KPMG identifies accelerated digital adoption as key to wealth management momentum in Asia Pacific
KPMG identifies accelerated digital adoption...
Industry targets tech-savvy younger generation in Hong Kong and mainland China
10 March 2021, Hong Kong – Asia Pacific is seen as a leading destination for wealth management and private banking globally, in terms of digital delivery of increasingly sophisticated products and propositions to wealth clients across the region, according to recent analysis by KPMG. Key factors driving this momentum include a strong influence across Asia from mainland China outbound wealth clients, high levels of access to mobile technology and comparatively higher savings rates, helping to contribute to this significant increase in wealth.
The Digital Wealth Management in Asia Pacific report identifies key trends that are likely to have a significant impact on the wealth management and private banking landscape in Asia Pacific. Hong Kong and Singapore are the most supportive and developed markets for wealth management in the region, whereas there are significant growth opportunities in the rapidly growing affluent and middle-class populations of mainland China and India.
Larry Campbell, Partner, Head of Financial Services Strategy, KPMG Asia Pacific, says: "There is a clear gap in Asia for a powerful, compelling, sophisticated-yet-easy-to-use digital wealth management offering aimed at the region's emerging and growing wealthy. In individual domestic markets, some local banks put in a good showing, as do a handful of WealthTechs. In the region as a whole, only a couple of universal banks appear to have the product shelf and economic clout to truly dominate. Wealth transference across generations is only really occurring in some markets, such as Hong Kong. Others will follow as people in these other markets age and the markets themselves mature. Financial institutions catering to the needs of, say, family offices in Hong Kong can therefore move their products and propositions inexpensively to other regional markets as the needs of those markets mature."
Targeting the younger generation, who demand technologically advanced and highly customised banking and wealth management solutions, is likely to be the primary key growth enabler as the Covid-19 pandemic has pushed many wealth management clients to online channels for remote interaction, particularly in Hong Kong’s mass affluent segment of younger tech-savvy clients.
With more wealth being transferred to the next generation via family succession, and new wealth being created by young entrepreneurs using technology, this client segment is likely to be another key growth driver for Hong Kong's wealth management industry. Wealth managers in the report highlighted that 'holistic digital ecosystem/ multi-channel delivery', 'self-service investment platforms' and 'instant messaging apps' are the top three capabilities to attract the younger generation.
Banks across the region, especially in Hong Kong and mainland China, have strong technology platforms to serve both existing customers as well as attract new customers, and those that continue to enhance their digital offerings will be winners in this space.
Simon Gleave, Partner, Head of Financial Services, Asia Pacific, KPMG China, says: "Global and regional institutions are attracted to the fast growing market in ASPAC, which has become a centre for their deployment of capital and investment. The pro-investment regulatory environments in markets such as Hong Kong and Singapore have been attracting a large amount of individual wealth and corporate capital from around the world. As a result, most of the top traditional banks are expanding their presence in the region, while the stronger Asian banks are working on developing their wealth management businesses in these markets."
Despite competition from the big technology giants that dominate the online and mobile payments ecosystem, who are sidelining the banks from this intermediary role, especially in e-wallets/ mobile payments, banks still have a competitive edge in this regard.
Hong Kong has one of the world's most sophisticated IT infrastructures with 91% internet penetration, ranking third on average fixed broadband internet speed and also has 5G. As a result, the leading banks in Hong Kong have spearheaded a strong wave of technological enhancements over the past two years, including rapid WealthTech growth, high offshore wealth management demand, good government support in virtual banking, cross-border collaborations and new payment mechanisms.
Bonn Liu, Partner, Head of Asset Management, APAC, KPMG China, says: "Rapidly growing WealthTech players are either developing advanced wealth management platforms and intuitive advisory solutions for their partnerships with big banks or using their low-cost structure to directly tap the middle-class population. Although currently at a nascent stage within wealth management, payments firms have strong plans to grow in Asia Pacific, using their e-wallets to help the region’s vast middle-class population in channeling its savings into wealth management investments."
Mainland China, with its economy opening up, is the largest market in Asia Pacific with 59% internet penetration and the highest mobile banking adoption at 78% with initiatives such as WealthConnect and online-only banks, strong growth in wealth management platforms, and a growing upper middle-class that have a high demand for robo-advisory. The report notes there has been an increase in investing activity in mainland China from a greater number of younger clients using smartphones.
Tony Cheung, Head of Financial Services, KPMG China, says: "As digitalisation has reduced client retention costs and improved access to their capital, clients with small investment capital, who have never been considered highly important by wealth managers, now collectively form a key potential market – particularly in mainland China where the middle-class population represents more than half of the market's online wealth management clients."
With strong internet and smartphone penetration, the adoption of mobile banking in Hong Kong hit 43% in 2019 and the city has grown in stature as a wealth management centre, owing to a large concentration of ultra-high-net-worth individuals driving the demand for digital financial services with 59% of private wealth management firms believing that their digital offerings meet client expectations.
Offshore clients also make up an important part of the sector and banks should look to strengthen their advisory teams and use their presence in Hong Kong to tap the growing HNWI segment in the rest of the Greater Bay Area (GBA) – 64% of financial institutions in Hong Kong already have, or are planning to develop, a GBA-specific strategy and operations – as well as develop low-cost and efficient solutions for the growing middle-class in mainland China and India.
Nancy Yeung, Partner, Wealth and Personal Banking, and Operations, KPMG China, says: "To tackle the intense competition in the Asian wealth management market, banks must focus on technologies offering efficient online solutions to mass affluent clients, augment their succession planning services to HNWI families, accelerate digital adoption, with an increased focus on leveraging Big Data analytics, partner with more fintechs for advanced solutions, including quicker digital onboarding, strengthen the digital capabilities of their advisors and probably form their own virtual banks."
Hong Kong SAR and mainland China take the lead compared to most markets, except Singapore and India, in terms of market size and digital wealth management adoption. Among them, with its rapid growth in mobile payments, Vietnam has emerged to have one of the fastest rises in ultra-high-net-worth individuals in Asia, with the government promoting fintechs and non-cash payments as wealth management and private banking are slowly gaining momentum through various tech collaborations with a focus on digitising retail banking services.
"Universal banks need the vision and will to invest in AI and Big Data, step up the pace of digital transformation, and be open to strategic partnerships. Those that are prepared to also pay top dollar for empathetic, informed and broad-minded relationship managers whose connectivity with customer needs and challenges can be bolstered by technology can provide clients with a wealth management experience that truly delights," adds Campbell.
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