Aaron Grunwald: Where do you see Luxembourg’s private banking sector three to five years from now?
Michael Savenay: I think there’s a bright future for private banking. First of all, Luxembourg, as such, is a USP [unique selling point] in the market. So if you go to France, if you go to the UK, if you go to the Nordics, if you go to other countries, the fact that you’re a banker from Luxembourg already is a door opener.
The second element, if you look at retail banking, if you look at corporate banking, there’s a lot of robotisation. There’s a lot of digitalisation, and there’s less human contact. Now in private banking, or wealth management, trust is one of the most important elements. To become a trusted partner, you need people, you need contact and you need human contact. So, in our business, that can’t fade away, there will be human contact. That will be more important in the future.
At the same time, we see a shift in clients from broader affluent servicing to the focus in the next five years being more ultra-high-net-worth and high-net-worth. Because the cost to serve an affluent model is becoming too high for the bank. So you really have to focus your competences, your specialists towards the ultra-high segment... that doesn’t mean that affluent clients are not welcome anymore at private banks, but I think they will be served in another way, more digitalised.
Like robo advisors?
Like robo advisors, or hybrid models. That doesn’t mean that they will have less good servicing or performance, but they won’t necessarily get the same kind of human touch, I think, in five years that they have today.
With more digitalisation, do you think the same number of people will be working in the Luxembourg private banking sector in a few years?
Well, I think robotisation has an impact on back-office staffing. If you optimise processes, what people used to do manually, when they retire, you replace them with a robot, so to say... but I can’t give you any insights from my perspective [if that’s] a 20% cut, is that a 10% cut? That I don’t have a vision of. Also, most banks, with the pressure on margins in the last five years, with covid, with the highly competitive markets, the pressure from regulations, the investments they have to do for regulations and for digitalisation, I think that each bank went through a transformation over the last years. So I don’t think there’s fat on the bone there. I think everybody is already staffed in a very efficient way.
You mentioned margin pressure. Do you think that situation will improve?
No. There will be further pressure on margins, due to competition, due to digitalisation. Due also to client sensitivity. They’re more price sensitive than they used to be. So, I don’t think there will be a margin uplift in the coming years. To the contrary.
And you think the sector here in Luxembourg is prepared for that?
I think so... we just have to deliver the right service for the right price. I think that’s the main challenge for the future, where you also can differentiate yourself from competitors. I mean, doing something 10 basis points cheaper than another bank is not an advantage, it’s not a criterion for wealthy people to change bank, or to choose a bank. It’s more like the kind of service you provide for the price you charge them. And that’s the differentiator, and banks have to play there. That’s where the commercial fighting takes place.