Over the ten years to February 2019, AUM of Mutual Funds in India have grown at a CAGR of 16% to reach INR 23.2 Trillion. An average CPI of 7% in that period, and therefore effectively negative interest rates on bank savings, prompted investors to seek relatively higher risk and higher return investment options. Mutual funds, managed by professionals, and with graded risk profiles to choose from, were ideal entry points for retail investors, who had neither the knowhow nor risk appetite to invest directly in the markets.
On the supply side, this opened alternate paths for markets to create investible capital for entrepreneurs and corporates, as an alternate to bank borrowing.
Today, the mutual fund industry has 2 crore unique investors, though there are 29 crore PAN card holders in India, indicating a massive untapped opportunity of 93% of India’s PAN Card holders. 75 crore Indians have bank accounts, 35 crores have insurance policies, further expanding the addressable market for mutual funds. Interestingly, the existing 2 crore investors have 6.60 crore folios – each investor holds at least 3 folios in mutual funds. AMFI, the industry association, has set itself a target of reaching 20 crore investors by 2020.
Here are five clear areas where technology can play a role in achieving these goals
1. Investor education, support, languages – and speech
Products or solutions that rely only on English and app-based interfaces will not reach these goals. Voice-based platforms such as Amazon Alexa and Google Assistant offer developer tools in additional languages to make it easy for consumers to discover, understand, and choose between financial products using the most intuitive and natural interface. Further, ongoing portfolio alerts can be delivered in private with the right user authentication to allow investors to take prompt action if they so desire.
2. KYC and onboarding
Reaching investors in diverse geographies needs technology solutions to remove cost, lead times, and misuse that predominantly human channels involve. Given that mutual funds still need investor education and initial handholding, perhaps technology solutions are best deployed in “assisted” modes, where trusted agents use technology solutions to ease KYC, onboarding, and reduce errors of omission or commission in the sales process. Solutions like document verification, video KYC, and UPI e-mandates for SIPs can significantly accelerate onboarding and account management. To achieve the AMFI’s ambitious goal of 20 crore investors by 2020, the industry needs to onboard over 3.6 lakh new investors a day. In August 2018, the industry reported 1.16 lac registered distributors, meaning that each agent needs to sign up over 3 new investors a day – virtually impossible without meaningful technology solutions!
3. Personal Financial Management (PFM)
Apart from broadening the industry, we need to think of deepening relationships with existing investors, using technology to deliver superior customer experiences. While current PFM applications – for example Perfios PFM – deliver good solutions for tracking and reporting an investor’s portfolio performance, there is massive scope for innovation in personalizing an investor’s experience and recommending alternatives for to make informed objective decisions – “people who invested in this scheme also invested in that one” – much like Amazon’s famous “people who bought this also bought that” recommendation engine. In addition, anonymization and machine learning technologies are sufficiently robust today to offer comparisons within peer groups or reference sets of portfolios so that investors increasingly take control of their financial destiny, rather than relying on agents who may sometimes have differing agendas.
4. Data privacy and consent – Account Aggregators
The Personal Data Privacy Bill, 2019, is set to become law shortly. This will impose strict compliance norms on data fiduciaries such as financial institutions, and impose stringent penalties for even unintended non-compliance. Apart from a good compliance and governance culture, financial institutions need the right technology tools to ensure compliance by design.
The Account Aggregator framework, for which the RBI recently approved specifications, offers data privacy and consent management “as a service”, removing the risks and subjectivity of letting humans access sensitive data at any point in the operating chain. Financial institutions should start working now towards deploying a secure and scalable solution to meet these requirements – for example through Perfios Account Aggregation Services.
5. Improving operational efficiency
Every corporate that deals with more than a few bank accounts goes through laborious and time-consuming manual processes to compile aggregated transactions from these bank accounts. In addition to the effort, the manual processes also introduce risk at the corporate level – as operational level staff need access to all the bank accounts, thus increasing access risks.
Technology solutions are particularly effective in automating this activity and eliminating security risks in the process. Data aggregation tools help a corporate to fetch transactions from all its bank accounts (which runs into many hundreds in some cases) automatically, and convert them to a customized outputs for machine or human consumption. While the SEBI mandates a day-end NAV activity for MFIs, technology solutions such as the Account Aggregator framework mentioned earlier allow for more frequent, selective, and granular account monitoring at a fraction of current operating costs.
Summary: The Mutual Funds industry is poised for exponential growth in the next two years. Consumers will demand the best of experiences in each stage of their financial journey. Providers who proactively adopt the best technology solutions will gain disproportionate share of consumer preference, AUM, and other scale and scope benefits.
About Perfios: Perfios is a data platform that extracts, categorizes, aggregates, and analyzes (un-)structured financial data to automate business processes such as risk assessment, lending, credit monitoring, and investment management. Contact the author: srikanth@perfios-aa.com
