The financial industry has been an early adopter of technology to improve efficiency amid a raging pandemic, as businesses and individuals scrambled to find viable means of conducting financial operations. As a result, digital transactions recovered in tandem with the increasing digitization of financial services.
Digitization has brought with it the democratization of services, making them more accessible and affordable. These changes have been met with enthusiasm by the average consumer and strong spikes in digital transactions and services have been observed. Given this impressive reception, we can expect digitization to continue with more innovation in products and services.
Here are five emerging areas of financial services that have steadily transformed the personal finance ecosystem in India.
With an exclusively digital structure, neobanks have become one of the main disruptors in the banking sector, forcing even legacy banks to rapidly digitize their services. One of the main reasons for their rapid reach has been the variety of services these digital banks offer, including:
- Wealth Management
- Investment Management
- payment method
From a consumer perspective, neobanks allowed them to manage their money using just one app. They could make payments, check their investments and pay their insurance premiums. More importantly, you can make these transactions anytime, any day, anywhere.
Neobanks in India, such as InstantPay, Niyo, Open, RazorpayX, offer near-instant banking services, higher rates than traditional banks, and personalized offers and discounts.
Services Buy Now Pay Later
While the demand for buy now pay later (BNLP) services had been growing steadily, the pandemic gave it a further boost. With no-cost monthly installments (EMI), low commitment and easy-to-use payment structure, Indians are exploring BNLP services as an alternative to credit cards.
According to the Q4 2020 BNPL Survey, India will see one of the fastest BNLP adoptions in the world, with an expected CAGR of 24.2% in the period 2021-2028 with a value gross expected to reach $52,827.2 million by 2028 from $6,990.5 million in 2020.
Digital payments have been on a steady rise for a few years now. However, the pandemic spurred its growth, triggering a monthly record in 2020. According to data from the Reserve Bank of India, mobile payments reached Rs 20,919.08 crore (worth Rs 7,04,109 crore INR) with an additional transaction value of Rs 28.22 crore. INR 34,36,124 in net bank payments in September 2020 only.
In addition to its ease, emerging technologies such as mobile wallets, Unified Payment Interface (UPI), and cardless barcode readers further contributed to the rapid adoption of digital payments. Companies were also quick to respond, ensuring that digital payment technology was intertwined with point-of-sale (PoS) technologies. So now you can use a bank digital payment gateway or UPI between providers or even public services.
As mobile becomes our default wallet, we are now seeing the rise of super apps that offer multiple services in one easily accessible platform.
With banking and peer-to-peer services, apps like PayPal, Paytm, Amazon, Square, and Google now increasingly offer multiple services that cover a wide range to enhance the customer experience. These services may include:
- Utility Bill Payments
- Online and offline business payments
- Stock Market Trading
- investment tools
- Payment due reminders
While cryptocurrency is not accepted as legal tender in India, there has been growing interest in its scope as an investment device. In fact, India ranked second in global cryptocurrency adoption according to the 2021 Global Cryptocurrency Adoption Index. This rise in its popularity follows global trends with cryptocurrency growing at a staggering 2,300% rate since the third quarter of 2019.
Despite the impressive numbers, there are still many challenges in wider crypto adoption. As mostly speculative assets, they often experience wild fluctuations. So while you might see a massive rally in cryptocurrency prices one day, you’re just as likely to see it drop a few days later. The lack of consumer education about cryptocurrencies has only added to the lack of clarity that is often associated with cryptocurrencies.
The government’s decision to discard it as legal tender has made its future in India quite uncertain.
AI-based financial advisors (Robo-advisors)
The wealth management industry is witnessing the rapid rise of AI-based financial advisors. While some collect basic information to make informed decisions, more advanced robotic advisors use machine learning to gain a deep understanding of the investor’s profile. They allow the advisor to create a more suitable portfolio for each investor.
The emergence of these online advisory platforms has also made wealth management more democratic in its practice. What was associated with just a few people is now easily accessible and used by a significantly larger population across different income classes. The streamlined process and accelerated pace of transactions have also helped improve the consumer experience. In the future, we can expect wider adoption of these tools across all wealth management platforms.
The economic fallout from the pandemic has seen an expected setback in the insurance sector. The pandemic hit the property insurance sector and undermined life and annuity sales. Interest rates also saw a drop. Given this scenario, the hyper-personalization of insurance services is emerging as one of the preferred recovery tactics.
As buyer preferences change with increased personalization in the financial sector, there is a growing demand for more select insurance services that meet their particular needs. This conclusion was drawn from two key reports that took stock of the events of the past year, namely Deloitte’s 2021 Insurance Outlook for 2021 and McKinsey & Company’s Prediction of the Future of Life Insurance.
Customized insurance can include targeted insurance management, omnichannel delivery, continuous underwriting, more value-added services, and flexible product solutions.
Digital lender startups have become one of the fastest growing and vital parts of today’s financial ecosystem. Operating outside of the traditional loan structure of bank loans, these startups offer consumer-friendly loan solutions like BNLP, sometimes even interest-free. Coupled with the freedom from rigid bank documentation, these startups have successfully taken advantage of consumer and business-to-business (B2B) lending.
The industry is currently dominated by B2B lending, but consumer lending is also picking up. According to one estimate, financing for consumer loan startups amounted to 16% of total digital loan investments, while B2B loan financing was close to 54% between 2014 and 2020, making it convenient and more reliable for the credibility of the long-term loan infrastructure. These measures include:
- Unified Payment Interface (UPI)
- Central Registry Know Your Customer (C-KYC)
- digital KYC
- Aadhaar Enabled Payment System (AEPS)
- Goods and Services Tax Network (GSTN)
- Bharat Bill Payment (BBPS)
- Trade Accounts Receivable Discount System (TreDs)
Digital consumer loans are now readily available in areas like housing and education.
Digital lenders are also emerging as a critical part of the micro, small and medium-sized enterprise (MSME) revival, coming to the rescue of smaller businesses with easy loans. They provide a bridge between banks and borrowers who may not have excellent credit. The government has also taken certain initiatives to facilitate and regularize digital loans.
The fundamental change in the financial industry and the consumer experience reveals three key aspects:
- The first is the consolidation of financial services with more and more services now available on different platforms.
- The second is the collapse of the time barrier with the availability of these functions anytime, anywhere.
- The third and last is the democratization of financial services with easily accessible and consumer-centric solutions.
These three aspects are expected to help personal finance adoption in India gain much-needed momentum.