Kristal.AI, a digital wealth business active in several Asian markets, now manages around $130 million of client assets, almost all from the private-banking side of its business.
In the $3 trillion industry of global private banking, that’s hardly likely to attract the notice of brand-name franchises. It’s not the kind of money to scare anybody. Vivek Mohindra, one of the fintech’s co-founders, says he thinks by early 2021 that could change.
Kristal.AI has a hybrid business model that includes a retail-facing side in Hong Kong and Singapore, which makes it look like a typical robo-advisor. But its real business is catering to people wealthy enough to want broad-based investment advice but who aren’t rich enough to win the services of global private banks.
Just the investments
That means competing in a utilitarian fashion with products and investment advice, delivered at very low cost – but without the perks that rich people enjoy at traditional private banks.
Kristal.AI clients won’t be enjoying legacy planning, philanthropy services, advice on building art collections, champagne-set networking, tax and legal services, or help settling the inter-generational fights that seem to be the norm in dysfunctional tycoon families.
Those frills will remain the domain of the big banks, which are doubling down on this stuff instead of trying to compete on actual investment and financial advice, which is becoming commoditized, in part thanks to digitization.
As a head of private banking at a big American firm once told DigFin, “We’re moving up from serving the ultra-high-net-worth individual to the ultra-ultra high-net-worth individual.” For the industry’s leaders, digitization is only important in ensuring a client-friendly experience. It’s not a business model in itself.
Financial inclusion for rich people
This is leaving a wide swathe of wealthy people underserved by top-end concierge-type providers: those too rich for banks’ premier retail services and not rich enough to be worth the cost of onboarding and servicing by analog private banks.
For Kristal.AI this means people with net worth of up to $5 million. Some financial institutions target these with high-end consumer banking services, but these lack the sort of investment products that a private bank would make available; and banks will charge these people retail-level commissions. Kristal.AI is using its tech to give them all the asset classes and tailored advice of a private bank, at very low fees; what it doesn’t offer is banking and lending. (Other fintechs are going after this segment via family offices.)
Mohindra, who is based in Hong Kong, hopes to reach a critical mass of users by the end of the year that will prove the model – and maybe make the traditional industry become aware, and perhaps concerned, that Kristal.AI exists.
The company received $6 million of additional funding in January, in an A-Series round led by Chiratae Ventures (formerly IDG Ventures India) and Desai Family Office. Its total funding since inception is now about $11 million.
Retail face
Kristal.AI is a hybrid, though: it does have a retail offering. This began when it entered the regulatory sandbox of the Monetary Authority of Singapore. (“We were their first fintech,” Mohindra said.) MAS was interested in financial inclusion. So Kristal.ai adapted the products and tools it was developing for rich people to make them into a robo-advisory for retail.
“Democratization of wealth does not mean making cheap products for the mass market,” Mohindra said. “It means using technology to adapt sophisticated products for lower-tier market segments.”
Kristal.AI has built its platform to handle ticket sizes that would be modest for a top-tier bank but big for a robo. “It’s easy to invest HK$10 million ($1.3 million) with us, and we could handle investment sizes of up to HK$50 million,” he said.
Democratization means using tech to adopt sophisticated products for the lower tier
Vivek Mohindra, Kristal.AI
But the company’s retail offering accepts ticket sizes in just hundreds of dollars. It has developed two algorithm-led investment strategies into combinations of exchange-traded funds. Mohindra says he and his two partners, Asheesh Chanda (the CEO, based in Singapore) and Vineeth Narasimhan (CTO, in Bengaluru), invest their some of their own money in the automated strategies.
This is what the firm offers to retail investors, who are too small for Kristal.AI to afford to advise. Mohindra says the firm keeps the retail side going because some professional clients also use it, mostly to experiment, and Kristal.ai hopes to upsell them into its bespoke digital-wealth offering. He says Asia isn’t ready for a mass robo offering.
Tech-based model…
Kristal.AI is trying to thread a needle. On the one hand, it’s pleased that it now has about 20,000 users using its retail investment algorithms. Mohindra described the business’s goals partly in terms of scaling up users, which is not a private-bank model.
On the other hand, the vast majority of the firm’s assets, and all revenues, come from serving wealthy people.
Some people want to drive a Bentley; others want a Tesla
Vivek Mohindra, Kristal.AI
A number of digital solutions make this possible. One is onboarding and remote KYC – a process that is far easier in Singapore and India, with their government digital-identity systems, than in analog Hong Kong.
The biggest differentiator for Kristal.AI is client service. Its proprietary tech has gone into building an app for its small team of relationship managers, who sit in its three markets of India, Singapore and Hong Kong.
“A normal bank RM can handle 40 to 80 clients,” Mohindra said. “Ours can handle 250 clients. This isn’t a customer app, it’s a middle-office app, to enable client communications, risk profiling, and execution.”
Kristal.AI can therefore charge clients only 25% of what they’d pay in fees at a traditional bank, as the per-client service costs are so much lower. The firm in fact charges HNW clients a flat 0.3% fee on assets under management, thus avoiding conflicts of interest and the “glorified brokerage” model that often characterizes private banking in Asia.
“This is true fintech,” Mohindra said, noting more than 50% of the staff, along with his two co-founders, are all coding-literate. Mohindra, a former banker, is the exception.
…with a human touch
But a lot of its client service is human, particularly when it comes to structuring portfolios and filtering products. In January Kristal.AI hired Swapnil Mishra, former managing director at Deutsche Bank in Singapore, as its head of private wealth.
The team still has the same costs of accessing hedge funds, private-equity funds, structured products, and other assets for its clients. Clients still advice from investment-management pros.
The difference is using technology to provide affordable service to clients who don’t qualify, or don’t want, the high-touch ancillary services that are now the biggest competitive edge for big private banks.
This means, though, that Kristal.AI is competing against those private banks. It will need to scale up assets quickly if it’s to make a dent. Some private banks are ceding the no-frills, pure investment space to digital players, but they aren’t ready to acknowledge a startup like Kristal.AI as a threat. Other banks can also avail themselves of digital tools to cater to the more commoditized end of the market.
Will enough somewhat-wealthy Asian people want the utilitarian approach of a technology company? Mohindra doesn’t think it’s a question of limits, but of changing demand.
“Some people want to drive a Bentley,” Mohindra said. “Others will go for a Tesla.”
