Financial Institutions Jump at APAC’s US$32 Billion Embedded Wealth Opportunityby Fintech News Singapore September 23, 2021
In Asia-Pacific (APAC), embedded wealth is a US$32 billion opportunity per annum which financial institutions are eager to tap into.
These are actively exploring the possibility to embed wealth services into third-party e-commerce and travel platforms to improve their revenue streams and tap into these platforms’ massive customer bases, according to a new report by Swiss digital wealth firm Additiv.
Embedded wealth refers to the offering of regulated wealth products by a non-wealth entity. It translates to the integration of, for example, a third-party online wealth management service into a neobanking platform, and a savings product into a human resources (HR) management and payroll software.
In APAC, the boom of embedded wealth has been driven by a number of factors. For starters, the region is home to a rapidly growing mass-affluent market that did not historically have access to wealth products, nor did it actively seek them out. But the surge of digital wealth services and a major build-up of cash and near-cash assets are encouraging consumers to embrace digital wealth platforms, the report says.
The Philippines, for example, is expected to become one of the ten fastest-growing high-net-worth (HNW) countries by 2023. In Indonesia, the Boston Consulting Group (BCG) forecasts that the affluent share of the country’s population will grow from 9% in 2017 to 21% in 2030.
Regulation and market liberation pushes by governments are another key driver of embedded wealth. Across the region, regulators are moving towards open banking, open finance and open data frameworks, triggering the emergence of new players and booming innovation in the financial sector.
This changing regulatory landscape is forcing wealth managers and banks to embrace digitalization. By embedding their products into super-apps, e-commerce platforms and challenger banks, incumbents can broaden their customer base, increase profitability, and access new distribution channels.
Embedded finance, a red hot market
The rise of embedded wealth is part of a broader trend surrounding the integration of financial services products into non-financial applications and platforms.
In APAC, embedded finance is a red hot market pioneered by bigtechs and super-apps. These providers rapidly expanded from their core offerings to build up extensive ecosystems, becoming all-encompassing, self-contained commerce and communication online platforms.
Grab from Singapore, DiskarTech in the Philippines, and Tokopedia, Gojek and Bukalapak in Indonesia, are examples of super-apps from Southeast Asia that have embedded financial services from other providers into their apps.
Ride-hailing giant Grab has established partnerships with financial institutions such as Indonesian digital wallet Ovo, US insurance company Chubb, and Japanese financial services firm Credit Saison. E-commerce marketplace Bukalapak has teamed up with Standard Chartered to develop innovative financial services for the Bukalapak ecosystem.
In Thailand, United Overseas Bank’s digital bank TMRW relies on an aggressive ecosystem partnership strategy to provide customers with data-driven customized services and solutions, having partnered up with fintech firms such as Personetics and Meniga
So far this year, investors have poured US$4.25 billion into embedded finance startups, almost three times the amount of 2020, data provided to Reuters by PitchBook show.
Private equity firm Lightyear Capital estimates that in 2020, embedded finance generated US$22.5 billion in revenue. That figure is projected to increase 10 times, surging to an estimated US$230 billion by 2025.