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Private banks in Asia facing new competition

Private banks in Asia facing new competition

Chief executives at private banks in Asia are preparing themselves for a whole new type of competition: Big Tech.

Capgemini’s latest World Wealth Report indicates that the entry of companies like Google, Amazon, Alibaba and Tencent into wealth management is imminent - and conversations with chief executives and market heads in Asia signal that there is clear knowledge of this upcoming threat.

David Wilson, Asia head of wealth management at Capgemini told Citywire Asia that Bit Tech is more of a growing concern especially among people in Asia.

‘Once one or two Big Techs go a bit bigger, specifically into wealth management, it could be exponential in terms of the pace of change because they can throw a lot of capital at it and they can do a lot,’ he said.

This sentiment was echoed by DBS Private Bank’s digital wealth head, too, in an interview earlier this year. Evy Theunis said companies like Alibaba and Google are in fact the biggest rivals for banks because they are able to launch products at scale, and at an extremely fast pace.

Furthermore, massive potential client base and data pools of Big Tech firms and hunger for hybrid advice from high-net-worth individuals (HNWIs) have also completely overshadowed other players, such as automated advisors.

According to Wilson, the most likely approach for Big Tech entry into wealth management will be based on collaboration or a model based on both competition and collaboration with wealth managers.

In the latter, firms like Amazon can provide their back-end processing and cloud-based services to incumbents for a fee, for example, Wilson explained.

The biggest competition is expected to be in other areas of financial services, such as payments and loans. ‘If you look at firms like Google and these Big Techs, they start with payments.

‘Then they move into things like point-of-sale loans, insurance and then eventually money market funds. Then you start getting into the platforms you need for wealth management,’ he said.

First in Asia

According to the Capgemini study, Asia-Pacific will be the first region to see this development, with China being the most likely test bed due to players like Alibaba and Tencent.

In fact, the report had some significant findings for HNWI demand for Big Tech managers in the region. To begin with, 81.5% of the respondents in Asia-Pacific excluding Japan were interested in Big Tech companies.

Within that, 33% of HNWIs in the region were willing to start a relationship with a large tech firm in the next three to six months, with 30% willing to do so immediately. What’s more, 32.5% said they want Big Tech to manage 11-30% of their financial wealth.

HNWIs in Indonesia and India displayed the most interest in Big Tech wealth management services, with Google as the clear player of choice in the region.

‘I think the main reason is just its [Google’s] ubiquity,’ Wilson said. ‘It's everywhere. From a user experience perspective, it’s quite simple but also quite sophisticated.’

The global figure for expected outflows is startling. With more than 50% of HNWIs expressing interest in Big Tech, $12 trillion worth of assets could leave traditional players, with a sizeable portion of outflows from Asia-Pacific.

However, the immediate response to the growing Big Tech threat is limp by any standards in Asia. While 57% of the wealth management firms globally have a digital transformation project underway, there are only two or three leaders in the space in Asia, Wilson said.

He added that about seven firms in Asia are in the proof-of-concept and experimentation phase.

‘There are a lot of firms that haven't fully developed the strategy and those are the firms that really will have to accelerate things in the next 12 months. They are unprepared for the arrival of BigTech and client demand.’

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