Banking is at a crossroads and financial institutions must make decisions with long-lasting consequences. Although many external forces are driving the transition, the most significant disruption will come from within the industry, according to McKinsey’s most recent banking review.     

For now, Switzerland’s spot as the largest center for offshore wealth in private banking still holds firm, partner and leader of Swiss banking and insurance practice and co-leader of European wealth and asset management practice at McKinsey & Company, Christian Zahn told finews.com in an interview.

«The country’s almost three billion Swiss francs in private banking assets continued to grow 3 percent last year, as global money is primarily being moved for stability reasons and not for tax or other reasons,» he said. 

While technological progress has led to innovation in payments, transactions, and distribution, additional global developments will shape the future of financial institutions and provide «the industry with its biggest opportunity yet,» according to McKinsey’s Global Annual Banking Review, published Wednesday.

A Game of Scale

One of the most critical decisions larger institutions will have to make is whether to concentrate on the self-directed side of the business, where clients are happy to take more of their finances into their own hands and where scale will be critical, or whether they want to focus on hyper-personalized advice in the higher-margin business.

Zahn said in the next few years, «it will come to a much clearer bifurcation,» with only a few players able to continue in both directions.

Essentially, the transaction business will be a «scale game,» with those focusing on the self-directed side of the company needing to invest heavily in technology and expand their distribution channels by working with third parties to offer additional services and products. 

Seamlessly Hybrid

On the other side of the business, however, private banks and corporate and investment banking will likely create hybrid models where clients alternate between getting personalized advice from a relationship manager supported by remote coverage experts and executing simple day-to-day transactions via a platform.

While today, many offer multiple digital channels, few wealth managers and corporate banks can get all these channels to interact seamlessly, he said, adding that an «omnichannel» is what these banks should be aiming for.    

Wealth Managers’ Advantage

In Zahn's view, «personalized advice is not only where the margins are, but it is also where big tech and fintech will always struggle to gain a competitive edge.»

The potential for disruption within the industry «is the highest from within, as the first banks to get this right will be able to take significant market share and will make a fortune,» he said.

And as they do, they will push other «less-prepared» contenders out of the space.

No Banks, No Green Transition

One area where all players, from state-owned Cantonal banks to asset managers, will have a role to play however, is in sustainable finance: «In the next few years, the transformation of banking will be a prerequisite to finance the green transition,» Zahn said.

Considering that around 700 to 800 billion francs will be needed in the country to create a new net-zero industry, he said sustainable finance could represent a unique opportunity for Switzerland’s finance industry.