There is a growing need for the management of assets such as equity, fixed income, commodities, and international investments, which are some of the key factors that increase the deployment and adoption of digital wealth management solutions across the globe. We can also attribute this to other factors that include the rising global demand for fast and seamless processes across industries like transport, retail, hospitality, media and healthcare.
It is not surprising that Asia Pacific is expected to emerge as the fastest growing market in the period 2018–2026, according to the Transparency Research Market report. Fast-growing economies like China, India and Japan have moved ahead of the curve towards digital solutions across industries like finance and banking being a key driver. Within the financial services industry, 57.1 per cent of the wealth firms are undergoing digital transformation into hybrid advice, an aspect highly requested by HNWIs (High Net Worth Individuals). In Southeast Asia, Thailand has been one of the most progressive countries that have moved quickly towards digital banking¹.
The Thai banks are often seen as the first movers for digital transformation in the region. In the area of wealth management, they have been active to disrupt the space over the past five to seven years. A few of the sound local financial services industry players already have their own independent applications or platforms that have been developed for their asset managers and have been integrated into their day-to-day operations. Such platforms are yet to be seen in some of the other Southeast Asian countries. Recently, one of the leading Thai banks announced its plans to reduce its number of branches to 400 locations nationwide, which is an impressive step as it will lead to reducing the operational cost and put the focus on digital transformation. Most of the major banks in Thailand have invested heavily in technology, particularly areas like Blockchain, Artificial Intelligence and Big Data. Digital wealth management is also another area that major banks have started to look at seriously in the recent past.
Digital Banking in Thailand
In a recent study conducted by Moody’s², Thai consumers are increasingly adopting digital banking transactions amidst an improvement in Internet and mobile penetration — as mobile and Internet banking grew 8 per cent since 2010 to account for over 33 per cent of the total payment transaction volume for the first nine months in 2017. In the same report, Thailand’s increasing usage of digital banking channels since 2015 reflects the banks’ increasing focus on digital strategies. In 2014, banks like the Kasikornbank Public Company Limited (KBank) began investing around THB480 million annually to enhance its digital banking services. As of 2017, KBank had 7.3 million users on its mobile banking channel, recording three billion transactions, during the year. Siam Commercial Bank Public Company Limited has close to THB40 billion set aside to enhance its digital banking capabilities.
There are three main reasons why banks, securities firms and investment companies are looking at digital wealth management platforms. First of all, the digital platform can help to attract clients by providing wider access to more investment baskets. Second is the ease of management — for the asset manager who is now able to manage and monitor multiple accounts, understand the client’s behaviour better and thereby increase the product offerings. Being able to give two-way advice helps them deepen their relationship with existing clients. Moreover, banks, brokers and asset managers can add advisory services which are now digitally enabled, eventually leading to an increase in revenue. The third, being the cost of services is more effective. It is true that they might need to make a huge investment to develop the system in the beginning. But eventually, they will have a far more efficient and effective way of running the assets under a sustained and engaging platform. A point to be considered is that managing all costs of services is not about reusing, but it is more of increasing its performance by three-fold to four-fold without having to increase the manpower resources to serve the growing number of clients — in simple terms, to manage the scaling at a nominal cost.
To give an example, a Singapore-based bank may have to hire 20–30 staff in a team to manage US$400 million to US$500 million assets. But if they adopt the digital wealth management platform, they may need only four to five staff to run it.
In Thailand, the smartphones adoption rate is huge with a projected 10 per cent increase to 76.4 per cent by 2021³, where the investor is tech-savvy and looks for the right value. Hence, this has led to Thai banks being far more receptive and adaptive to good offerings driven through technologies.
Preference for Self-directed Investment
On the customer’s end, Thai investors prefer to make their own investment decisions and like to invest more in the financial market than traditional areas like real estate. Around 60 to 65 per cent of trading volume on Thai bourses has been done through retail investors, compared to Singapore where retail traders represent less than one-third in its financial market. This reflects a certain amount of self-direction and initiative from the retail market to research, and invest directly on their own.
The Thai high net worth investors are becoming a huge draw. As per a recent report by PwC⁴, the Thai consumer has been a big investor in mutual funds. Both local funds and Foreign Investment Funds (FIFs) have been growing in tandem but FIFs grew more rapidly than local funds. Between 2008 and 2017, FIFs saw a higher average year-on-year growth of 18.7 per cent as compared to the average year-on-year growth of local funds at 14.2 per cent. It also highlights that the Thailand mutual fund market is built on a close network of local asset managers who belong to asset management arms of large local banks. The report had key takeaways which highlighted that the Thai investor was seeking more diversified portfolios. For the Thai banks, even though they remain closed in terms of distribution, they will inevitably have to shift towards an open architecture as the market matures. This will lead to foreign asset managers being able to access the market with greater ease. Lastly, the introduction of mandatory provident funds in 2018 is expected to boost assets in the provident fund space. Incidentally, the allocation to investment funds by provident funds have increased significantly in the last five years — signalling fresh opportunities for asset managers.
In a couple of years, we will see drastic changes in how an investor or a bank will manage wealth. There is going to be a lot of mass personalisation and customisation so that almost every single customer can be provided with a unique solution that has been carefully handcrafted by the financial services industry. To be able to propel this change is why digital wealth is needed — and this is where the investor or banks will adopt a more efficient way of managing wealth.
The author of the above is Bhaskara Prabhakara, CEO & Co-Founder, WeInvest, a leading Southeast Asia based digital wealth solutions firm.
