Digital wealth management is one of the finance industry’s hottest buzzwords for late 2020 and into 2021. It also christened a new buzzword: wealthtech.
The platform business model for wealth management is an aggregation of many financial products in one place and the ability to distribute them at scale. It coincides with an investment environment of low-interest rates and where wealth management products promise the lure of greater returns.
Regulators trying to gain back control
Let us put aside the controversial float of Jack Ma’s Ant Financial. Once talked up as being worth USD 300 billion — which would make it the biggest IPO ever — the whole project is now on hold more because of politics than anything else.
The reality is that Ma and his company have grown faster than Chinese regulators have been able to keep up. And in a society like China, that comes with implications.
The other, much smaller, Chinese wealth management float in recent times has been the Ping An group’s Lufax, which got its USD 2.36 billion New York IPO off the ground last year just before the Trump administration hit other key China stocks with sanctions.
Like Ant, Lufax had its origins in peer-to-peer lending and then used a digital platform to move into other areas, such as wealth management. Sure, the shares slumped 14% in New York on debut, but once again, it was likely to be politics and not the numbers.
According to the IPO prospectus, Lufax had a net profit of more than USD 1 billion on a total income of USD 3.64 billion, a reasonable business for a young digital finance company.
The point about digital wealth management in China is that it is like a genie that escaped its bottle. The regulators are doing what they can to bring it out of the shadows and into the regulated finance industry.
In that way, wealthtech in China is a victim of its own success.
Global momentum increases
Assets under management at Chinese wealth firms grew sharply last year, despite all the economic chaos.
It is also attracting major western investment houses that can now launch their own digital ventures in China under 2020 reforms. Swiss bank UBS is currently building out a digital channel in China, pending a new license, while JP Morgan is looking at a joint venture arrangement with China Merchants Bank. The latter venture could reach out to the Chinese diaspora in the region, according to reports.
The other geographies where wealthtech sees momentum are India and Singapore.
In Singapore, shares in wealth management platform iFast appreciated so rapidly in January that regulators asked what was going on. The company saw its assets under administration grow at 34% in 2020, and the shares spiked on reports it was in line for a big contract in Hong Kong with the territory’s main pension fund, plus its plans to expand into China.
Born from confluence
All of the above suggests that wealthtech is having its moment in early 2021 in a mutually advantageous confluence between solution providers and their technology offers and customer demand and experience.
Investment analysts say Asian markets should surge this year, in a world where more people are working and existing remotely and doing more for themselves through digital channels.
Until recently, digital technology in the consumer finance area was almost purely transactional, a way for people to receive funds and pay bills.
Digitalization offers more value as an investment and advice channel and helps people manage their wealth journeys.
When we look back, it is a journey that we might trace — in an industry sense —from COVID-19 and 2021.
Image credit: iStockphoto/Diamond Dogs