Is the digital wealth opportunity a zero-sum game for WealthTechs and banks?

As WealthTech breaks new ground within the high-net-worth individual (HNWI) sector and banks speed up their digital wealth offering, what does it take to win in Singapore?

As Asia gets richer, people are looking to put their financial assets to work. In Singapore, in particular, people have more choices than ever due to the emergence of WealthTechs. An ever-growing number of firms are using innovative technologies, such as artificial intelligence, to help individuals with various forms of personalised financial offerings. By 2028, $700b of additional investment is expected to flow into these WealthTechs, with cross-border flows to Singapore reaching $1.1t. 

These trends present a challenge to traditional banks—and an opportunity. To explore these dynamics, McKinsey surveyed 1,000 consumers, conducted proprietary research, and had in-depth conversations with industry leaders in Singapore and other Asian markets. The findings found four key insights, which banks need to keep in mind as they navigate this fast-changing landscape.

Consumers value digital options but are very price sensitive. Almost half of those surveyed said they would be willing to pay no more than 10-20% of traditional bank fees for digital services; that figure is even higher amongst those under the age of 45. About 20% of the respondents are budget-conscious and see WealthTechs as a low-cost and trusted alternative. Those who value digital are typically the more cost-conscious customers, even if they are not necessarily self-directed. That has significant implications for banking business models; if profit margins narrow, they need to find more new clients. Banking wealth management is now concentrated on high-net-worth individuals; a less expensive cost model could draw in the affluent, a segment that is projected to account for a third of financial assets by 2028. In 2023, McKinsey estimated that wealth management platforms of any kind serve only 15%-20% of this cohort.

Staying out of the space is not an option; digital capabilities are expected, even by resolutely analog consumers. “If you don’t have it, you don’t get the business done,” notes Patricia Quek, head of UBS Global Wealth Management Singapore. “You snooze, you lose.”  Building a digital wealth capability is not just a matter of providing a useful app. It is about understanding the customer journey and being prepared to go along with each client every step of the way. 

There are also implications for WealthTechs. Their combination of relatively low costs and relatively high personalisation is a major attraction. New competition, including from traditional banks, could put pressure on WealthTechs to expand their products and services—think advisory on demand and personalisation at scale—which could raise their costs. 

Consumers are worried about risks. Almost seven in 10 respondents said that they were concerned about data security, and six in 10 said they worried about the reliability of technology. Banks and WealthTechs need to account for risk in their digital operations, or they could end up destroying more value than they create. 

One priority is to ensure that the risk, security, IT, and business units work together. Another is being forthright with customers on asset holdings and control, meaning what the rules are in terms of withdrawals, transfers, and exit fees. When it comes to their money, people do not like surprises. 

The human dimension still matters. Whilst 80% of those surveyed said they trusted their digital wealth managers, almost half said digital-only was not enough: they also wanted to be able to call on people for complicated decisions or other kinds of support. Samuel Rhee, cofounder and chairman of Endowus, a Singapore-based digital wealth platform, says, “There is a need for digital wealth platforms to be both fully digital and fully human, as clients can switch seamlessly between the digital and human experience.” 

Collaboration is the future
For banks, the emergence of WealthTechs is deemed a fresh source of competition as they break ground by expanding into the HNWI segments. That said, WealthTech also faces mounting pressure from banks as they flex their digital muscle that is focused on a holistic and customer-centric approach for wealth management. Increasingly so, both banks and WealthTechs are seeing their worlds converge and the unique opportunity to collaborate as they expand across the wealth continuum.

WealthTech companies are beginning to forge B2B partnerships with traditional financial institutions. Successful partnerships are focused on accessibility, affordability and advancement. For example, banks are now expanding to the affluent and mass affluent segments, while WealthTechs are expanding their reach to HNWI+ segments. 

Jason Moo, CEO of Bank of Singapore, emphasised, “Currently, our main focus remains providing comprehensive wealth management solutions to HNWIs with a highly bespoke, holistic and customer-centric approach. That said, there are definitely growing opportunities for the industry to tap into the affluent market with the help of WealthTech platforms.”

The digital wealth segment is poised for rapid developments in the next three to five years. By seizing the opportunity and considering the risks associated with the shifting consumer landscape in wealth management, banks and WealthTechs together can reach the common goal in growing Asia’s overall wealth management ecosystem.

Bernhard Kotanko is a Senior Partner in McKinsey & Company’s Hong Kong office, Joydeep Sengupta is a Senior Partner in McKinsey & Company’s Singapore office, and Vishal Kaushik is an Associate Partner in McKinsey & Company’s Singapore office.