It is not tech versus humans; it will be tech with humans
Technology will help financial services expand at a fast pace, but the human connection will still be needed
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When was the last time you visited your bank branch (except during the demonetization period)? Or hailed a cab without an app, boarded a flight without a Web check-in, printed a photograph or booked a movie ticket at the cinema hall’s box office?
Here are some amazing statistics—it took the telephone 75 years to reach 100 million users since its invention. To achieve the same user base, the internet took 7 years, Facebook took 4 years 6 months, WhatsApp took 3 years and 4 months and more recently Instagram took just 2 years. But the popular game Pokémon Go took only a month to cross 100 million downloads.
Technology is disrupting and at an accelerating pace. While the internet was the cause of technology disruption in the previous century, smartphones are the disruptors of this century. Smartphones have moved from being a mere mode of communication, to an all-encompassing device that perform a range of tasks.
Social media engines like WhatsApp, Facebook, LinkedIn, Twitter and Instagram have been the biggest beneficiaries of smartphone penetration, making communication agnostic to geography, time-zones and genre. I expect the smartphone to continue to take big leaps over the next 1-2 years as technologies like artificial intelligence (AI), virtual and artificial reality and internet of things (IoT) help us work with remotely connected devices in our house or office, help us reach our destinations in driverless cars and most importantly bring in greater efficiencies.
The financial services sector has also been revolutionized by technology. Starting with internet banking, technology has covered most of the commoditized aspects of the business like on-boarding, transactions processing, communication, audit and payment systems, payments banks, payment wallets, and much more. Today, smartphones are the new bank branches and your mobile number is the new customer identity.
A second leg was added when the government decided to cascade technology to the grass roots using Aadhaar (more than a billion issued so far) and a third leg when the government decided to open bank accounts for the unbanked, called Jan Dhan accounts.
This impetus has resulted in 60% Indians now being under the banking umbrella. The country has thus created a robust financial trinity of Jan Dhan (bank account), Aadhaar (biometric identity) and mobile (communication device)—JAM for short. This can be used by entities across the financial services space to improve their product penetration across the masses.
The mutual fund industry, too, has taken technology in its stride by easing on-boarding via eKYC using Aadhaar, providing a seamless transaction experience, improving transparency, expanding beyond metros and reducing the turnaround time for pre- and post-sale activities. Thus, mutual fund investing can be executed in just a few clicks. Not only this, goal mapping, portfolio tracking, asset allocation assistance and fund selection assistance are also technology-enabled through financial technology or fintech.
While technology has its advantages, it can also come with challenges. A key question being asked by the distribution fraternity is whether technology will replace the role of the financial adviser with the advent of robo advisory services being offered by online do-it-yourself (DIY) platforms. My answer is, no.
As a first step, one should understand areas that are technology relevant and those that are not. I have already highlighted some of the former. However, other areas, which I would argue are even more important for a trust based business like financial services and cannot be managed by technology alone include behavioural aspects like building a relationship, understanding a customer’s context beyond the few risk-based questions and, most importantly, hand-holding customers during times of volatility.
A recent report from Karvy pointed out that 80% of direct equity fund investments were redeemed within the first year of holding during turbulent times. This is mainly due to lack of hand holding in times of market volatility. Hence, a pure online model may not be fully effective in India where we still have relatively low levels of financial literacy and penetration.
Investor stickiness, and with that long-term wealth creation, can only come if investors follow the appropriate buy low, sell high model and stay invested even during periods of turbulence.
While robo advisors will emerge to address a segment of the population, the most successful models will be those that combine technology with human touch. This is also the emerging experience globally.
The role of technology in building momentum for the mutual fund industry cannot be denied. Assets under management (AUM) was close to Rs18 lakh crore as of February 2017, growing by over 22% annualized in the past 5 years and 18% in 10 years. Over 13 million systematic investment plan (SIP) accounts with a monthly throughput of over Rs4,000 crore; 5.5 million SIP accounts added in the past 2 years till February 2017 versus 7.5 million in more than 20 years till March 2015.
To continue this momentum, it is important to leverage technology as an enabler to improve distribution reach across the length and breadth of the country using the JAM trinity, reducing the cost and improving the ease of investing in mutual funds.
I firmly believe that the future is not technology versus humans but technology with humans.
Sanjay Sapre is president, Franklin Templeton Investments–India.