“Ten years to polish a sword.”
Convoy Global, a Hong Kong-based financial advisor, is pursuing a fintech strategy along the same lines as this Chinese proverb. After a long period of investments, notably U.K. robo-advisor Nutmeg, Convoy’s blade is polished, and the firm is ready to attack the Asian market.
As they say in fencing: “En garde!” “On your guard!”
These initiatives include a package of services for Asian clients that includes robo-advisory and cross-border payments at interbank FX rates, all wrapped up in a licensed virtual bank. Online comparison for insurance agents could also follow as an entrée into digital insurance.
Right now the Nutmeg deal has made the biggest splash.
Michael Yap, head of venture capital at Convoy, told DigFin that Nutmeg will launch services in Hong Kong in the second half of this year, following beta testing beginning this spring, subject to regulatory approval.
“We are actually ready from an operations perspective,” Yap said. “We want to localize marketing and customer acquisition.”
From high-touch to digital
The firm’s plan: to take a high-touch financial-planning business into the digital world. “Our goal is to get to a 50/50 split between quality, high-touch coverage, and digital distribution,” Yap said, declining to specify how long this might take.
Earlier this month, Convoy and Goldman Sachs announced a £45 million ($51 million) investment in the robo, Britain’s largest (and Europe’s, too). Convoy was responsible for as much as £25 million ($29 million), although Yap wouldn’t reveal the exact figure.
This is actually Convoy’s second investment in Nutmeg, following a £24 million ($27 million) deal in 2016. Both rounds represent the largest investments ever in a European digital wealth manager.
Yap explained the second tranche was driven by Nutmeg’s performance.
“We have an inside look at the company because we sit in the board. Its AUM is growing rapidly.”
But Nutmeg is just one of several fintech plays. Convoy has also taken stakes in Tandem, a U.K. virtual bank; in Oscar, the U.S. insurtech; and in CurrencyFair, a money transfer operator.
Virtual banking bid
Tandem is supporting Convoy’s bid for a virtual banking license. Matthew Ford, product and marketing director at Tandem, told DigFin the firm’s license application is still live, part of the Hong Kong Monetary Authority’s final round.
CurrencyFair, meanwhile, intends to launch a travel card for low-cost foreign exchange in Hong Kong. The firm intends to launch payment solutions this year by initially targeting domestic helpers, said Edmond Leung, managing director at CurrencyFair.
There is no immediate plan to do anything in Asia directly related to Convoy’s stake in Oscar, a healthcare insurance player, but Convoy executives say they are looking at insurtech ideas such as a comparison service for its financial planners.
“Convoy has never been a pure financial investor in any of our fintech investments,” Yap said. “Whenever we make an investment, we have a long-term view to work with the partners. We wouldn’t have done it if there wasn’t a way to make it work in Hong Kong.”
How the firm will balance the ultra-low cost Nutmeg business with its traditional financial advisory has yet to be seen. The virtual-banking license application is based on the HKMA’s mandate for financial inclusion. In the case of robo advisory, it’s designed to extend financial planning to people unable to pay traditionally high fees for human advice.
Hongkongers typically pay 1% or 2% of their assets under management for planning and investment, often with unsatisfactory results. Nutmeg in the U.K. charges 0.45% for a fully automated portfolio invested in exchange-traded funds (and 0.25% for assets above £100,000). It charges more for a hybrid model with some human assistance. There are, however, no front-end loads or exit fees, and the business is transparent about administration costs and market spreads on trades.
The tweaks in Hong Kong will be a more Asian equity, U.S. dollar-oriented portfolios (rather than relying on U.K. ETFs in sterling), and front-end redesigns for Hongkongers. The digital version will target a lower tier of mass-affluent investors.
So far, no robo appears to have made a standalone business out of direct sales to consumers in Hong Kong, although 8 Securities and Yunfeng Financial have been in the market, joined more recently by Aqumon.
Nutmeg’s last full year results revealed an increase in losses by almost a third to £12.4million ($14.2million), up from the £9.4million ($10.8million) posted the year before.