Private Banking: The Origins

In my view, our local version of private banking is not there with the best as we still have some work to do. In today’s edition, I will restrict myself to introducing the concept of private banking and its history.

Private Banking: The Origins

Ladies and gentlemen, let's talk about private banking today. This is something I have an undying passion for after being directly involved in this interesting aspect of banking as a Transactional Banker, Relationship Manager and the Head of Private Banking Division before taking a short detour to the asset management space. Hopefully, some day I will reunite with my first love, private banking.

In my view, our local version of private banking is not there with the best as we still have some work to do. We will talk more about this next week when we explore the state of private banking in Botswana. In today’s edition, I will restrict myself to introducing the concept of private banking and its history.

Historians argue that banking began with the first prototype banks which were the merchants of the world who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BC in Assyria, India and Sumeria. Later, in ancient Greece and during the Roman Empire, lenders based in temples gave loans while accepting deposits and performing change of money. But the true origins of private banking still remain a mystery. However, European countries such as France, Italy and Switzerland all claim to be the originators of this practice, thus leaving debate regarding the origins of private banking open to this day.

But despite these variations in opinion regarding the true origins of private banking, one fact that remains unchallenged is that modern banking that we see today emanated from private banking. Well documented history tells us that the first banks in Venice (Italy) were focused on managing personal finance for wealthy families. Traditionally, private banks were linked to families for several generations as they often advised and performed all financial and banking services for these families. On the other hand, Geneva to this day remains host to the most ancient and venerable private banks of Switzerland, but not much is known about the circumstances in which the city developed an early competitive advantage in wealth management. Using an extraordinary qualitative source (Jacques Mirabaud's papers, and especially his memoirs) shows that in those years, raw materials did not consist of foreign capital but of a remarkably abundant stock of domestic capital. Financial and social factors were intertwined in producing a very hierarchical division of labour in the origination and distribution of international sovereign loans.

Locally, our first bite of the private banking cherry was through the two oldest banks. They introduced the Excel Banking and Prestige Banking and other banks followed and launched Private Clients and Private Banking respectively, and we could conclude that we had the private banking offering for less than 20 years in the Botswana context, which is still relatively new and developing.

But what is Private Banking exactly?  Maybe this is a question for those not very familiar with the concept. Most publications typically define private banking as a highly specialised form of banking that includes transactional, portfolio management, investment and tax management to high net worth individuals (HNWIs). Contrary to mass-market retail banking, private banking focuses on providing more personalised financial services to its clients through banking personnel specifically dedicated to providing such individual services (Relationship Managers). HNWI possess more wealth than the average person and enjoy benefits such as a dedicated point of contact through a relationship manager supported by a transactional banker in some instances, extra privacy, discounted services, high returns on investment and concierge services. Exactly 13 years ago when one of the local banks officially launched its private Banking offering, newspapers headlines mostly went like, “A bank for the rich” and “The super rich get their own bank.” I think High Net Worth Individuals is more palatable.

Most commercial banks do offer private banking through the retail banking space but chose to call it different names such as Priority Banking, Premium Banking and Private Clients. It is essentially the same thing, although there might be differences in terms of entry criteria and customer value propositions. There are still some absolute private banks that exclusively offer private banking services and are independent and not part of a bigger bank, which is common in Europe, Asia and the United States.

Essentially, private banks excel by providing a personal service and making sure that every need is catered for. They are dedicated to making financial affairs as easy to manage as possible and will always go the extra mile for their clients. Private banks are able to do this because they never sacrifice quality for quantity, focusing instead on providing the finest service to a limited clientele. Infact, many private banks work closely within specific communities, dedicating their talents to serving the needs of a small group of individuals (Private Banks UK).

Private banking makes it very simple to handle all the financial tasks in one place, provided one has a great relationship manager who is always just moments away if you have the necessary investable assets and need the convenience of a single contact for all of your financial responsibilities. Private Bankers or Relationship Managers, as they are commonly called, also need to be well attuned, to be close to their clients and to have a deep understanding of them, hobbies, business interest and life in general. Afterall, if a client does not get the best possible service from their banker, the option of getting good or better advice, guidance and access to investments from financial planners, estate attorney and CPAs is available in private banking.

As we conclude the history edition of private banking, it is important to state that private banking is essential in modern day banking and beyond, with more development and investment in the private banking teams, client servicing, more relevant and savvy products, portfolio investment vehicles (onshore and offshore) are key. We could be more to our clients and compete with the rest of the world

Gomolemo Kololo Manake

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