Tech giants pose threat to Asian private banks as they lure the region's ultra rich

The likely target will be individuals shunned by private banking and pushed into premium retail banking models.

Homegrown big tech giants like Tencent and Alibaba as well as Google and Microsoft are increasingly luring high net worth individuals for their wealth management needs which run the risk of leaving the region’s private banks in disarray.

Nearly three fourths (72.4%) of Chinese HNWIs are looking at Alibaba as a possible wealth manager provided they have all the capabilities they need whilst almost a fourth (24.1%) of Hong Kong respondents are considering Tencent and Alibaba for their wealth management needs, according to a survey by management consultancy firm Capgemini.

Also read: China's payment giants set off to conquer Asia's banking scene

“The direction of travel for the industry seems clear - BigTech entry will occur at some point, with entry likely to begin with Asia Pacific followed by North America,” Capgemini said, adding that a demographic of those with US$5m and below in assets shunned by private banks and pushed into premium retail banking models stand to be the likely target of BigTechs.

Google emerges as the most-in demand BigTech for wealth management globally with APAC HNWI interest hitting 60.8%, notably higher than the global average of 36.7%. HNWIs also indicated that Microsoft, Amazon, and Apple were similar desirable BigTech firms for potential wealth management services.

The steady expansion of European players into the region’s private banking scene is also threatening homegrown lenders for the right to manage the wealth of the region’s ultra rich as the Asia market is expected to grow at a faster pace than Europe.

Also read: Asia beats Europe and America in private banking gains in 2017 

“We observe that all rated European private banks reported significant net assets inflows in 2017. Indeed, also in previous years some banks managed to more than offset outflows by inflows in new markets, especially in Asia,” credit rating agency S&P noted in a report. 

Private banks and wealth management firms alike are therefore directing most of their budgets into maintaining their ongoing legacy systems but are also making steady investments into new tools, processes and platforms to keep up with competition and venturing into experimental areas and partnerships in startups to differentiate against competitors, noted Capgemini.

“Wealth management firms therefore have a choice between standing still or preparing for the new industry dynamic that is likely to arise over the coming years.”