The Great Wealth Transfer East: 62% of New Millionaires are from Asia
The Asia-Pacific region led by China is quickly catching up to the West in terms of wealth.
The Asia-Pacific region led by China is quickly catching up to the West in terms of wealth. With the accelerating pace of innovation in mobile communications and fintech, the region is expected to not only leapfrog the US & Europe by 2019, but also integrate millions of unbanked people into the global economy.
The Asia Pacific region, led by China, is growing fast. In 2014, the sum total of worldwide assets reached a record high of US$164.3 trillion. As central banks have come to the rescue, asset prices have risen to record highs globally.
Global growth overall grew by 11.9% (see chart below). Asia-Pacific, excluding Japan is the fastest growing region with China and India accounting for 25% and 44% of the growth, respectively.
Moreover, developing economies are accounting for 66% of all new wealth creation, while the US & Europe is only 33%. This translates into 62% of new millionaires coming from the Asia-Pacific region.
Existing wealth has grown much richer in the developed economies, resulting in the exclusion of other classes caused by monetary policies designed to stimulate the economies. What’s unique about this great wealth transfer east is that this region has the highest share of their investments in cash and deposits.
This is the great fintech and digital opportunity.
Even more astounding is that the Asia-Pacific region (except Japan) has leapfrogged Western Europe into second place in private financial wealth, and according to BCG, it will pass North America by 2019 to become the largest region by share of global wealth.
A Giant Opportunity
Herein lies the giant opportunity: A massive shift in wealth has occurred East and its largely new wealth that has been created. Of this wealth, 40% sits in cash and deposits and is underinvested capital.
Fintech is allowing access to people who have never had access to the capital markets before and this is because a large number of the nouveau riche are tech-savvy entrepreneurs with a focus on functionality and user experience.
The chart below shows that China is a world leader in the use of mobile phone users and those who can access their financial institutions via mobile. This is providing massive opportunities in areas like mobile banking, wealth management and robo advising.
Technology Has Changed User Behavior
Technology has allowed people to embrace finance digitally and fintech firms have made the solutions that users want.
According to a BCG report, fintech that allow clients to engage on social media to discuss market developments will have distinct advantages as clients want more frequent and rapid interactions as well as more ways to connect with a bigger community.
Wealth management is a very old business with very traditional ways of thinking, particularly when it comes to client interactions, which are face to face once a quarter and maybe a phone call once in a while.
The new investor who is connected wants wealth managers who are more available digitally and there are many ways for these user experiences to happen via chat, text, video (Skype) etc. Fintech firms can also use technology to segment specific customer segments and send them personalized messages/emails based on their profile and portfolios.
As the chart above shows from BCG, clients are demanding these services and the companies that respond will gain clients. In other words, clients want a more transparent and open dialogue with their financial advisors and wealth managers, and building this new brand will be the difference retention and attrition (loss of clients) as well as brand new clients wanting your services.
According to a study, wealth managers who had advanced digital offerings reduced their attrition by as much as 5% and increased their revenues by 2-5%.
While Asia-Pacific continues to accumulate massive amounts of wealth, there is one other massive fintech opportunity in this region: giving the unbanked access to bank accounts and the capital markets.
There are massive financial opportunities in bringing a digital financial opportunity to billions of people, particularly at a time when the wealth of the entire region is on the rise.
Technological innovation and wealth go hand in hand. The Asia-Pacific region is becoming the center of wealth and has unprecedented access to technology. This plays right into the hands of fintech companies who are springing up in China and the rest of region using the preferred tools of their rich new client base to give them low cost, transparent access to the capital markets.
As the pace of innovation accelerates, we may very well see a new global leader in wealth by as early as 2019.