According to a report titled ‘Future of Fintech July 2022’, published by Boston Consulting Group (BCG), fixed deposits (FDs) continue to hold the largest share at 18 per cent of India's total financial wealth.
Between FY 2014 and FY 2019, India’s annual gross household wealth grew by 14 per cent and physical wealth grew by 6 per cent.
The report noted that wealth-fintech companies are trying to educate and unlock mass investors at scale with discount-led business models. It said linking credit cards with UPI will be a game-changer for Indian consumers and the fintech industry.
The BCG report further noted that with support from the Reserve Bank of India’s (RBI) Payment Vision 2025, the digital merchant payments and the broader digital payment industry in India will prosper.
Indian Consumer Wealth Trend: The BCG report found that the compound annual growth rate (CAGR) of equity mutual funds and alternative asset funds were 39 per cent and 44 per cent, respectively, outpacing FDs and bonds (9 per cent CAGR) from FY 2014 to FY 2019.
However, India remains an under-penetrated country when it comes to mutual funds. The global mutual fund penetration rate is 63 per cent, while in India, it is 12 per cent. The report also predicted that from “FY 2020 to FY 2025, the number of individuals entering the ‘affluent24’ band will double from 0.5 million to 1 million.”
Thematic Investing Trend: The report noted that wealth-tech fintechs are activating mass investors through thematic innovation in products. “However, the path to long-term viability will need a shift from discount-led to monetization-led plays and better education and engagement of existing customers,” the report said.
Some key thematic investing trends identified in the report were micro-investing (Spenny), auto-investments (Jar), robo-advisory (Stack), ecosystem integrations (Multipl), etc.
Micro-investing apps try to capture the age-old habit of depositing small changes in our piggy banks through digital channels.
The report noted that the viability of these wealth-tech apps will depend on their “ability to dramatically simplify investing for ‘Bharat’ through a solid content platform with vernacular support”.
Besides, wealth-techs must have the ability to rapidly scale their assets under management (AUM) and “drive annuity by keeping customers engaged, given the small-ticket sizes in this play.”
Kishan Sundar, senior VP, digital business unit, Maveric Systems, a banking technology service provider company, said that "with only 3 per cent of Indians participating in equity and new wealth tech, simplifying the onboarding process, and offering robo-advisory services could propel a phenomenal uptick in wealth tech.”
It report noted that technological solutions in improving mass investor literacy could emerge as an important growth driver versus core financial engineering of products.
The report cited the example of Zerodha, where the introduction of nudges on penny stock risks saw a marked reduction in penny stock volumes.
“The key to capture this segment is to understand their needs rather than serving complicated financially engineered products they do not feel a need for,” according to the report.
UPI Credit Card Could Be A Game Changer: The report noted that the UPI-Credit card mechanism seeks to increase the use of credit cards at point-of-sale terminals with UPI technology. While initially the scope is limited to RuPay credit cards, which public sector banks dominate, however, “adoption will witness a step jump when the doors are opened to Visa and Mastercard, which will also bring in private sector banks”.
Ravi B Goyal, chairman and MD of AGS Transact Technologies Limited, an omnichannel payment services provider, said that the unified payment interface (UPI) platform has been a “key driver contributing to the growth of digital payments in India, crossing 92 per cent of 2021’s volume in the first seven months of 2022. The linkage of credit cards to UPI will bring added convenience to the digital payment users, especially those who prefer credit cards.”
Regarding knowing customer norms (KYC), the report said that since KYC modules are more strict in credit cards than QR code-based payments, “third party apps (like PhonePe, GooglePay) would have to upgrade their merchant KYC modules.”
“Both the consumer and small merchants are benefitted as now the UPI payment can be done with a RuPay credit card and the need for a merchant to have expensive POS (point-of-sale) terminals is diminished,” said Pranay Jhaveri, MD, India and South Asia, Euronet Worldwide, a payments company.
The report predicted that digital merchant payments value will grow from $0.3 trillion in 2021 to $2.5-2.7 trillion by 2026. This increase in the number of consumers paying their merchants digitally will be followed by an increase in the number of merchants using QR code payments from the current 30 million to 40 million in 2026.
According to Jhaveri, the payments landscape in India has been continuously evolving, triggered by the pandemic, and the industry has witnessed an extensive digital adoption across the scale. “Many merchants don’t have (credit/debit) card PoS terminals, especially in semi-urban and rural areas, but most of them have UPI QR code-based acceptance.”
The report said that the RBI’s Payments Vision 2025 will “drive innovation and growth, although with expanded regulatory responsibilities for fintechs.” The report also noted that from an industry perspective this vision signals a “clear regulatory lean towards innovation and growth, while potentially followed by increasing scrutiny and audit.”
As a result of this regulatory push, it will, in turn, push fintechs to build and strengthen capabilities like risk management, compliance, and others. which were hitherto the responsibility of licensed entities. From a regulatory perspective, the governance model for enforcing this vision is crucial to realising the defined outcomes, the report said.
