WealthTech in Asia–Pacific: The next frontier in financial innovation

| Article

The wealth management industry is growing fast, bringing with it rapid transformation. Technological advancements have enabled the development of innovative platforms and tools that enhance the efficiency, accessibility, and personalization of wealth management services.

WealthTech is emerging as a significant force in this space. WealthTech is defined as any technology-enabled wealth fintech that facilitates the distribution, manufacturing, and post-trade and back-office activities across the wealth management value chain. Although still in early stages, it is rapidly gaining momentum globally as more wealth management firms recognize its potential benefits, while it also allows enhanced accessibility of wealth solutions to untapped and underserved customer segments.

With its growing economy and increasing wealth, Asia–Pacific is becoming an important region in global wealth management, however, the industry is still nascent with around 40 to 45 percent of personal financial assets (PFA) in cash and deposits.1 We believe that WealthTechs in Asia could drive more meaningful wealth management penetration while embracing technology to deliver “advice for all.”

In this article, we investigate the WealthTech world, explore its dynamics, and identify how it could unlock opportunities in Asia–Pacific for financial institutions, financial advisers, and customers—and ultimately for WealthTechs and investors across the region.

Wealth dynamics in Asia–Pacific are evolving

With wealth on the increase in Asia–Pacific, wealth management companies are faced with significant opportunities to grow, including estimated “onshore” PFA of approximately $81 trillion by 2027—about $1 trillion in revenue pools across the wealth continuum (Exhibit 1).2 “Cross-border wealth management connectivity” is also on the rise, with increasing flows to the leading Asian booking centers, that is, Hong Kong and Singapore. This inflow represents around $3.5 trillion of booked assets by 2027.3

The underpenetrated affluent segments are fertile for growth in Asia–Pacific.

Further, wealth management is required not only across accumulation but also decumulation as customers in Asia–Pacific show an increasing need for a retirement corpus, particularly in emerging countries.

Historically, wealth management services have had a higher focus on the high-net-worth individual (HNWI) segment. However, the affluent segment share is increasing, projected to be 34 percent of onshore PFA by 2027, with a projected CAGR growth of 8 percent from 2022 to 2027.4 This is a notably untapped and underserved segment, with a low wealth management penetration of 15 to 20 percent, as of publication.

Advice in the region is massively misaligned—banks are not paid by the client to do what’s in their best interest as fiduciaries, but are paid by the product manufacturer to push its funds. The demand side is a problem, too, because people are not financially literate enough; they don't know that this misalignment is happening.

Samuel Rhee, cofounder, chairman, and chief investment officer, Endowus

Reaching an inflection point

In the 1990s, the United States arrived at an inflection point when overall (retail and institutional) mutual fund assets under management (AuM) as a percentage of GDP reached 18 percent. Thereafter, a sustained growth occurred in mutual funds AuM at a CAGR of 10 percent per annum through 2022.5 Developed countries in Asia–Pacific experienced a similar inflection point in 2002, following which mutual funds AuM CAGR grew at 18 percent through 2022.6

Emerging Asia–Pacific countries have shown an almost identical inflection point since 2021 (at 17 percent mutual fund AuM as a percentage of GDP). Analogous to increases in the other regions, countries like India, Indonesia, Malaysia, Thailand, and Vietnam could experience substantial AuM growth in the coming years (Exhibit 2).7

The emerging Asia–Pacific market is predicted to reach an inflection point of unprecedented growth in the coming years.

Now WealthTech faces an inflection point: the current economic and asset management landscape creates opportunities as the comparatively more cost-effective offerings of WealthTech firms can provide solutions to increasing cost pressures and shrinking revenues.

Emerging customer needs: Sparking opportunities

Customers’ requirements are changing: they seek needs-based financial advisory, multichannel engagement across a digital-hybrid setup, and personalized solutions delivered at scale. With this and the growth of technology in the industry, we envisage a very different future for the wealth management industry, one that challenges the traditional high-touch, relationship-manager operating models. The future is expected to include a level of “advisory on demand” or “hybrid advisory” enabled by modern technology. WealthTechs could act now to quickly define the “right to play and right to win” in this space (Exhibit 3).

Future customer engagement will likely differ based on customer profile segments.

Cracking the code of WealthTech economies

WealthTechs are rapidly accelerating to achieve the advisory sophistication that customers seek, however no one in the industry has yet cracked the code to drive economies of scale. Reaching self-sustainability, profitability, and scalability is a particularly challenging hurdle. In the following section, we dive deep into the foundational elements of the wealth management value chain, emerging WealthTech archetypes, and their estimated value pools.

The wealth management value chain: Breaking down the elements

The wealth management value chain is complex and involves multiple elements, each with a unique set of activities. We see the bulk of value pools for WealthTech firms in distribution and manufacturing (Exhibit 4). We have observed three main archetypes materializing to meet the growing needs of the wealth management landscape and make “advice for all” a reality.

Three main WealthTech archetypes arise on the distribution side of the wealth management value chain.

We need to move away from “fees-for-sales” to “fees-for-advice” and eventually “fees-for-performance.” We should make just one share class and be transparent with customers that this is the fee that's being charged for maintaining portfolios. Advisers charge customers for advice and they pay some of that to the platform—I don’t think that customers need to pay platform fees as they are already paying advisory fees.

Akhil Doegar, chief executive officer of GROW with Singlife

The three archetypes differ in the way customers are served (Exhibit 5):

The three archetypes differ according to how customers are served.

Archetype 1: Direct-to-consumer WealthTechs (D2C)

These WealthTechs are multi-asset, digital platforms that offer public-traded and private assets, with advice delivered either purely through digital or hybrid channels, or a combination of both. These firms have made financial advice possible for mass and affluent customers, while offering expanded digital engagements to HNWI customers.

Archetype 2: Technology solution providers to financial institutions (B2FI)

These WealthTech solution providers are instrumental in helping financial institutions or other WealthTechs build up or enhance their digital wealth management capabilities along the wealth management value chain.

Some focus on developing and delivering technology solutions for specific parts of the value chain, such as the front sales end or digital model preset portfolios. Others offer comprehensive, multimodular, end-to-end solutions that revamp a financial institutions’ digital wealth management portfolio with enhanced functionalities and the endeavor to integrate each step of the value chain into existing architecture.

Archetype 3: Technology solution providers to financial advisers (B2FA)

This archetype focuses on providing digital tools and interfaces specifically designed for financial advisers and agents. With these, WealthTechs aim to enhance the efficiency of financial advisers’ work, allowing them to dedicate more time to serving customers and offer greater expertise and insights. Additionally, customers can track their investments digitally on the same platform. Some of the industry-leading platforms take a disruptive approach by not charging customers for using the platform, challenging the “commission-based” prevalence in the traditional wealth management industry.

The big challenge is standardization and interoperability. For platforms like ours to fully develop scalability and liquidity, interoperability is key because it enables different systems, platforms, and organizations to work together seamlessly. This will further foster innovation and efficiency by allowing diverse parties to share resources, data, and capabilities. This means that platforms can also expand their user base and support not just consumers but also enterprise customers.

Oi Yee Choo, chief executive officer, ADDX

Calculating the upside of WealthTech in Asia–Pacific

The Asia–Pacific WealthTech industry is anticipated to grow by around 25 to 30 percent a year from its current AuM (standing at $600 billion to $700 billion) across the three archetypes.8 The market could triple or even quadruple its present AuM by 2027, presenting a significant opportunity for firms to tap into a revenue stream worth billions in the coming years.

Reimagining WealthTechs for the future

The burgeoning WealthTech industry in Asia–Pacific holds great possibilities, but WealthTechs need to be aware of the obstacles that will likely face them. To find out more about these, we engaged in a series of conversations with various WealthTech firms in the region and identified seven common hurdles that collectively contribute to the overarching issues of scalability and funding. We further identify potential strategies to address these challenges.

Volumes on platforms have been very slow to build. And that is, in part, because the solution has been very portfolio focused. In future, I think customers will keep their existing holdings and just do one or two trades to make their portfolios healthier—this will help the digital wealth business, as you’re not asking the customer to sell everything and buy a portfolio; you’re saying, ‘Let me help you take one or two steps toward a healthier portfolio.’

John Robson, chief commercial officer, Quantifeed

Overcoming challenges to tap into WealthTechs’ massive potential

All three emerging WealthTechs archetypes are likely to be confronted by some or all of these hurdles.

Challenge 1: Conquering high customer acquisition costs

As D2C WealthTech firms grow within the Asia–Pacific market, they find themselves in increasingly intensified competition for a share of customers’ investment wallets. And, given the region’s relatively low levels of financial and investment literacy, companies need to invest more time and money through branding strategies to educate their customers and cultivate trust and credibility. On average, customer acquisition cost ranges between $50 and $200, translating to a payback period of 12 to 24 months.9

Challenge 2: Institutionalizing asset democratization and augmenting market liquidity

As WealthTechs attempt to create more liquidity and drive access to public and private assets through fractionalization, pooling of funds, and blockchain, the actual implementation can present challenges. The two most common are liquidity creation for private assets and price discovery for illiquid assets. There are also issues around post-trade servicing of private assets, which involve more complex activities than for public assets—given the nascency of technologies and capabilities surrounding private asset democratization, this could be a challenge for WealthTechs.

We also notice that the emerging, digitally native generation no longer looks for advice from classic intermediaries, but is taking advice from peer groups. People want better access to knowledge, not only the institutional type. Banks have to do something because they do not have sustainable business models.

Steffen Pauls, chief executive office, Moonfare

Challenge 3: Navigating cross-border complexities

Diverse market requirements and regulatory frameworks across Asia–Pacific markets add a layer of complexity to WealthTech expansion and cross-border operations. When venturing into a new cross-border jurisdiction, WealthTechs need to spend a substantial amount of time and effort to familiarize themselves with new customer needs and regulations. Their technology stacks might not be built for the level of flexibility and customization required to scale in multiple countries.

Liquidity cannot be created with a pure wealth management platform; it needs to be created through exchanges, officially plugged into other networks as well. We solve liquidity by thinking about it as cross-pollinating traditional pockets of capital and digital asset exchanges (with different client segments) on a centralized exchange—this can create tokenization and only with tokenization can assets become more liquid.

Kelvin Lee, chief executive officer, Alta Exchange

Challenge 4: Unifying disconnected ecosystem players for seamless integration

The WealthTech industry’s true potential can be unlocked through ecosystem integration and partnerships. However, cultivating meaningful collaborations with incumbents and regulators can be challenging—aligning cultures and integrating technologies often complicate alliances.

Challenge 5: Elevating financial and investment literacy for informed decisions

Low levels of financial literacy across Asia–Pacific could hinder the complete realization of WealthTechs’ impact in the region. Firms need to educate customers to understand market products and foster a deep understanding of the implications of their financial decisions.

Challenge 6: Bridging the funding gap

The WealthTech funding landscape faces a shortfall. There has been a downturn in venture capital and private equity investments in the past few months. For current Asia–Pacific WealthTech firms, there have not been any major funding rounds in the recent period, and for those that have raised new funds, the funding levels are similar to previous rounds. The sector’s unique business models challenge traditional valuations, which impacts the availability of funding rounds. However, in specific situations, the unique and robust operating models that WealthTechs can offer still attract investor confidence and funding—such as pure fee-based advisory models or the democratization of asset classes to reach broader customer segments.

Challenge 7: Achieving self-sustainability, scalability, and profitability

These three issues remain the ultimate obstacles for WealthTechs. Given the lower fees charged and the smaller size of customer portfolios, WealthTechs have to achieve a substantial volume of AuMs to break even. And, even after achieving a foothold, WealthTechs may encounter difficulties in scaling into other customer and product segments.

Key transformation disciplines for WealthTechs

We have identified six disciplines that WealthTechs could master to unlock the industry’s immense potential.

1. Crafting a strategic approach to distribution partnerships for programmatic scaling

Creating a comprehensive partnership strategy for programmatic customer acquisition involves a purposeful approach to collaboration. Identifying potential partners requires meticulous research—this goes beyond surface-level considerations and dives into partner attributes such as customer base, technological capabilities, and brand reputation. Despite those challenges, WealthTechs could unlock synergies and ensure sustained growth through mutually beneficial alliances.

2. Reimagining geographic coverage and cross-border integration

In a world with expanding cross-border wealth flows, WealthTechs could redefine geographic coverage strategies to include contexts of wealth flow and wealth corridors. These strategies could also serve as a method to expand and diversify sources of funding for WealthTechs.

3. Adopting data-driven, segment-specific marketing

WealthTechs have the opportunity to unleash the power of data-driven marketing to boost customer acquisition and efficiency. By leveraging AI-powered algorithms and advanced data analytics to build a strong, customer-centric recommendation engine, WealthTechs could understand and segment customers, and send out segment-specific digital campaigns.

4. Establishing world-class, personalized digital experiences

To elevate personalization to customers’ changing needs, WealthTech could harness data analytics and machine learning to segment their customer base, enable rapid customer scoring and profiling, and provide tailor-made offerings. AI-driven customer service tools, such as chatbots, could enable seamless and personalized engagement. Behavioral economics could add another layer of personalization.

There are many financial advisers who deliver face-to-face advice—this is a costly structure that will reduce significantly in the coming years. Given the incredible improvements in generative AI, this can fundamentally change the way financial institutions communicate with clients. AI can be used to automate and streamline the personalization of customer experiences and tailored offerings.

Michele Ferrario, chief executive officer, StashAway

5. Unlocking emerging white spaces with core technological capabilities

WealthTechs’ existing core value propositions and capabilities—such as their cash pooling and cash management capabilities—could be utilized to target the white spaces of unmet needs in the current wealth management landscape.

6. Transforming customer engagement and insight generation with digital analytic tools

Optimizing sales strategies is imperative for WealthTechs as they evolve and expand their influence. Predictive analytics, for example, could anticipate clients’ preferences allowing for personalization, while digital tools such as lead generation could give advisers valuable insights into high-value clients. These digital analytics tools could allow for stronger client-adviser relationships and improved outcomes.

Considerations for the way forward

The disciplines described above require talent and capability excellence, driven by strong, strategic leadership and skillful working teams. By marrying visionary leadership with proficient execution, WealthTechs could create a holistic framework for success in the ever-evolving landscape of wealth management. Success in this area triggers key questions:

  • Will customer segments shift to adopt WealthTech—specifically the HNWI segments—with self-direct usage of the wealth platforms?
  • How will the rise of WealthTechs impact incumbent financial institutions?
  • With the current impact on funding rounds, will the WealthTech space be able to consolidate?
  • How can regulatory frameworks support the growth of WealthTech?

The wealth management industry represents a multifaceted and ever-evolving domain. Despite the challenges, modern digital wealth in Asia–Pacific presents a burgeoning segment waiting to be harnessed. With a mindful, test-and-learn approach, WealthTech companies could seize the opportunity and pave the way for the future of wealth technology.

To access the full expert interviews, click here.

The authors wish to thank Cristina Catania, Elaine Ee, Nella Freund, Shubham Gupta, Saksham Kalra, Fumiaki Katsuki, Ankit Khandelwal, Philipp Koch, Alice Li, Ken Loo, Anindya Mukherjee, Yasmin Ramle, and Vidushi Sathoo for their contributions to this article.