Opportunities for Investment Management Transformation: The Digital Impetus
The mutual fund industry has seen rapid growth in recent years. The rise of middle-class and the changing investment mindsets helped this trend in no small measure. People in India have traditionally trusted banks and instruments like fixed deposits and government bonds more to safeguard their savings. In recent years, people are considering riskier investments like stocks and mutual funds for better returns. However, there is still substantial liquidity held by retail banks that can be targeted for further investment in capital markets. The challenge is to create the right business model to nudge people toward capital markets.
In developed countries like the U.S.A. and Western Europe, there exists a mature financial advisory model to assist investors in managing their investment goals. This has helped investors in realizing a bigger percentage of wealth from capital markets than from banks. However, this model has not been financially viable in India till now as the overall Assets under Management (AUM) is much smaller compared to AUM in developed countries. This means great opportunities for fintech players to build a more cost-effective advisory model through digitalization of the investment management process. As digital wallets grow through simplified payment processes, few leading players have already started expanding their mutual fund distribution models. However, multiple untapped opportunities remain that need to be embraced to attract, grow, and retain investors.
Growing Mass-Affluent Middle Class
Seventy-five percent of the Indian market today consists of either corporate or high net worth investors (HNI). The retail customer segment can grow impressively if it has a suitable mechanism to penetrate it. The mass-affluent population is of particular significance as it is growing on the heels of great economic boom. This population comprises digital savvy and highly ambitious people who like to align their financial goals with their diversified life goals. Immediate growth opportunity for the investment market is to tap into this market. The first step to penetrate this market is to identify the target customers and build a suitable service model. This can be done by integrating data from multiple social channels and channeling it into a unique business model for this segment.
Mapping Investor Journey
A serious gap of current investment management processes is the lack of an effective process to capture the life goals of an investor and effectively map these to specific investment goals. Most of the financial firms dealing with retail investors are doing it as a one-time exercise at the time of engaging with a potential investor. However, adequate effort is not being made to create deeper awareness and build confidence in their investment journey in the following years. It is exciting that new AI-based technologies such as NLP and chatbots are uncovering opportunities to develop better overall client engagement experience. By adopting these technologies, investment firms can better engage with their customers through relevant education and capture their goals more precisely and effectively. This process can bring the much-needed transparency between investment firms and investors.
Product Aggregation Portals
There are a number of structured and unstructured financial products available in the market. Regulators like RBI and SEBI are making structural changes in the market to allow more innovation in the capital market. Retail investors today primarily depend on the recommendations from banks and brokers to choose suitable products. However, these institutions are often biased toward those products that give them higher commission. So, investors end up losing trust in their recommendation and often delay their decision. If more transparency is brought to bear on the products and their relative merits compared to other similar products, investor trust in institutions can be improved. Industries like insurance, travel and hospitality have made huge strides by creating aggregation portals. Few known examples are Policy Bazaar, Uber, and Airbnb. A similar aggregation system can be designed for different product classes in the investment industry to assist investors with their investment decisions.
Intuitive Client Service Interfaces Backed by Rich Data Analysis
Digital client interfaces are the norm these days as more and more people prefer to use their smart devices for purchasing various products and services. Devices like Alexa and Google Home are also rapidly penetrating the consumer market. However, most of the investment management firms continue to use paper-based formats or PDFs to provide investment statements. Moreover, the statements only reflect the current value of investments and fail to provide any future guidance in a transparent manner. Customers generally like to have better insight about the performance of their investments against their life goals. This is especially true since each customer has unique needs and looks forward to fulfill them through their investments. They also demand flexibility to modify their current investments to match any revisions in their goals in future.
An intuitive client engagement interface can work very well in handling the dynamic personal investment scenario of investors if it is built using analytics and BI technologies, which can transform the overall client service model. Investors should be able to manage their goals, track their investments and get their queries addressed through these interfaces. To top it all, they can get all this in the form of frictionless services on their own personal devices.
Digitalization Holds the Key to Unlock New Opportunities
Digitalization promises a lot of opportunities for start-ups in India. In the financial services industry, the primary focus of start-ups is on personal finance management and payment processes. They have the opportunity to now play a huge and an important role in transforming the present investment management business model. Delivering powerful and dynamic digital solutions holds the key to attract, engage, and grow investors exponentially.