Tech companies pose a growing threat to traditional asset managers and the financial services industry needs to up its game to meet the challenge, even though the hurdle of regulation is holding back rapid change, industry executives said.

Some parts of the broader financial services industry have already seen new entrants emerge, such as around online trading portals.

But the prospect of younger, tech-savvy savers being forced to put more away for their retirement has led some to ask if companies such as Google, Amazon and Apple could one day grab a slice of an industry consultancy PwC says could be worth $100 trillion by 2020.

A report by consultants KPMG said the U.S. tech giants possessed a number of strengths which could benefit them in asset management, such as strong brands, relevant products and “enviable” distribution platforms. None of them have yet to move into the industry, however.

While there are examples of firms jumping into completely new business lines— food retailer Tesco’s foray into high street banking, for example—a more likely scenario is that they would partner up with an existing fund manager in some way.

But nonetheless, the threat is seen as real. When asked if technological innovation would “disrupt” the asset management industry in the coming years, 67 percent of the audience at a panel discussion of industry executives at the Fund Forum conference in Monaco said “yes”, with 29 percent “no” and 4 percent “don’t know”.

Paloma Piqueras, chief executive at BBVA Asset Management, part of Spanish bank BBVA, said she was not surprised by the views of the audience and cited the scale of impact changing technology had had on other industries.

“Clients are changing the way they perceive the offer, the way they look for information; they want personalized products and content. So there is work to do on distribution, on advising, on using the data we have to propose a personalized offer and in every step of the whole value chain of the asset management business.

“None of us could have thought that industries such as music, books, travel would experience such important challenges due to technology [and] we’re already seeing some signs of these changes in the asset management industry,” she added, citing Chinese Internet retailer Alibaba as an example.

That country’s Internet companies have blazed the way for the sale of wealth management products in the Internet age. Since last year they have offered depositors an alternative to the low interest rates—capped at 3.3 percent by the central bank—that come with putting money in China’s traditional banks.

The first of these was Yu’e Bao, an online investment platform offered by an affiliate of Chinese e-commerce giant Alibaba Group Holding Ltd.

Available on smartphones, Yu’e Bao is conveniently linked to China’s biggest online payments platform Alipay, similar to PayPal, and is now China’s biggest money market fund in terms of assets under management (AUM).

It began as a partnership with local asset manager Tianhong Asset Management Co, but at the end of May, Alipay received the green light to take a majority stake in the fund firm itself.

It had 554 billion yuan ($90 billion) in assets under management in the first quarter of 2014 from just 10.5 billion yuan a year earlier, according to Z-Ben Advisors, a Shanghai-based investment management consultancy.

“There were a lot of fund sales through the web in the late 90s when tech funds were roaring up and people who were tech savvy bought them, but it didn’t last. This feels potentially more lasting,” said Jim McCaughan, chief executive of Principal Global Investors, the asset management arm of Principal Financial Group.

“One of the impressive thing about Yu’e Bao, the Alibaba fund, is not only has it raised 91 billion (dollars) net, it has 100 million investors. I would ask you, is there a transfer agent or fund administrator in the West who could have done that?”

Other examples of technology being used to shake-up financial services include eToro, a marketplace to trade currencies and other assets and which has a community for investors to interact with one another, and Nutmeg, a UK firm that helps people build portfolios online, said KPMG.

“We are now seeing new parties emerging with technology-driven service models that are helping customers make decisions not using a face-to-face model, but using technology that is more suited to the needs of consumers today, and that is where the future is going,” Dutch regulator Theodor Kockelkoren said.

Index Funds

More broadly, the rise in “passive” investment using exchange-traded funds was evidence of technology disrupting the “active” management industry, said Principal Global’s McCaughan, and more was likely on the way.

“Somebody soon, and it may be Alibaba, will be launching index funds through these web platforms. If you’re an index fund provider, there’s another disruption coming.”

Index mutual funds track an underlying stock or other index and aim to give returns very close to those of the index. Along with exchange-traded funds, which are traded as a security in their own right, both involve minimal human oversight and rely more on technology than “active” funds that rely on human input.

Regulation, though, was acting as a brake on new entrants moving wholesale into active management, said Maarten Slendebroek, chief executive at Jupiter Fund Management.

“The reason why this hasn’t happened much faster in financial services is because of financial regulation, that’s the biggest barrier to selling direct to the consumer.

The success of online funds such as Yu’e Bao may also be hard to replicate in other countries, as China’s banks are geared towards conservatism, and are tightly controlled by regulators, meaning deposit rates are lower than elsewhere.

China is also unique for the proliferation of smartphones, where 80 percent of its 618 million Internet users go online using mobile device, a cultural quirk that has already allowed other Chinese internet retailers to adopt the Yu’e Bao model, including Baidu and Tencent.

The turning point could be when so-called ‘Generation Y’, those born between the early 1980s and 2000s, began to take more interest in saving for their retirement.

“We’re seeing some nascent digital industries starting up, but it will only really pick up when Gen Y start saving,” said one investment banker in investor sales.

“Then it will not just be about distribution models but about crowd-sharing ideas: ‘I bought this fund, what do you think?'”

($1 = 6.2251 Chinese Yuan Renminbi)

(Additional reporting by Paul Carsten in Beijing; Editing by Toby Chopra)