Creative use of data streams open up new opportunities for tailoring products
India has made rapid progress in financial inclusion, formalization and digitization of financial services. As we begin the new year, here’s a peek into what the next decade holds for retail financial services.
Relevant and contextual products that address the needs of consumers: Consumers have used credit as a single blunt tool to meet most of their financial needs—whether to build a house or pay school fees or to meet a health emergency. Proportion of unsecured debt in total liabilities of a household is among the highest in India at 56% and it often comes at a cost that is detrimental to the financial health of the household. Ideally, planned expenses should come out of savings. Sudden shocks and losses like health emergency should be covered through insurance and credit should be used to purchase assets, acquire new skills or to grow a business. Indian households hold less than 5% of their assets in financial products. This provides a great opportunity for banks, asset managers, neobanks, insurers and fintechs to design products beyond credit that are simple, relevant and affordable.
Business models that are built on winning the trust of the consumers: The future of sustainable and scalable businesses lies in creating win-win solutions, i.e., offering products and services that serve the interest of the consumers and make profit. Edelman Trust Barometer, which measures trust in institutions across various countries globally, shows that financial services is the least-trusted industry among all the respondents. Financial services in India is expanding rapidly and there are many first-time customers being brought into the fold. Building their confidence in using new services is important through simplicity in communication, transparency in charges and reliability in deliverables.
Creative use of customer data in providing a better value proposition: The account aggregator framework would provide easy transfer and usage of data with the consent of consumers. This shifts the power balance in favour of consumers and allows them to go to whoever is offering the best service or product at the right price. Going forward, success of financial service providers would not lie in generating and hoarding lots of data about consumers. Instead, success would be in creatively using that data for the benefit of the consumers. Use of non-financial and continuous data streams about consumers opens up new opportunities for tailoring products, while also placing additional onus on them to use it responsibly.
Role of big tech players in financial services: Consumer-centric tech platforms that aggregate multiple needs may emerge as a natural choice for availing of financial services. The customer engagement model would change and different bank and non-bank entities may assume different roles in a single service from customer origination to product and analytics to risk management. In the US, tech giants like Google, Apple and Uber have announced their strategies for financial services. In China, two large giants, Alibaba and Tencent, dominate the financial services market. In India, the market is likely to be more fragmented with multiple players being successful in their chosen segments.
New technology-driven models will challenge existing regulatory frameworks: Regulators and policymakers would evolve too, with access to digital tools for supervision, blurring of jurisdictions in an internet-driven world and new emerging risks to address. Innovations by regulators around digital currency, regulatory sandbox, cross-border collaborations, activity-based regulations would lead the way for the industry to reinvent financial services that empower and improve people’s lives.