Mumbai: As Indians become more comfortable with making purchases on the Internet, online financial product aggregators are witnessing a surge in business and emerging as an important distribution channel. Such portals allow customers to compare and choose financial products such as mutual funds, loans, insurance policies and credit cards.

Bankbazaar.com, FundsIndia.com and Policybazaar.com have all seen a surge in business.

At FundsIndia.com, a mutual funds aggregator, business has been growing at 300-400% year-on-year, according to founder and chief operating officer Srikanth Meenakshi. “A year ago, we used to process 60-80 new SIPs (systematic investment plans) a day. Today we process at least 200," he said.

Policybazaar.com used to see less than 1,000 transactions a month on its platform in 2010-11. In 2013-14, the number of transactions grew to 32,000 a month, said Yashish Dahiya, co-founder and chief executive.

To be sure, the online distribution channel may be growing fast but it is still a small piece of the overall market. According to Dahiya, the online channel forms just 1% of the total insurance market in the country.

It accounts for just 3% of the loans and credit cards market, according to Shetty.

Experts say the proportion will increase over time.

“The traditional model of having branches, having people to staff them, is too expensive. Banks really don’t have a choice, they have to move to an alternative distribution channel (like mobile, Internet and kiosks)," said Aman Bhargava, director of financial services advisory Grant Thornton India LLP, adding that the trend has already caught on in some parts of the world.

According to Bhargava, consumers like to compare products before they buy and that’s the service these firms provide.

“They are supposed to be pro-consumer and free from bias with regards to any specific financial institutions, they are supposed to take the information from institutions they have tied up with and display it without any misrepresentation or bias," he said.

Investors, too, have been attracted by the rapid growth seen by these firms.

In May, Policybazaar raised $20 million ( 120 crore) from Tiger Global Management Llc. Dahiya said the firm will need more funding for expansion and that the next round of funding will be significantly larger than the one in May.

FundsIndia is currently looking to raise further funds and, according to Meenakshi, the company will raise at least twice or thrice what it raised last time. FundsIndia raised 19 crore in 2012.

Bankbazaar declined to comment on its fund-raising plans. The firm raised $13 million ( 80 crore) from Sequoia Capital and Walden International in December 2013.

The additional funding is likely to help these companies expand across different product categories.

FundsIndia, which also sells corporate fixed deposits and gold investment plans, along with mutual funds, is looking at loans as a possible new product category, said Meenakshi.

Policybazaar, which started out as a platform for insurance policies, has expanded into new categories such as loans and credit cards. “We are planning to enter mutual funds and also exploring options of entering new geographies," said Dahiya.

Bankbazaar, too, is planning to launch new product categories, said Shetty, without elaborating.

What is preventing the online channel from growing more rapidly is a lack of awareness and, in some cases, regulation.

Educating customers about the advantages of the online channel is a major challenge, said Shetty. “People are so used to doing so many things online but when it comes to financial decisions like taking a home loan, we go to the builder or our father’s bank," he said.

Regulations governing the individual sectors are also a hindrance, said company executives. For instance, insurance regulations mandate foreign investment norms similar to those of insurance companies (26%), thereby limiting the fund-raising options for online aggregators. In the case of mutual funds, the constant churn of regulations is a problem as it affects the revenue model stability.

“These companies are primarily technology driven and do not bear insurance or credit risks. So you can’t really apply the same risk parameters to these companies," said Bhargava, adding that regulations must give the online channel flexibility to grow.

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