Singapore suffers from an advice gap, one also seen in developed markets like Hong Kong, Australia and the UK.
While there is a significant amount of wealth in Singapore, a disproportionate amount of attention is shown to high-net-worth individuals, and wealth managers are missing an opportunity to serve the retail and mass affluent markets.
As Eric Mellor, APAC wealth management specialist at Temenos, tells DigitalEdge Singapore: “There is still a fairly hefty social divide between the very rich people on one end of the street and the mass affluent.”
The Briton has spent more than a decade in Singapore in various roles at MitonOptimal Asia, Avaloq and HSBC Global Asset Management before joining Temenos in June 2019.
Created in 1993, Temenos is a Geneva-headquartered company specialising in enterprise software for financial institutions. The company counts among its clients 41 of the top 50 banks globally. Some of its clients include Julius Baer, Credit Suisse, Bank of Singapore and Standard Chartered.
In an interview at last month’s Temenos Community Forum 2022, Mellor notes that Singapore, as an international financial hub, is served by many private banks.
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But when serving the retail customer, where there is a “much lower margin potential”, banks are stumped, Mellor adds. “That space is getting a lot of attention now because to serve the retail customer segment, you need to strip away all the costs. You are looking at a high-volume business where the sizes of the investments made are much smaller.”
Here, Mellor proposes Temenos’ suite of modular software, known in the sector as composable banking. This is an approach to the design and delivery of banking services that lets their clients pick and choose components from the cloud when building their suite of financial services. “This offers a huge opportunity for companies like ours that can deploy software to help banks to automate a lot of processes in their wealth management journey.”
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According to Mellor, Temenos’ products cover a range of considerations — “How can we onboard a customer digitally and [in a] paperless way? How do we do it in a way that’s seamless and breezy? How can we measure customers’ attitudes towards investment risk? How can we build and deploy a model portfolio for them?”
These features come together for a positive customer experience, says Mellor. “How can we rebalance portfolios in a way that’s fully automated, obviously at a low cost, but still meet all the regulatory requirements, while providing the customer with an engaging experience and a feeling that they’re buying something that’s useful [and] happy with?”
That said, Mellor is also mindful that not everything can be left to technology. “I think that it’s fine if you have a customer who’s only looking for an investment. But when you start expanding those requirements into things like general financial advice, I don’t personally feel that technology is the whole solution.”
While it may be cheaper than opening a physical bank branch, using technology is not a silver bullet, he adds. “People will always want face-to-face advice. It’s hard to fully automate everything in wealth management because it’s a very complex business area. It’s not like opening a bank account and taking some cash out; there are a lot more moving parts.”
In-house solutions vs composable banking
Granted, some large banks may hear Temenos’ offer and choose to develop inhouse solutions. But building such banking software from scratch may take up to half a decade, says Alexandre Duret, product director of wealth management at Temenos.
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“Today, they have the data, but it’s not in a form that they can exploit readily — they need the technology in place,” says Duret to DigitalEdge Singapore. “In our experience, a programme like this could take four to five years. That’s why we believe we have a better [and] more simple approach of coming with packaged [or] ready-made data hub and models.”
Large banks may want to hire their own data analysts and specialists, “but for everybody else, I think we have the right approach”, says Duret.
The Temenos umbrella includes partner fintechs that specialise in various segments of banking. “These range from customer engagement, reading documents automatically to speed up onboarding, video calls to identification; we can readily plug all these things into [clients’] systems. So, it’s quite easy for the banks now to modernise the whole onboarding workflow without too much effort.”
Burning ships and Covid-19
For a company like Temenos that espouses technology, the pandemic was a “wake-up call” for their clients (that is, the banks) to embrace digitalisation, says Mellor. “They can survive without having a significant brick-and-mortar presence.”
Increasingly, basic banking tasks are being pushed onto self-service digital channels, he adds. “I think a lot of the banks will realise that if they get that right, it will be a significant cost-saver for them. For the most part, a lot of clients are happy to work that way as well. Certainly, the younger, more tech-savvy, mobile-native customers are happy to engage in that model.”
Duret paints a more dramatic picture. “One of our clients was talking about burning ships, like the Spanish invader [Hernán Cortés] going to South America [in 1519] and burning the ships to make sure they would not go back. That was the analogy. There’s no turning back.”
Neobanks and new kids on the block
Interest in wealth management technology has “exploded” in the Philippines, Indonesia and Thailand, says Mellor. “There’s less and less of a social safety net, there’s an emerging middle class, there’s rising income levels and there’s growing levels of financial literacy across all of these emerging markets.”
With more disposable income, new investors are emerging from these emerging markets, seeking out neobanks, says Mellor.
“Neobanks are essentially branchless, so they’re already at an advantage because they’re stripping away a lot of costs. But they’re currently in growth mode, looking to scale as quickly as possible. They’re almost running a Facebook-style freemium model, where they may not be making a huge amount of money, if at all, but they offer high rates of interest to entice new customers to use them for their day-to-day banking services,” he adds.
In order to turn a profit, the next step for neobanks is to introduce higher margin products, says Mellor. “One of the areas we expect to see them move into next would be wealth management. We’re already having some interesting conversations with the region’s neobanks, [which intend to] do so on an ultra-low price point by automating as much as possible. We expect to see a lot of growth in APAC and the Middle East over the next three to five years.”
One name Singaporean investors may be familiar with is Syfe.
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Notably, the robo-advisor launched a brokerage service earlier this year, reintroducing itself to customers as a self-styled neobank.
Mellor commends the expansion. “They established themselves as a wealth management business and realised it was something they were very good at. But it’s a very competitive space, so I think they recognised — quite rightly — that if they were also able to leverage technology to reduce cost, it would open up a much bigger potential market for them.”
Singapore will soon see more new kids on the block as the four digital banks awarded licences in late 2020 go live this year.
Grab, co-recipient of a digital banking licence along with Singtel, unified its financial services under the new GrabFin brand on May 23. The main challenge all digital banks face is building trust, says Mellor. “When you don’t have that branch network [and] when it’s not possible to stroll in and meet somebody face-to-face, then you have to overcome that barrier.”
He adds: “But we’ve probably all given Grab our credit card details already? So, we feel a little more comfortable doing that.”
The second challenge, Mellor says, is the ability to scale. “Most digital banks will enter the market with low-margin products like current accounts and savings accounts [before] gradually introducing products with a slightly higher margin to break into profitability.”
With Singapore’s three established banks present, Mellor notes that “it’s definitely not the easiest landscape” for new entrants like the Grab-Singtel joint venture. “But they’re definitely well-positioned to take advantage of an extraordinary amount of customer data.”
“They probably already have everybody’s age, occupation, [address,] phone number and credit card details. So, intuitively, it just makes sense for them to go into that space,” says Mellor. “I think companies like Grab and Singtel will be able to further enhance that sort of day-to-day business like a Chinese mega-app.”
“I mean, we saw it already with Grab. They started out as a ride-sharing app and moved into food delivery, which again, they do very well. They’re already doing other little bits and pieces. So, it’s just a natural evolution,” he concludes.
Photos: Temenos
