Hauck & Aufhäuser, one of Germany’s oldest banks, recently announced a partnership with savings marketplace Raisin, integrating the platform’s products into its own ecosystem.
This gives the private bank’s customers access to Raisin’s array of savings and investments products and earn “an interest rate on their liquidity holdings well above market average”, according to Dr Holger Sepp, a member of Hauck & Aufhäuser’s management board.
Users of Raisin open an account on the platform and receive access to savings products at numerous different providers across Europe. Clients of Hauck & Aufhäuser now get access to these within the confines of the bank’s own infrastructure.
“From an outside view, our website might look very similar to a price comparison site,” Raisin’s VP of business clients and partnerships, Benedikt Voller, tells Finextra Research.
“But a price comparison site sends you to another place, where you would have to go through the various pain points of KYC, identification, and so on.”
Banks who partner with Raisin meanwhile would be able to offer a wider array of savings products from countries across Europe.
“They don’t have to think about offering their own local customer service, local language competency and so on, because we handle that,” Zoller adds.
Less is more
For Raisin, the partnership provides a deep well of client deposits, thanks to Hauck & Aufhäuser possessing clients who are by and large far wealthier than the customers of a commercial bank.
Most private banks require some form of minimum deposit for a prospective client to qualify for an account. The benchmark has generally been upwards of $1 million, though a growing number of banks are now expanding this to allow applications from customers with $500,000 or even $100,000.
Nonetheless, private banking remains the realm of the affluent, significantly sharpening the client base of such institutions.
This of course means they have far fewer customers, but this need not be a problem. Being able to draw a substantial sum of deposits but from a far small number of customers, reducing the overheads that comes with onboarding, account maintenance and so on, may provide a compelling business model for fintechs.
While challenger banks and savings or investment platforms often do not struggle to attract customers in large numbers, they may not attract sizeable enough deposits from each to make for a profitable business.
As of January 2019, for example, Nutmeg clients held an average of £23,000 on the platform, which equates to a £100 profit per customer holding a fixed allocation portfolio. This figure becomes even more glaring when paired with research from Boring Money which states that it takes Nutmeg £200-500 to acquire each of these customers.
It is likely that the typical client of a private bank would have a good deal more than £23,000 to deposit on a digital investment platform or wish to open an account with the likes of Monzo and Starling with far more than the £260 which Accenture states is the average amount held in each account by digital challengers.
Private banks may then be a lucrative area for fintechs to tap when seeking partnerships from which they can acquire sizable deposits, providing a helpful boost to their capital.
Getting the balance right
An example of this would be Tandem, who went further than just partnering with a private bank when it acquired Harrods Bank in January 2018. This provided the UK fintech with £80 million of capital, £400 million in deposits, a £375 million mortage book and 10,000 new accounts.
Crucially, the acquisition also provided Tandem with a banking licence which had abandoned pursuit of the previous May.
From facing an uncertain future, Tandem grew its customer base to 500,000 in the ensuing year and is now targeting overseas expansion, demonstrating the fruitful area that private banking can prove for fintech companies. Banks such as Harrods and Hauck & Aufhäuser boast loyal customer bases and substantial assets but understand the benefits that digital transformation can bring to their traditional banking models.
“It's important that we have the technological skill set to offer for different partners, and this is why Hauck & Aufhäuser and other private banks in general are very good partners for us,” Voller says.
"But I think something that other fintechs should take into account when considering this kind of partnership is the solution that they have at hand.
“Would it work for private banking? Does the economics of it make sense and can you can offer a solution that works?”
Collaborations with private banks would come with a requirement for some fine tuning of otherwise digitally-centric offerings. The high-net-worth and mass affluent clients of private banks will be used to a more personal banking service, held together by human interaction with a specialist adviser.
Zoller therefore speaks of the importance of being able to offer a “targeted solution”, to make the offering more suitable for private banks and their customer base. Where a platform for retail banking would be more orientated around the product - digital interface, user experience and so on - there is more importance attached to the role of the adviser in private banking, so fintechs’ offerings need to reflect that.