New Delhi. : India has over 275mn households, with an estimated 90% living in Tier 1 and beyond. The vast majority, comprising the estimated 100mn households, are estimated to become savers for the first time – looking beyond bank FDs. This segment is largely under-served and are increasingly wary of un-regulated investments – Ponzi schemes, which have plagued this segment. An indication of this is the spread of MFs – the Top 30 locations account for 84% of the total AUM in the industry, with the rest of India having only 16% (as per AMFI data as of May ’21).
Leading B2B2C WealthTech startup Fintso unveiled its insights-rich report “The Next Billion – Inclusion Through Digitization” that outlines the current lack of infrastructure for addressing this segment, people living in Tier 1 and beyond, and new investors being created due to rising Financial Inclusion. The report highlights how combining tech and existing independent agents/distributors can help to unlock the means to address the needs of the next 100mn households, which in turn would help in unlocking socio-economic benefits for the country.
The report looks at the rising financial inclusion (adoption of Aadhaar, Jan Dhan Bank accounts, and Direct Benefit Transfers) along with the rise of smartphones as being at the tipping point that will allow the financial industry to address the needs of this vast new market. As per the RBI, states like Kerala, Karnataka, and Maharashtra have achieved high financial inclusion with the Index of Financial Inclusion (IFI) > 0.5, while some states fall in the medium category with the IFI ranging between 0.3 and 0.5.
“Digitization is helping us democratize Wealth management. We have used algos and Machine Learning extensively to help curate and create recommended investments and portfolios. This, along with the data analytics (we have 4.5mn historical data points on investments from the 50K plus end clients) is helping us provide insights to the entrepreneurs to do more, and do better, for their clients. Not only in providing value added services to their clients, but also freeing up their time to convert more prospects,” said George Mitra, CEO and Co-founder of Fintso.
The report analyses that there has been a gradual shift in the investment structure from physical assets (such as gold and real estate) and traditional savings in cash, to more regulated means – FDs as well as a trend towards other means, mutual funds, direct equities, insurance products. As per RBI data from June 2020, bank FDs form 53% of the total household financial assets in the country and 13% in mutual funds. The lack of financial awareness, which causes low adoption of financial instruments, for these under-served segment, is a crucial area and addressing it is of paramount importance.
The report highlights the means for accelerating adoption of digital financial services, using the backbone of existing infrastructure, smart phone adoption and increase in digital KYC means (rising Aadhar adoption). However, as per the report, lack of trust in the source of advice, extensive documentation and need for active guidance, are reasons for reluctance of individuals from using DIY means and platforms in any meaningful way. It is further exacerbated by the lack of access to trusted and regulated financial instruments – both for savings and credit.
“Fintso was founded to create the platform to enable agents and distributors become IFPPs – providing multi-product access and the means to reach out and service clients of these entrepreneurs efficiently. We are extremely happy to share that since the launch of the platform in Nov ’20, we have been able to connect to over 51,000 clients across 406 districts, being serviced by 140 entrepreneurs located in 46 districts. This is an endorsement of what we have been saying – accelerating inclusion of the Next bn in India would be achieved by equipping the “bridge of trust” that these entrepreneurs represent,” said Rajan Pathak – MD and Co-founder of Fintso.
“The Next Billion – Inclusion Through Digitization” states that for majority of investors to use of technology is usually not the first step, for sensitive subjects like money and savings.
To corroborate this, Fintso analyzed data to understand the state-wise penetration for FY21, where areas with higher MFDs had higher penetration of mutual funds and vice-versa. With mutual funds, the distributors are primarily responsible for its distribution and account for 80% of the total investments. It includes
- 58% from the T30 cities and
- 22% from the B30 cities.
- Direct investments account for a low 20%, comprising 16% from T30
- And a mere 4% from B30 cities.
The data shown emphasizes the low penetration of DIY models and the importance of these independent advisors to help propel distribution and growth. Another major source of data for corroboration is the number of Insurance policies that are tagged to an insurance agent compared to “direct” – specially for Retail and Tier 1 and beyond.
The report also highlights the crucial role of new technology and digital initiatives as the bridge between retail investors, financial advisors and financial upliftment and inclusion.
To View the report, please click bit.ly/The_
To download the excerpts of the report, please click here.