Cross-border WMPs gain traction in Bay Area

Rising economic activity, an expanding affluent population and policy incentives are providing new momentum for cross-border financial products in the Guangdong-Hong Kong-Macao Greater Bay Area, according to a study by consultancy Bain& Co.

In a survey conducted among 3,000 retail customers and small and medium-sized enterprises in the region, a majority expressed a strong interest in purchasing cross-border wealth management products. Currently only fewer than 20 percent of the respondents have such an asset allocation.

Among retail customers in the Chinese mainland who do not own Hong Kong wealth management products, 70 percent expressed interest in purchasing one in the next three years.

Encompassing Hong Kong, Macao, and nine cities in Guangdong province, the GBA has a population of more than 70 million and annual gross domestic product growth of roughly 8 percent over the past decade.

There is already an infrastructure for some cross-border trading in stocks (Stock Connect) and bonds (Bond Connect), as well as distribution of funds (Mutual Recognition of Funds), according to Henrik Naujoks, co-author of the report and Bain's Asia-Pacific Financial Services Leader.

"While implementation details have not been fully announced, we anticipate that the soon-to-launch Wealth Management Connect government initiative will facilitate access to additional cross-border wealth management products, likely beginning with low－to medium-risk ones and potentially progressing to more complex products in the future," he said.

Insurance, on the other hand, is still nascent in GBA cities on the Chinese mainland. In those cities, life and property-and-casualty insurance penetration was about 6 percent in 2019, compared with 10 percent in developed markets and Hong Kong's 18 percent. Closing the gap with developed markets could result in additional premiums of $50 billion, according to Jack Jiang, chief customer officer for insurer AIA China.

"As awareness of the need for insurance and retirement planning increases among mainland customers, products such as health and annuity insurance are becoming more popular," he said.

Recent moves such as allowing mainland insurers to collaborate with third parties in Hong Kong and Macao to provide medical treatment, and suggestions that insurers may soon set up GBA service centers to provide after-sales service for cross-border policyholders, show that opportunities are opening for insurers in the region, Jiang said.

The study also pointed out that for lenders, increased mobility within the GBA will likely fuel demand for mortgages and lead to additional cross-border opportunities. One-fifth of mainland retail customers and 10 percent of Hong Kong retail customers said they would consider getting a mortgage from an institution across the border in the next three years.

Many financial institutions have already committed to investing. Standard Chartered, for example, has spent $40 million to set up a GBA center in Guangzhou to support its retail and corporate banking business in the region.

There are "no-regrets" moves that banks and insurers can make right now－such as launching marketing campaigns to improve brand awareness－and setting up insurance service centers when the time is right, said Lucia Ku, head of customer propositions and management at Hang Seng Bank.

"A strong brand will be critical to winning mainland customers, as word-of-mouth is still an important marketing tool," Ku said.

"Connectivity is the name of the game here and firms should be looking at investing to perfect their omnichannel experience, marketing and digital solutions as customers expect an innovative, connected and seamless experience or else they will sign up with someone else," said Priscilla Dell'Orto, a Bain partner and a co-author of the report.

In May 2020, Chinese financial services regulators jointly issued opinions on financial support for the area's development. Their key themes included: enabling cross-border financial services, supporting the opening of Chinese financial markets, facilitating the integration of GBA financial markets and infrastructure and encouraging financial services innovation.