The fight for the next generation of investors has begun

As millennials inherit their parents’ wealth, banks and fintech firms are scrambling to reshape wealth management and investing.

By Joelyn Chan

As baby boomers age, the world is on the cusp of the largest wealth transfer ever incurred. By 2030, Millennials will control up to US$20 trillion of assets worldwide. This generational shift in wealth will multiply the Millennials’ pre-existing wealth by five times.

With millennial financial clout set to explode, the financial sector is attempting to cater to the shifting needs of Millennial investors. Specifically, the Millennials are demanding improvements in customer experience and product offerings.

Millennials will not be satisfied with the offerings that placated boomers

When the digitalisation of banking first occurred, it was constantly scrutinised over its usability and security. Baby boomers valued inter-personal relationships and face-to-face interactions with their banks. Financial institutions had used brick and mortar branches as the primary engagement point with their customers. Human interaction was an integral component of pleasant customer experience.

However, millennials do not share the same sentiments. Millennials grew up in the age of technology. They embraced smartphones and the added convenience they brought by disrupting traditional industries. Millennials expect immediate, personalised services, not physical interactions and constant engagement.

According to United Overseas Bank (UOB), 60% of the ASEAN population is under 35 years old, and more than 70% of ASEAN consumers already go online to browse or purchase items. Banks and fintech firms are evolving to become more attractive to this upcoming wave of investors, but there is still some way to go before they have millennial-facing products.

Digital banks are a basic necessity

More customers are turning towards online financial services. DBS, Southeast Asia’s largest bank, has observed an annual decline of 5% in foot traffic over the past few years. In the future, physical bank branches will simply exist for branding reasons and last-mile services.

In March 2019, UOB opened a digital bank in Thailand. Named TMRW, this digital bank is accessible only through a smartphone application.

Without having to visit the bank, users can open accounts, conduct banking activities and rely on the in-app chat-based customer service function. Over the next five years, TMRW aims to expand into neighbouring countries and increase its customer base from three million to five million.

Singapore, usually a pioneer on all things fintech, is only just issuing its first batch of digital banking licenses, as firms jostle to get in on the action. MatchMove, MaxFinx, Funding Societies, Xfers, FOMO Pay and oCap are all expected to apply for a digital banking license, as well as giants like Grab and SingTel.

Photo Credit: Jon Russel/Flickr

Traditional banks are also turning to digital platforms to ‘gamify’ their services to appeal to millennial clients. This practice involves borrowing featured from the gaming world to increase engagement with a digital product.

TMRW has successfully incorporated gaming dynamics to motivate Thai Millennials to deposit more money. The in-app game encourages users to save by allowing them to level-up and build a virtual city with each savings deposit. The game was highly rated by the 1500 tech-savvy Thai Millennials in that participated in the pilot program.

While TMRW may be the first of its kind in ASEAN, it will certainly not be the last. Such novel features are very much attuned to the engagement habits of the Millennials.

Fintech startups are expanding their offerings to appeal to millennials

Millennial users prefer the added convenience of dealing with all their financial needs in one place. Rather than use one app for savings, one for investments, another for cashless payments, and another to manage insurance policies, they would prefer to handle everything from one super app.

A 2019 report by CB Insights highlighted that wealthtech and fintech startups have swiftly expanded their products and services in line with these consumer demands. They have moved from being mono-line to multi-line. This new trend of expansion positions fintech startups as a potential one-stop-shop solution for millennial users.

For instance, YouTrip started off as Singapore’s first multi-currency mobile wallet. It has recently obtained a remittance license, signalling upcoming product developments in the remittance space.

Millennials are also exploring new asset classes with their newfound wealth, including luxury sneakers and cryptocurrencies. Investments in stock markets and properties are conventional investments practices of the baby boomers.

With extra disposable income, the younger generation is looking to speculate within the consumer sector. Poizon, a sneaker-trading platform, is a rapidly- growing startup in China. Its annual volume is around 15 billion yuan (US$ 2.13 billion)

Traditional banks still have the advantage

Despite the novel developments in the fintech and banking sector, incumbents still have the edge in securing the millennial customers of tomorrow.

CIMB Bank Tower in Kuala Lumpur, Malaysia
CIMB Bank Tower in Kuala Lumpur, Malaysia. Photo: Cccefalon

Security concerns are still present. Consumers are still more willing to trust incumbents with their financial security. In Singapore, the five most trusted financial services providers named by consumers were the Development Bank of Singapore (DBS), Oversea-Chinese Banking Corporation (OCBC), UOB, the Post Office Savings Bank (POSB), and Citibank, all of which are traditional banking providers.

But times are changing, and incumbents cannot afford to rest on their laurels. Three in five Singaporeans now believe that digital startups are just as secure as their traditional banking cousins, and in industries with little public understanding, such as insurance and asset management, public perception of digital startup security is higher.

To remain competitive in an increasingly millennial-driven financial market, traditional banks will need to adjust their products.

“Especially in today’s turbulent market environment, banks need to rethink their offerings to satisfy their future customers,” noted Silvio Struebi, partner and head of banking operations for the Asia-Pacific region at Simon-Kucher, a global consulting firm.

Firms that fail to capture the hearts, and wallets, of millennial investors will fade into obscurity in the near future. Banks are enjoying a temporary head start. But as their boomer customer base passes the torch to millennial investors, startups will emerge as dynamic and novel players with trendy product offerings and personalised customer experiences—a magnet to millennial investors.