A global survey of bank CEOs by KPMG highlights a commitment by senior to pursue innovation – with two-thirds saying technological disruption is an opportunity. Seventy percent acknowledged plans to increase investment into their digital infrastructure, emerging technologies, and product and service innovations.
“Eighty-one percent told us they plan to increase investment into data and analytics (D&A) over the next three years while 72% suggested they would increase investment into internet of things (IoT), and 66% said investment would go to cognitive technologies,” said Anton Ruddenklau, global co-leader, Fintech at KPMG International.
Banking executives share similar commitments. “By 2021 about 60% of Tier 1 banks and insurance companies in the Asia-Pacific region (excluding Japan) will deploy intelligent automation solutions with the goal of achieving exceptional business value and deliver a more real-time, contextual customer-experience,” said Sneha Kapoor, research manager, IDC Insights for Asia-Pacific.
Robo-advisors – opportunities and challenges
The PwC report ‘Asset and Wealth Management 2025: The Asia Awakening’, predicts that Asia-Pacific assets under management (AuM) will grow from US$15.1 trillion in 2017 to US$29.6 trillion by 2025. The caveat is that protectionism remains limited and geopolitical activity remains relatively sanguine, in which case AuM will reach US$18.1 trillion in 2025, a 39% drop from optimistic estimates.
KPMG opined that dedicated robo-advisors recognize that focusing on AuM is not going to make them game winners in the event of a downturn. Expect to see some of the larger robo advisors expand their services to cater to the shifting needs of clients.
Speaking to Fintech Innovation on the evolving role of automation tools in the financial services industries, Kapoor concedes that traditional players with hybrid advice model are more likely to dominate the market in terms of assets under management (AUM). The few robo-fintechs that survive will follow the model of their peers in the United States, evolving to operate as hybrid or wholly automated full-stack platforms with better financial planning services.
A recent study done by IDC Financial Insights on robo-advisory in the Asia/Pacific region looked at over 70 robo-advisors in the region in November 2017, 10% of which no longer exist six months later.
Kapoor added that robo-advisory has not yet gone mainstream in Asia/Pacific. She is certain it will take a long time before the current robo-advisory model matures into an advanced level of portfolio design and investment.
Eventually, it will add more asset classes and investment options and offer more power to investors to customize their portfolio in a real sense. Positive drivers and strong regulatory support will ensure that the ideal time required to mature into advanced robo-advisory model is considerably reduced.
According to IDC digital technologies, new data analytical tools, and the upcoming age of AI and machine learning to enhance intelligence and other abilities of robo-advisors in achieving alpha returns and delivering consistency for investors.
“In 2019, we expect more favorable movement in the above-mentioned growth drivers. We believe that as robo-advisory gains ground in Asia/Pacific, the lowering fees, coupled with high operating and client acquisition costs and overcrowding in the marketplace, will push at least 60% of the B2C platforms toward new models (it could be a B2B model with a white label component or a B2B2C model). However, it appears that hybrid advice will be the winning strategy moving forward, and traditional players with this offering will dominate the market in terms of AUM,” countered Kapoor.
Best way to compete
Kapoor advice players intending to compete by using robo-advisory capabilities need to create differentiation. The battle might very quickly move into which has the best algorithms for portfolio optimization, portfolio selection, and investments.
“We simply cannot see how "superior customer experience" can be the primary differentiating factor in wealth and asset management moving forward. In contrast to robo-advisory in the United States and Western Europe, robo-advisory has not yet gone mainstream in Asia/Pacific. It has mostly been used for limited, less complex advice at present. With the growing wealth and middle class in this region, there is a greater need for fund houses and capital market firms to drive product innovation and services differentiation,” she elaborated.
Currently, the variation in product mix is limited compared with other advanced markets, and the penetration of ETFs or mutual funds continue to be low. This allows for a basic diversification strategy and, in some cases, even a tax loss harvesting strategy.
IDC believed that robo-advisory ought to become an integral part of a business strategy for any wealth management firm to be future-ready, regardless of the size of assets, breadth of operations, or the number of years in existence. Traditional firms need to start with defining the value proposition of robo-advisory for their existing and future business. Other key decisions to be made concern partnerships (with existing robo-advisory companies and technology providers), the revenue model, customer channels and risk mitigation.
Perhaps the 2019 Accenture Global Financial Services Consumer study best sums up the ideas shared here: Building ecosystems is a vital part of becoming an adaptive “living” business— one that evolves quickly to adapt to changing customer needs and behaviors. Doing so effectively relies upon a number of key technologies, including application programming interfaces (APIs), artificial intelligence (AI) and robotic process automation (RPA). It also requires a mindset shift for organizations that are used to working in a more independent and competitive manner.
Yet organizations that are able to make this shift are more likely to be able to upgrade their innovation capability, allowing them to develop services that inspire higher customer loyalty.