The State of WealthTech in Southeast Asia
Driving Digital Wealth Management: How Southeast Asia’s FinTech Ecosystem is Shaping the Future of WealthTech
Co-authors: Liam Reeve, PhD Candidate, The University of Hong Kong; Urs Bolt, WealthTech Expert
Throughout 2024, the WealthTech landscape in Southeast Asia has continued to evolve. However, there is a sizable gap between the developed financial centres and emerging economies in Southeast Asia. This article will provide a closer look at the current state and developments of WealthTech in Southeast Asia.
WealthTech Developments
WealthTech firms are ready to potentially shake up Southeast Asia. A McKinsey survey revealed that up to $700 billion of wealth from mass affluent and high-net-worth individuals throughout the Asia Pacific is expected to shift from traditional financial institutions to WealthTech firms. The survey highlights the growing trust in digital wealth platforms, with 80% of respondents citing benefits like cost-effectiveness, transparency, and personalized strategies.1
Recently, the authors see five main recent developments within the region.
AI and Machine Learning: Wealth managers and WealthTech firms are increasingly leveraging artificial intelligence (AI) and machine learning to provide personalized investment advice and enhance customer experiences. This trend, which includes robo-advisors, is expected to continue as firms seek to differentiate themselves in a competitive market.2
Alternative Investments: New asset classes and the wider availability of alternative investments to a wider section of the public is further democratizing investment opportunities. In particular, private capital, including private equity and debt, are becoming key components of more investment portfolios in Asia. Tokenization, as well as crypto and other digital asset management services is projected to be a $16 trillion business by 2030.3
Digital Platforms: Asia, including Southeast Asia, is well-known for its mobile platforms. Now, digital wealth platforms are expanding across Southeast Asia. Companies such as Singapore’s StashAway are increasing their market share4, while Ajaib in next door Indonesia is also growing. Many of these platforms are collaborations between incumbent finance institutions and WealthTech start-ups. These platforms are increasingly democratizing access to wealth management services across the region.
Incumbency WealthTech: Family offices5 and other incumbent financial institutions are further embracing WealthTech. Private bankers, wealth managers, and asset managers are dealing with digitization processes and how to best serve clients in an environment fast becoming more and more technology-necessitated.
Regulatory Landscape: Southeast Asia has seen significant regulatory developments in WealthTech. In one of the world’s fastest growing economies, Indonesia’s Financial Services Authority (OJK) enhanced regulations for digital financial services, including for digital assets. Other financial authorities throughout the region in countries such as the Philippines, Singapore, and Malaysia are also advancing regulatory changes. These efforts aim to foster innovation while ensuring consumer safety and market stability.
Singapore continues WealthTech dominance
Singapore has continued to dominate WealthTech markets. This is unsurprising, as flows of funds are prone to go into established markets. In Southeast Asia, that established market is Singapore.
The growing number of WealthTech firms in Singapore and throughout Southeast Asia can be seen in the Fintech Maps published by Fintech News7. This includes companies focusing on investment platforms, robo-advisors, and digital asset management services. Notable entrants have emerged, enhancing competition and innovation within the sector. VC investment is still strong within this region, while by contrast Europe has seen a substantial decrease.
The significant influx of wealth into Singapore has been driven by ultra-high-net-worth (UHNW) and high-net-worth (HNW) families in the Asia Pacific region. The favourable regulatory environment, tax benefits, and mature financial ecosystem in Singapore makes it an attractive destination for wealth management, and the flourishing of WealthTech firms.8,9
On the horizon, the authors are interested in how Singapore and other financial centres in the region will handle the massive intergenerational wealth transfer expected in the coming years. Between 2023 and 2030, an estimated $5.8 trillion in intergenerational wealth transfer is expected. Of this $5.8 trillion, 60% of the funds are held by UHNW families. In APEC, Singapore and Hong Kong are emerging as key hubs for family offices10, approximately 4000 between the two11, with the number having quadrupled since 2020. We expect that leading and rising financial centres in the region to lure new investment structures and family office entities.
Although the favourable regulatory environment, tax benefits, and mature financial ecosystems in Singapore makes it an attractive destination for wealth management, there are still challenges. Weak governance, rising operational costs, limited access to alternatives for diversification, insufficient understanding of insurance and related products, and out-of-date technology are key challenges.12
Slower growth in Southeast Asia emerging markets
There is a stark contrast between the established financial centres of Asia’s continuously increasing asset bases, and the emerging nations of the region.
Despite continued economic growth in most of the ASEAN countries, WealthTech has yet to pick up for the mass affluent. The focus for many financial institutions and FinTechs is still on basic banking and payments.
However, there has been a significant increase in the adoption of digital financial services in certain countries. A recent survey of Filipinos indicates that over 70% of respondents are using at least one digital financial service, with many turning to WealthTech solutions for investment management and financial planning.13
Regarding the remaining untapped market, several reasons for this include:
Family-owned Businesses: In several Southeast Asian nations, family conglomerates own entire sectors of a country’s economy. The ultra wealthy, often in the third or fourth generations, have their own established wealth managers. At the same time, the nouveau riche, often tech entrepreneurs, are getting access to digital investing opportunities in the established financial centres (i.e. Singapore).
Savings and Financial Literacy: Unfortunately, consumers in many Southeast Asian nations have a lack of cash flow necessary to build and increase wealth. And even for those who have made some money in recent years, many lack the financial literacy to begin to think about investments. Financial literacy in Southeast Asia faces critical gaps requiring focused education and stakeholder collaboration.14 Despite progress in digital finance and government strategies, sustained efforts are needed to empower individuals to make informed financial decisions.
Regulatory Landscape: Many nations lack the necessary regulation to make WealthTech thrive. However, nations such as the Philippines15 are updating regulations to better accommodate digital financial services. The Philippines Securities and Exchange Commission (SEC) is increasing consumer protection, improving data privacy, and looking to create a more favourable environment for WealthTech innovations16. Tokenized assets is one area where the regulatory landscape is especially crucial; firms like Libeara17, which seek to tokenize traditionally high-barrier assets to the general public, cannot operate without the regulatory foundation.
The opportunities for WealthTech in SEAs EMs
There are a number of noteworthy activities and initiatives paving the ground for the proliferation of investing for the masses by digital capabilities.
Emerging Mass Affluent Segment: In the long-term, there is a substantial opportunity for WealthTech firms to target the emerging mass affluent demographic, many of whom are currently un- or underbanked. By providing accessible digital wealth management solutions, these firms can promote financial inclusion while catering to an emerging class of investors seeking wealth building opportunities.
One example is the digital investing app Ajaib in Indonesia, which offers an investment universe that already serves almost 3 million investors in Indonesia. The platform provides curated mutual fund recommendations based on historical returns and the track record of fund managers. While emphasising that users should understand the risks, as past performance does not guarantee future results, this further democratizes investments for millions in Indonesia.
Whereas most digital investment platforms and apps in SEA offer trading and investing in single instruments, StashAway makes a difference. Headquartered in Singapore, with a presence in Malaysia, Dubai and Hong Kong.4 StashAway’s mission is to empower people to accumulate and manage wealth for the long-term. Its automated investment engine helps people to better manage their savings in an intelligent, simple, transparent, and cost-efficient way.Alternative Assets: Southeast Asian investors are increasingly interested in alternative asset classes, including crypto and crowdfunding assets. These trends are reshaping traditional investment portfolios, especially as more platforms start offering these products.
Collaboration among FinTechs: Collaboration between FinTech companies is on the rise, with many start-ups forming strategic partnerships to enhance service offerings. These partnerships often focus on integrating complementary technologies or expanding market reach. Superapps are on the forefront as they seek to expand their user base. One example is Libeara, which is operated by SC Ventures (SC stands for the large multinational bank, Standard Chartered).
Regulatory landscape: Challenges and opportunities
In 2024, the regulatory landscape for providing financial advice across ASEAN countries, particularly under the context of passporting regulations, has evolved significantly. Here are the key aspects of this development.19
Improved Cross-border Services: An ASEAN Collective Investment Scheme (CIS) Framework allows fund managers licensed in one ASEAN country to offer collective investment schemes in other member states with minimal regulatory hurdles. This framework aims to facilitate cross-border investment and is a significant step towards harmonizing regulations across the region. This arrangement simplifies the process for firms looking to expand their reach within Southeast Asia, fostering greater competition and innovation in wealth management.15,20 As of 2024, at least 10 funds have been registered under this framework, demonstrating its effectiveness in promoting regional investment opportunities.14,21
Increased Focus on Consumer Protection: Many ASEAN nations are enhancing their regulatory frameworks to further protect consumers. This includes stricter guidelines for financial advisors and wealth management firms to ensure transparency and ethical practices in providing financial advice. Countries like Singapore and Malaysia have been at the forefront of these developments, implementing comprehensive regulations that govern financial advisory services.15
Technological Integration and Adoption of Digital Platforms: The rise of FinTech solutions is influencing regulatory approaches. Regulators are increasingly recognizing the need to adapt existing frameworks to accommodate digital financial services, including robo-advisors and other automated platforms that provide financial advice. This shift is evident in countries like the Philippines, where digital banking and FinTech are rapidly evolving.22,23
Despite advancements, the regulatory landscape remains fragmented across ASEAN countries. Each member state has its own set of rules governing financial advice, which can create challenges for firms seeking to operate regionally. Navigating these diverse regulations requires careful consideration and compliance efforts from financial advisors and WealthTech companies.17,25 Regulatory progress is imperative to create pan-Southeast Asian players in WealthTech.
WealthTech’s long-term future is bright in SEA
In the years to come, WealthTech in Southeast Asia will be characterized by innovation, regulatory support, and increasing consumer engagement with digital financial services. There are many reasons to be optimistic about WealthTech in Southeast Asia. But patience is advisable.
Continued Evolution – As digital adoption increases and consumer demand for personalized financial services grows, regulators in ASEAN are expected to continue refining their frameworks. This may include more comprehensive guidelines on digital advisory services and enhanced collaboration among member states to streamline regulations further.
In summary, while the state of regulation for providing financial advice in ASEAN countries has improved, challenges remain due to varying national regulations. The ongoing evolution towards digitalization and consumer protection will shape the future landscape of WealthTech and financial advisory services in the region.
In the increasingly tensioned geopolitical landscape, Southeast Asian nations should continue collaboration for mutual benefits. However, this should be done without the overregulation hampering other economic blocs, such as the European Union. Cooperation among the ASEAN countries can be beneficial for all stakeholders with the broad populations of this region as the main beneficiary.
Citations:
A wake-up call to tap into digital wealth, McKinsey, October 2024: mckinsey.com/featured-insights/future-of-asia/a-wake-up-call-to-tap-into-digital-wealth
AI in Wealth Management, survey by Wipro, IBS Intelligence, IBS Intelligence, November 2024: https://ibsintelligence.com/ibsi-news/wealth-management-firms-set-to-double-ai-budgets-eyes-on-personalisation-compliance/
Rise of crypto custody, Business Times Singapore, November 2024: Rise of crypto custody as more financial institutions enter digital asset space
The Sun Malaysia, 2024: https://thesun.my/business-news/stashaway-high-net-worth-malaysians-now-more-receptive-to-digital-investment-platforms-IA13313931#google_vignette
Asia–Pacific’s family office boom, McKinsey, September 24: mckinsey.com/industries/financial-services/our-insights/asia-pacifics-family-office-boom-opportunity-knocks
Fintech Start-up Maps by Fintech News: https://fintechnews.sg/asias-fintech-startup-map/
Asia–Pacific’s family office boom, McKinsey, September 24: mckinsey.com/industries/financial-services/our-insights/asia-pacifics-family-office-boom-opportunity-knocks
Business Times Singapore, November 2024: https://www.businesstimes.com.sg/companies-markets/banking-finance/singapore-fintech-festival-2024/private-capital-new-portfolio-must-have
Asia–Pacific’s family office boom, McKinsey, September 24: mckinsey.com/industries/financial-services/our-insights/asia-pacifics-family-office-boom-opportunity-knocks
Malaysia Jumps on the Family Office Bandwagon, Finews Asia, November 2024: https://www.finews.asia/finance/42321-malaysia-family-offices-eam-bankwagon-hong-kong-singapore
Asia–Pacific’s family office boom, McKinsey, September 24: mckinsey.com/industries/financial-services/our-insights/asia-pacifics-family-office-boom-opportunity-knocks
Survey by Digido via Business World, 2024: https://www.bworldonline.com/banking-finance/2024/08/30/616948/around-80-of-filipinos-seen-adopting-mobile-fintech-services-by-end-2024-digido-says/
Study by Milieu Insight, 2024: https://www.mili.eu/ph/insights/new-study-highlights-financial-literacy-gap-in-southeast-asia
New Regulations and Wealthtech Opportunities in ASEAN, Urs Bolt, September 2024, Fintech News: fintechnews.ph/64754/wealthtech/crossing-border-investments-new-regulations-and-wealthtech-opportunities-in-asean/
SEC Philippines, 2022: sec.gov.ph/pr-2022/sec-welcomes-enactment-of-financial-consumer-protection-law/
The Asian Banker, 2024: theasianbanker.com/video/libeara-on-democratising-access-to-asset-tokenisation
Finhay, via KrAsia, 2020:: kr-asia.com/vietnam-fintech-startup-finhay-raises-funding-led-by-acorns-co-founder
New Regulations and Wealthtech Opportunities in ASEAN, Urs Bolt, September 2024, Fintech News: fintechnews.ph/64754/wealthtech/crossing-border-investments-new-regulations-and-wealthtech-opportunities-in-asean/
Global Financial Services Regulatory Guide, Baker McKenzie, 2024: resourcehub.bakermckenzie.com/en/resources/global-financial-services-regulatory-guide/asia-pacific/singapore/topics/what-financial-services-passporting-arrangements-does-your-jurisdiction-have-with-other-jurisdcition
CIB, BNP Paribas, 2024: securities.cib.bnpparibas/asia-region-funds-passport-arfp-regulation-memo/
Fintech News, 2024: fintechnews.ph/64007/fintechphilippines/philippines-fintech-report-2024/
Urs Bolt, Fintech News, 2024: fintechnews.ph/61107/wealthtech/navigating-2024-trends-in-wealthtech-and-wealth-management-a-southeast-asia-perspective/
FinTech Global, 2024: fintech.global/2024/07/23/what-regions-are-the-most-exciting-for-wealthtech-in-2024/