From BigTech to Challenger Banks: Why WealthTech is the Goal

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BigTechs and challenger banks have opened a Pandora’s box of customer expectations. All customers, but in particular the Gen Y and younger generations, demand a seamless, real-time and hyper-personalised experience that complements their digital lifestyle.

BigTechs have been quick to capitalise on gaps between customer demand and banks’ offerings, and are also providing reasons for these customer segments to adapt to various banking services – including wooing the wealthy.

Elias Ghanem, Global Head of Market Intelligence, Capgemini Financial Services outlines findings from the annual Capgemini World Wealth Report and answers whether high-net-worth individuals (HNWI) should consider a wealth management offering from BigTech. 

Figure 1: Top reasons customers adopt banking services from non-traditional players

The success of BigTechs is a result of these players focusing more on customer pain points. They have played to their strengths and extensively leveraged data to deliver customer-centric experience, also by developing evolving platforms to offer customers a convenient, personalised experience.

Figure 2: BigTechs leverage high-impact capabilities

BigTechs are moving from “disruptor” to “mature competitor” in financial services, and have been taking initial steps in wealth management too

Many of these players broke into the market with a single offering (often payments) and then ventured into lending, savings, wealth management, and beyond. Tech giants are now aggressively growing their presence through investment in Fintechs globally.

Figure 3: BigTechs – from disruption to maturity

It is not clear at this point if BigTechs want to enter the wealth management industry as competitors or partners. If it is the former scenario, then one fact we do know is that they will pose formidable competition to incumbent firms. The World Wealth Report 2020 by Capgemini found that 74% of HNWIs globally are willing to consider wealth management offerings from BigTech firms. This number rises to 94% for HNWIs who are already considering switching their primary wealth management provider in the next 12 months. After being asked which BigTech would HNWIs consider starting a wealth management relationship with, Google (56%) was found to be HNWIs’ desired choice as a BigTech WM provider, followed by Amazon (52%) and Microsoft (48.3%).

Figure 4: HNWIs are very open to adopting wealth management offerings from BigTech firms, by region (%), Jan–Feb 2020

HNWIs are dissatisfied with their experience at various touchpoints across their wealth management journey, especially at touchpoints related to personalised information or services delivery. HNWIs aged 50–59 were the most dissatisfied with their experience at touchpoints related to information access and value-added services. In terms of regions, the lack of satisfaction was most pronounced among HNWIs in Europe (more than 65%) and Japan (more than 80%). This dissatisfaction may intensify during the pandemic crisis as demand for digital services mounts. 

Worryingly for wealth management firms, these are the very same touchpoints where HNWIs feel that the BigTech firms can do a much better job at providing an excellent service.

Figure 5: HNWIs believe BigTechs outpace (pp) incumbent wealth management firms in wow-ability, Jan–Feb 2020 (global)

At the same time, there have been recent instances of partnerships between wealth management and BigTech firms too. Ant Financial Services Group partnered with Vanguard to bring a new streamlined and broadly-available investment advisory service to retail consumers in China. Fidelity Labs collaborated with Amazon to create a virtual reality financial advisor, Cora. Such partnerships are mining the strengths of both players to create win-win scenarios.

To finally answer whether BigTechs are friends or foes, we think wealth management firms have to approach BigTechs with both perspectives. They need to strengthen their digital capabilities and bridge CX gaps to better prepare themselves for potential competition with BigTechs. Still, they also have to realise the opportunities of a collaboration-driven future of Open X, where firms can play various ecosystem roles by tapping into strengths of BigTechs.

Figure 6: Entering the era of Open X

Open X helps firms leapfrog the compliance-driven open banking environment to prioritise the customer experience to product launch, focus on data more than on their physical assets, embrace partnerships versus a build/buy mindset, and give precedence to shared access, rather than exclusive ownership of property or capabilities. 

A smooth transition to Open X collaboration is essential for wealth management firms. It will spark opportunities for them to rethink their operating models to delight the clients while optimising for returns. In an uncharted and uncertain future, firms who are ready to reinvent themselves and adapt to their evolving ecosystem will be best positioned for success.

Open X helps firms leapfrog the compliance-driven open banking environment to prioritise the customer experience to product launch, focus on data more than on their physical assets, embrace partnerships versus a build/buy mindset, and give precedence to shared access, rather than exclusive ownership of property or capabilities. 

A smooth transition to Open X collaboration is essential for wealth management firms. It will spark opportunities for them to rethink their operating models to delight the clients while optimising for returns. In an uncharted and uncertain future, firms who are ready to reinvent themselves and adapt to their evolving ecosystem will be best positioned for success.

  • Managing Editor, North America at The Fintech Times

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