extensive. There is KYC, AML, and all these identification verification elements, depending on the region. Then there is regulation."

Storing data
Some of the firm's more prolific conversations have been over what data is stored and how institutions keep it safe. For example: "How do you make sure if the customer leaves the bank that GDPR regulations are being followed? There are a lot of moving pieces,” he said, and the key to bringing them all into a digital channel is checking them all off with the regulator.

The firm said that many using the platform have “very good” relationships with regulators, working with them to make sure that what they are building is pre-validated. It makes all the difference, but some markets are behind. “Germany is quite a challenge” because there are more complex regulations there.

Technology is not the magic bullet to capture high net worths but the wealth industry has lagged behind other financial areas in digital uptake. From his position dealing with clients across the spectrum, Rutten argues that the industry is still trying to strike the right balance between high-tech, high-touch digital channels which give firms the economies of scale they need, while also giving clients the security of knowing that there is still a person behind the service when they make those big transactions.

Its platform supports web, mobile, tablet, and voice banking, and caters for those wanting an API on which to build their own tools. The technology does not provide the ledger system where customer data is stored, but the layer in between.

After six years of working with clients, Rutten offers his reasons for the pushback: "I have met a lot of private bankers and wealth management institutions from the upper echelons to people doing the daily handling of clients. For them, a paradigm shift to digital almost feels like you are taking away a piece of their daily life, and that their role becomes redundant over time.

"There is resistance to change but if you show the vision properly, you take them along in the journey, and stay mindful that digital transformation technology is about 10 per cent and the rest is the people and the culture making the changes happen. That is where you find the friction. The technology honestly is simple."

Asked whether resistance is strongest among those managing UHNW wealth, he replied “yes, because they are the least digital of all of our typical lines of business.”

Challengers
Analysing platform data to see where there is the most growth, digital challengers such as Betterment in the Netherlands, Palo Alto-based Wealthfront, and Robin Hood in the UK, are brands that can onboard in minutes and "already taking a share of non-discretionary customers away from incumbents because they can service clients faster and better."

What the provider has found most interesting in the wealth management space is what banks can legally do with the data they collect. There is mounting scrutiny from regulators to stop banks using the data for product positioning or cross selling, but it remains a grey area in many regions.

“We approach it very locally. The moment we engage with a customer to start an implementation with their legal and compliance counterparts, we make sure that whatever data we absorb into the Backbase platform we basically operate in the factum that this is legally allowed from a regulation perspective. But there is no cookie cutter answer about what you can use."

While social media giants have finessed gaining names, profile pictures and other basic consumer consents, in Rutten's view these permissions have arrived in banking over the last 12 months. Encroachment by big techs such as Apple and Amazon into financial services was a big warning theme of last week's Capgemini 2020 wealth report on global trends.

The Open Banking Specifications are all about giving consent, and they are highly valued from HNW individuals. The point is to encourage opt in not opt out, Rutten said. "It is not by definition that you want to share all your data and get all of those fancy features. But if you create enough value and clarify to the end user that this feature will give you a lot more capability but in return we need to analyse your data… that should be the approach. And that mindset has only evolved I would say in the last 12 months.”