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The private banking industry, long defined by exclusivity, discretion and personalized service by relationship managers, is in the crosshairs of fintech firms that want a slice of the fast-growing business of managing money for the wealthy.
The newcomers are aggressive, favoring in-your-face advertisements over partnerships with luxury brands or mingling at high-society events to identify potential clients. Their business models involve using artificial intelligence to provide the same services as private banks and charging lower fees, while having a small number of staff to provide the “human touch” when needed.
Since its launch in Singapore in October last year, U.S. fintech Arta Finance has been actively promoting its AI-powered app on social media, claiming to deliver capabilities once reserved for the ultra-wealthy in a faster and more cost-efficient manner. The company has even taken its advertising to subway stations in some of the city-state’s most affluent areas. “Can your private bank do this?” is one of its catch phrases.
Arta is a newcomer to Singapore, and it has just over a year’s experience in its home turf. But its investors include luminaries such as former Google CEO Eric Schmidt and ex-UBS CEO Ralph Hamers.
One of Arta’s selling points is its significantly lower investment threshold. Clients can access unlisted assets, including hedge funds, with a minimum investment of just $25,000 in a product, compared to the typical $200,000 to $250,000 minimum imposed by many private banks.
Moomoo, a popular trading and investment platform, has also gotten into the act with a new arm targeting high-net-worth individuals and their Singapore-based family offices. Moomoo has already disrupted the local stockbroking industry with its mobile app and much lower commissions.
Moomoo Private Wealth caters to clients with more than $1 million in investments by providing them with access to a wider range of financial assets along with the services of a relationship manager and professional trading team.
“We wanted to apply the same principle of making investing more accessible, utilizing our tech-enabled platform to complement the personalized service that high-net-worth individuals have come to expect,” Moomoo Singapore’s CEO Gavin Chia said in an advertorial earlier this month.
Arta and Moomoo are not the only players looking to establish a foothold in Singapore, one of the main global hubs for private banking alongside Switzerland and Hong Kong. According to the Monetary Authority of Singapore, there are around 40 wealth-tech firms targeting different customer segments in the city-state.
Management consultancy McKinsey estimates that high and ultra-high-net-worth individuals in Asia-Pacific own $21.7 trillion in assets. High net worth individuals refer to those with at least $1 million in investments, while ultra-high net worth individuals are those with $50 million or more as defined by McKinsey.
Opportunity: Lower-tier clients
Private banks provide access to alternative investments not typically available to retail investors. These include private equity, venture capital, hedge funds, loans issued by corporates, and structured products.
Private banks can also help customers set up trusts and other structures for tax and legacy planning.
Chandrima Das, a seasoned fintech entrepreneur with a background in investment management, believes fintech firms can effectively serve the lower tiers of private banking clients. However, capturing the ultra-high-net-worth segment presents a significantly greater challenge.
“Those with over $50 million in assets under management get an entirely differentiated level of service,” explained Das, whose robo-advisor Bento was acquired by Grab in 2016. Das currently leads Teleskop, a platform that aggregates users’ varied investments for simpler reference and management.
While Arta’s adverts take frequent digs at private banks, it is targeting a broader market of “accredited investors” from Singapore and the Asia-Pacific region. In Singapore, accredited investor status requires an annual income exceeding 300,000 Singapore dollars (around $220,000) or net financial assets exceeding S$1 million, excluding primary residence.
In contrast, many private banks want clients to maintain at least $5 million in their accounts. According to news reports, UBS, the world’s largest wealth manager, last year revealed plans to shut thousands of smaller-value accounts with around $2 million or less as part of a cleanup of less profitable relationships.
Growth challenge
Fintech firms targeting high-net-worth investors face some obstacles too.
Zennon Kapron, a fintech industry analyst, said that the newcomers need to scale rapidly to justify their huge upfront investments. “A challenge is that the margin in robo is so low, you need billions in AUM to be profitable.”
Teleskop’s Das added the successful acquisition of new customers may not result in large AUM inflows. While private banks may impose higher charges and fees, most investors will continue to park the bulk of their assets with the banks for greater peace of mind.
While some private banks lag in technological capabilities, others such as DBS Private Bank have invested heavily in AI and digitalization, blunting the edge that newcomers claim to enjoy, according to Das. DBS said its “phygital” strategy of using technology to amplify its face-to-face physical interactions with clients has paid off, and that nine in 10 of wealthy customers use its app to monitor their portfolios and transact round-the-clock.
Growing demand for tech solutions
Amanda Ong, Arta’s country manager for Singapore, said there is a new generation of wealthy individuals who are more comfortable with technology, which has in turn resulted in growing demand for digital-first solutions to wealth management.
“Many of our competitors have not fully embraced the shift toward integrating technology with personalized service,” she said.
Kuna Nallapan, a senior IT executive and investor, said platforms such as Moomoo and Schwabs provide superior capabilities in areas such as intra-day and margin trading compared to the private banking app that he also uses.
While fintech firms face many challenges, their emergence will force the private banking industry to adapt and innovate, industry players and observers said. This competition will ultimately benefit high-net-worth investors, who now have more choices and access to more sophisticated and cost-effective solutions for managing their wealth.
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