Lower rates, bigger bucks: Can wealthtech firms deliver?

In recent years, central banks worldwide raised interest rates, giving many of us a rare experience: cash finally earning more than just pocket change. But now, the tide has turned again, and the race for higher returns on cash is reversing once more.

With the US Federal Reserve cutting interest rates by 0.75% so far this year, and with more cuts on the horizon, investors are rethinking their allocation of capital.

With highly liquid, low-risk cash products offering lower rates, one might expect to see net outflows to other asset classes like equity or fixed income.

However, wealthtech platforms in Singapore say they aren’t seeing this trend just yet. That’s even as many of them revise interest rates on their cash management products downward in line with market conditions.

On the contrary, the players Tech in Asia spoke with say their cash management products remain popular due to their high liquidity, though interest in other investment products is also ticking up.

“What we’ve started to see in the last few months is that the percentage of new flows going into investment products is increasing” compared to short-term cash products, StashAway CEO Michele Ferrario tells Tech in Asia.

Meanwhile, net flows from cash management products into investment products on StashAway have “increased tenfold” in the last six months, Ferrario adds.

How could these trends affect the wealthtech firms’ pathways to profitability, and what do they mean for platforms that offer a single cash management product?

“We don’t see money moving somewhere else”

Like many other cash management products on the market, StashAway’s advertised rate of return has fallen since the start of the year.

The return on Simple Guaranteed, one of three cash management products it offers, for a one-month tenor has fallen from 3.6% per annum in February to 3.1% per annum in November.

The platform’s cash management products “invest in very short-term treasuries or money-market funds,” including bank fixed deposits, which make them sensitive to movements in US interest rates, Ferrario explains.

“When the Fed goes down by 25 basis points, you can expect those assets to go down by more or less the same quite quickly,” he adds.

However, StashAway’s users are keeping their cash on the platform, given that its rates remain more competitive than “traditional players,” which have been “more aggressive” in reducing their interest rates, says Ferrario.

One winning product

Impact on profitability