As pandemic-induced market volatility heightens, technology is becoming more important in wealth management. Incumbents in financial services are joining forces with wealth techs to stay competitive in a rapidly changing digital environment.
Wealth tech startups have attracted customers with low fees and convenient, mobile-optimized platforms – an area where incumbents have historically fallen short.
Millennial-friendly brokerages are rapidly acquiring large customer bases and stealing market share from incumbents. For example, Robinhood — which added an estimated 5M accounts in the first 9 months of 2020 alone – boasts more customer accounts (~15M) than its rivals Charles Schwab (14.3M) and TD Ameritrade (13.7M).
Recognizing the threat, incumbents are partnering with these startups to stay competitive, improve customer service, and reach new markets or demographics.
Wealth tech companies’ biggest advantages are their data and API integrations, which allow them to streamline mundane, manual processes. By partnering with incumbents, wealth tech players can increase their revenue, broaden their market, and grow their brand.
For incumbents, partnerships can provide cheaper alternatives to acquiring or building technology in-house, as well as a way to stay ahead of emerging trends.
Using CB Insights’ Business Relationships data, we look at where wealth tech players are forming partnerships with incumbents and how the strategic alliances create a competitive advantage in their respective sectors.
Note: For this analysis, we looked at financial services incumbents leading in market share, revenue, and amount of assets across 5 sub-verticals in banking, wealth management, payments, lending, and insurance that have made multiple partnerships with wealth tech companies.
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Wealth tech companies most frequently partner with retail and investment banks. Banks usually partner to develop digital capabilities, acquire AI-driven data, and achieve scale. Meanwhile, wealth tech startups are able to expand their product offerings, grow their brand, and receive an additional source of income.
Goldman Sachs is the most active bank incumbent partnering with wealth techs in recent years. For example, the bank partnered with bond trading platform Trumid to offer more liquidity to its institutional clients. In return, Trumid will leverage Goldman’s input on long-term product development. Goldman became a member of Trumid’s advisory committee along with Barclays and Citigroup.
Citigroup is the second-most active incumbent partner. It teamed up with AI-driven ESG data platform Truvalue Labs to integrate the startup’s proprietary ESG data into Citi’s platform in September 2020. The integration will help Citi analyze public company performance in real time and research ESG issues that companies are facing like environmental footprint and employee health.