A new EY report looks at IT spending trends in three of the world's most important private banking centres.

Compliance remains a major, if not the biggest, driver of IT spending in the Switzerland, Singapore and Luxembourg private banking sector, while Switzerland has the highest employee costs, according to audit and advisory firm EY (aka Ernst & Young) in a new report on trends.

The report, Global IT In Wealth Management Survey 2014, aims to focus on what are the most urgent spending priorities for wealth managers in Switzerland, Singapore and Luxembourg.

EY interviewed almost 30 representatives of private banks in the three jurisdictions. This is the first time it has examined Luxembourg and Singapore in addition to EY’s established monitoring of Switzerland, the firm said.

Compliance with regulatory requirements, such as adherence with tax transparency policy, is viewed as an important task for IT by all (100 per cent) of those interviewed in Switzerland. This is closely followed by information security (92 per cent agreement). Automation of customer processes and further cost optimisation are also considered priorities by 69 per cent of interviewees. Some 46 per cent of respondents view the use of mobile end devices and apps as important relationship management factors, while social media and cloud computing fail to make an impact at all (zero per cent).

“It is clear that private banks are increasingly relying on IT to respond to existential questions. We see that strategic bandwidth covers many areas, from questions of compliance right through to existing procedures,” Andreas Toggwyler, partner and head of IT advisory at EY Financial Services, Switzerland, said.

But many traditional private banks shy away from using IT for essential innovation in the customer interface. The Asian market plays a pioneering role in this area - for example Singapore where a tech-savvy attitude appears to prevail, with one in three respondents attaching great importance to social media. Switzerland as a financial centre will also have to face this challenge, as its customer structure is currently undergoing generational change of generation.”

Cost comparison
The costs for IT in relation to the overall costs in private banking for the Swiss financial service providers amounted to 16.4 per cent on average, remaining relatively stable between 2009 and 2013. However, a successive drop in IT spending per bank employee from $64,000 to just below $58,000 was achieved over the same period, the report continued.

Besides the total costs of IT, including hardware and software, personnel costs were also considered in the report. In Switzerland, an internal IT employee in private banking costs $185,000 (including all non-wage labour costs). This figure has remained more or less constant since 2009 ($180,000), whereas the personnel costs for general bank employees has fallen by almost 10 per cent over the same period (2009: $252,000, 2013: $230,000). The 2013 figures for the IT industry in Luxembourg are $136,000 (2009: $128,000), compared to $152,000 (2009: $136,000)  for general staff. Here there is a conspicuously low level of fluctuation between IT and non-IT staff, attributable to the low range of bonuses, a relatively modest proportion of better paid private bankers in the overall bank workforce, as well as the pool of qualified internal IT staff with many years of service.

In Singapore the costs per IT employee in 2013 amounted to $129,000 (general staff: $189,000) versus $127,000 (general staff: $195,000) four years previously.

“The value contribution of IT is still not appreciated to the full extent everywhere. This raises the question of whether further alignment of salaries between IT and non-IT staff might not be expedient in recognition of IT’s role not purely as a supporting function, but as a strategic one in private banking,” Toggwyler said.

The EY report said IT costs are distributed differently between “run-the bank” expenditure – in other words, those necessary to maintain the actual status of the IT operations of the bank - and “change-the-bank” expenditure, or IT spending on new technologies.

In Switzerland the “change-the-bank” share rose from 33 to 37 per cent between 2009/10 and 2013, yet in Luxembourg it remained almost constant, increasing from 40 to 41 per cent. In Singapore, however, there was a hike from 26 to 45 per cent among the banks polled.

“These figures are a clear sign that the significance of innovation within IT has grown. Singapore in particular is proving very innovation-friendly. As a result of growing digitalisation of the value chain in private banking, new fields of application are set to emerge for IT – for instance in the integration of progressively more important technologies, such as mobile, social media and big data,” Robert Rümmler, senior manager at EY Financial Services Switzerland who led the study, added.

The report also looked at which architecture model of the core banking platform entails the highest and lowest costs across the three countries. Here the distinction was made between three groups of private banks: those that mainly use a “standard IT platform”, those that rely on a “self-developed platform” and others using a broad mix or a “best-of-breed platform”.

Standard platforms and self-developed platforms are almost equally expensive on average. With standard platforms, IT costs are 15 per cent of the overall costs of a private bank. For standard platforms, costs can fluctuate between 13 and 16 per cent, depending on the software provider. Self-developed platforms make up 14 per cent of a private bank’s total costs. Hybrid forms are significantly more expensive than the other two variants, accounting for 21 per cent.