Financial Distribution Summit 2014 CII's 3rd International Conference
Financial Distribution Summit 2014 CII's 3rd International Conference
Financial Distribution Summit 2014 CII's 3rd International Conference
Bridging
the gap
with digital
www.pwc.in
PwC
Chairmans message
V Ganesh
PwC
Foreword
Once considered a rather exorbitant luxury, technology today is ingrained in
every major process that runs a successful organisation. With applicability
across the value chain, we find ourselves transitioning from the practice of
business needs determining solutions to a scenario where the phenomenal
growth in technological innovation is disrupting business models and inventing
new hybrid industries.
Vivek Belgavi
Key opportunities
Untapped markets
1
2
3
9000
2010
8000
2011
2012
7000
6000
5000
4000
3000
2000
1000
0
2010
2011
2012
Australia
3369.2
4094
3922.3
Brazil
327.6
398
414.2
Switzerland
6633.7
8012
7522.1
6%
Top 5 cities
3%
5%
Next 10 cities
Next 20 cities
13%
Next 75 cities
Other cities
73%
UK
4496.6
4535
4350.2
India
64.4
59
53.2
PR China
158.4
163
178.9
PwC
US
3758.9
3846
4047.3
2009
37.6
2010
2011
2012
Technology as an enabler
By June 2014, there were 914.92 million
wireless users in India, covering a large
population of both rural and urban India4.
This expansive demand has warranted the
necessity for differentiated propositions
to be offered to mobile customers.
Customers now make extensive use of
smartphones and are comfortable with
consuming anywhere-anytime business
services. This in turn has driven companies
to build a superior mobile experience
as a fundamental part of their service
offerings. Customers increasingly expect
it and business partners and employees
have become more comfortable with
communicating and sharing information
anywhere, through any device.
The banking industry has already taken
the mobile opportunity by the horns
and its time for the insurance and asset
management industries to tread the same
path. It is the opportune moment for
these sectors to develop applications to
assist in the sales process for agents and
brokers, rather than restricting the scope
of applications to vanilla activities such
as quote generation or providing product
information.
With the imminent launch of the 4G
network which will not only provide
superior speeds and coverage but also
drive down the cost of services, the
implications of such developments on
financial services delivery are substantial.
It will be useful to examine these trends
from an ideating perspective. This
brings into picture innovative ideas that
draw influence from P2P lending which
involves the practice of lending money to
unrelated individuals or peers without
going through traditional financial
intermediaries. These are opportunities
that no player should let go of in order
to enjoy not only topline growth but
bottomline growth as well through
inherent cost advantages.
TRAI - The Indian Telecom Services Performance Indicators Report, April - June, 2014
Bridging the gap with digital
Leveraging digital
technologies
When it comes to internet and mobile penetration, India has shown
impressive progress:
The latest Internet and Mobile Association of India (IAMAI) report pegs
Indias year-on-year growth of internet users at an impressive 32%.5
The number of mobile internet users has also steadily risen, with 159
million mobile internet users in October 2014.5
5
6
IAMAI. (2014). India To Cross 300 Million Internet Users By Dec14 [Press Release].
Retrieved from http://www.iamai.in
RBI Financial Inclusion in India An Assessment, 2013
PwC
Biometric technologies
Slow account-opening procedures at
the point of sale, be it through agents
or branches, is one of the most pressing
distribution challenges that providers
face in acquiring an active customer
base. An important determinant of user
activity is whether users are able to
transact immediately after registering.
Consequently, digitised and automated
account-opening procedures are expected
to increase customer activity and retention,
following the registration process. KYC
regulations, in particular, mandate
the collection of certain identification
documents before an account is opened.
FINO PayTech, a branchless banking
provider in India, offers a full suite of
biometric products for enrolment, storage
and verification of documents, with all
back-end system elements to complete
customer applications.
Lack of technological awareness is still a
real barrier preventing people from using
technology-enabled financial services.
However, low-cost easy-use technological
solutions, such as fingerprint and voice
biometrics, are opening up the spectrum
of solutions available.
Innovative distribution
strategies8
7
8
9
(2013, Nov 06). Transactional Kiosks: The Future of Auto Insurance. Retrieved from http://www.directgeneral.com
Sarkar, John. (2014, Nov 14). Snapdeal logs onto rural India. The Times of India. Retrieved from http://timesofindia.indiatimes.com
Tiwari, Dheeraj, Malviya, Sagar. (2014, Nov 17). Amazon, Flipkart eye tie-up with IRCTC. The Times of India. Retrieved from http://timesofindia.indiatimes.com
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Distribution strategy 1
Distribution strategy 2
Distribution strategy 3
Distribution strategy 4
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Controlling risk
While customer acquisition analytics plays
a major role in designing distribution
strategies, risk metrics need to also be
integrated into these strategies to create
holistic solutions and dynamic approaches.
Analytics that flow into underwriting
decisions and fraud detection should
feedback into distribution processes
to ensure that adequate checks and
controls are in place to reduce risk while
facilitating business expansion. The idea is
to maximise the utilisation of distribution
channels on productive customers both
from a revenue and risk perspective.
By providing an ability to differentiate
between high- and low-risk customers,
distributors can focus their time on
profitable consumers, thus increasing
channel efficiency.
Information such as money-flow patterns
in an individuals account, transaction
and usage behaviour as well as additional
products taken provide a whole new
perspective to the underwriting process.
It is possible to build analytical models
and scorecards that take into account key
risk-splitting indicators to develop signs
of high risk, which can then be translated
into appropriate policies and controls to be
followed by distribution networks.
However, when it comes to traditionally
under-banked populations, prior credit
behaviour may not be readily available
and such consumers may not be assessed
properly by lending institutions to
measure repayment risk. In the absence
of information on creditworthiness, in
individual lending models, loan officers
may be required to interact heavily
with prospective clients, driving up the
distribution costs. In such scenarios, other
information becomes far more important
in assessing risk, and analytics provides
the ability to develop such alternate
models. The distribution strategy thus
becomes even more important as it
determines the kind of data available for
risk assessment.
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Risks and
challenges
Regulatory implications
New guidelines issued by different
financial services regulators will
necessitate changes in processes, product
mix as well as the technology components
adopted by market players. The guidelines
illustrate the focus of these regulating
agencies to provide greater value to
customers while increasing the burden on
market players.
10 Penetration of Mutual Funds in India: Opportunities and Challenges, Chakrabarti, Malik, Khairnar and Verma, 2014
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Financial literacy
After setting up a distribution network
that provides comprehensive access to the
target segments, the next major challenge
is to ensure that there is adequate
demand for your product. Before even
considering product propositions and
innovative offerings, the first step is for
customers to understand the products
and their benefits. Financial literacy is an
extremely important factor to consider
and determines whether potential
customers choose newer products over
traditional forms of monetary savings and
investments that they are comfortable
with.
Further, there is clear link between
improved financial literacy and its impact
on saving patterns. In a study conducted
on a random sample of 3,000 people with
access to branchless banking facilities
across two districts in Uttar Pradesh, it
was found that individuals who received
financial education intervention saved
29% more than the control group11.
Moreover, the study found improvements
on attitudes related to financial planning.
11 Does Financial Education Affect Savings Behavior? Evidence from a Randomised Experiment among Low Income Clients of Branchless Banking in India, Calderone,
Fiala, Mulaj, Sadhu and Sarr, 2014
Bridging the gap with digital
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12 Singh, Priyanka. (2014, Aug 22). Franklin Templeton launches Shubh Laabh in Sitapur. The Times of India. Retrieved from http://timesofindia.indiatimes.com
13 Sharma, Sumit. (2014, Aug 10). Financial Illiteracy A Big Challenge For Insurance Sector. The New Indian Express. Retrieved from http://www.newindianexpress.com
14 Narayanan, R. Y. (2014, Jun 18). Financial literacy vital for MFs to grow beyond metros. The Hindu Business Line. Retrieved from http://www.thehindubusinessline.com
15 http://www.indiapost.gov.in/
16 (2014, Nov 19). Government plans to use postman to educate people on schemes, policy. The Economic Times. Retrieved from http://articles.economictimes.indiatimes.com
Improved customer
identification
The first objective is to accurately verify
the identity of individuals to control
exposure to higher risk customers. This
option is by using technologies such as
biometric identification.
Introducing fingerprinting as a means to
accurately capture borrower identity could
improve a lenders ability to develop and
track robust repayment histories of the
borrower and therefore deny credit to high
risk customers in a later period based on
previous repayment performance.
This is particularly relevant today where
credit bureaus must rely on sophisticated
matching techniques to accurately
match borrowers with correct credit
histories, which are heavily dependent
on the quality of details available at the
time of bureau check and are still prone
to mismatch errors. With biometric
approaches gaining acceptance among
consumerssome mobile devices already
come with biometric capabilities
leveraging such technologies improves
information reliability without hampering
the customer experience and can be
seamlessly included in a variety of
channels.
Surrogate programmes
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About CII
The Confederation of Indian Industry (CII) works to create and sustain an
environment conducive to the development of India, partnering industry,
government, and civil society, through advisory and consultative processes.
CII is a non-government, not-for-profit, industry-led and industry-managed
organisation, playing a proactive role in India's development process.
Founded in 1895, India's premier business association has over 7200
members, from the private as well as public sectors, including SMEs and
MNCs, and an indirect membership of over 100,000 enterprises from
around 242 national and regional sectoral industry bodies.
CII charts change by working closely with government on policy issues,
interfacing with thought leaders, and enhancing efficiency, competitiveness
and business opportunities for industry through a range of specialised
services and strategic global linkages. It also provides a platform for
consensus-building and networking on key issues.
Extending its agenda beyond business, CII assists industry to identify
and execute corporate citizenship programmes. Partnerships with civil
society organisations carry forward corporate initiatives for integrated and
inclusive development across diverse domains including affirmative action,
healthcare, education, livelihood, diversity management, skill development,
empowerment of women, and water, to name a few.
The CII theme of Accelerating Growth, Creating Employment for 201415 aims to strengthen a growth process that meets the aspirations of
todays India. During the year, CII will specially focus on economic growth,
education, skill development, manufacturing, investments, ease of doing
business, export competitiveness, legal and regulatory architecture, labour
law reforms and entrepreneurship as growth enablers.
With 64 offices, including 9 Centres of Excellence, in India, and 7 overseas
offices in Australia, China, Egypt, France, Singapore, the UK and the US,
as well as institutional partnerships with 312 counterpart organisations in
106 countries, CII serves as a reference point for Indian industry and the
international business community.
Contacts
Kaushlendra Sinha
Regional Director
Confederation of Indian Industry
(Western Region)
E: [email protected]
Sundeep Vachhani
W: www.cii.in
About PwC
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