UBS, the world's largest wealth manager, plans to build a scalable digital bank in China – and later to roll it out around the world. What are the bank's plans?

«We need scale, and I’m going to get that scale for UBS, working together with the Chinese authorities,» Edmund Koh, UBS' top man in Asia-Pacific, told the «South China Morning Post» on Sunday. UBS is seeking the same digital bank license in China that 18 privately-held firms including Tencent-backed WeBank, Alibaba's Mbank, and Aibank, backed by Baidu hold. 

The move represents a bold attempt by a traditional and well-established wealth manager to take on the digital upstarts on their own turf. Koh, a Singaporean wealth veteran, noted that Chinese officials are flagging a regulatory change for digital contenders for June or July which should hasten the process of winning a digital license.

Dramatically Lower Costs

Once built, the digital bank will widen the 30,000 clients UBS currently banks to as many as 200,000 within two years. The cost of winning new clients – currently averaging $25,000 – can be compressed to about $60 per client, Koh is convinced.

That can't be done without sacrificing some quality: a comparison to the offerings of fintechs already in the market like Webank, Mybank, or even Revolut, makes clear that UBS can't simply shrink its spending by 99.9 percent and maintain the same standard of service and delivery.

Affluent Clients in Focus

That may be fine – according to Koh, UBS wants to target a far wider audience than the Swiss wealth manager currently does. He is after the mass affluent segment, typically viewed as those with $100,000 and up. This group is likely receptive to a high-quality offering of the sort that UBS could provide.

Kho views the less-wealthy as attractive: for example, entrepreneurs who reinvest the proceeds from their fast-growing start-ups, but still want to diversify their savings. «Today’s affluent in China will be tomorrow’s high-net-worth individuals and then billionaires,» he told the publication.

The bank is to, once built in China, expand to the rest of the world, Koh said. The Swiss bank didn't elaborate on the plans outlined by Koh. That leaves the question of whether UBS is finally responding directly to challenger banks like Revolut or Germany's N26, which have grown on popularity with a young and tech-savvy clientele.

Quietly Pondering Response

UBS has been mulling a response to the upstarts for some time, though little specifics have emerged. A digital bank push would be natural in China but revolutionary in UBS' home market, for example, where it already caters to affluent and retail clients. In 2016, the bank launched a pilot project with affluent clients in Taiwan.

Like other banks, UBS runs the risk of clients losing interest in e-banking services from traditional providers once better, faster, crisper, and cheaper viable alternatives emerge. In foreign markets, a digital bank coupled with UBS' reputation as a white-glove bank promises enormous potential.

Competitors Quicker

Alpian, a project that Geneva's Banque Reyl has been brewing for the past 18 months, could be a template. The Swiss bank is also targeting clients from $100,000 on up. The Reyl-backed project plans to offer mobile-first private banking services such as investment solutions and tax optimization.

UBS' crosstown rival, Credit Suisse, plans to launch its own digital solution this year, dubbed Direct Bank. Credit Suisse plans to plow a three-digit million sum into digital projects including the fledgling bank in the next two years. Under technology veteran Mario Crameri, the Swiss bank wants to win retail and small business clients.