Although the wealth management market in India is growing and presents a huge opportunity for both domestic and foreign players in India, the competitive landscape is only becoming more intense with fintech players posing bigger threats to the traditional players with their product, pricing, and digital differentiation.
Wealth management players in India would need to respond both strategically and innovatively to be able to compete in an environment fraught with ever-increasing customer expectations – fueled by shifting demographics and ongoing technological disruption – for digital experiences and personalized goal-oriented offerings. If correctly executed, notably through recourse to redefined technology and data insight capabilities, incumbent players including banks will be well placed to give competitors old and new a run for their money.
In this paper, we will offer an overview of the wealth management market in India and then discuss the trends shaping that market considering digital disruption. We will also recommend key actions across strategic, operational and technology fronts required kick off the transformation journeys that will allow players to remain relevant and competitive.
INTRODUCTION-
The Indian wealth management market is on a sustained path of growth, driven by India’s long-term economic prospects, positive demographics, rising income levels and existing low levels of penetration. Although, the percentage of wealthy individuals in India is small relative to developed markets, India has the second highest number of high-net-worth individuals (HNIs) amongst the BRICS nations, and hence is well positioned as an attractive destination for wealth managers globally. India’s high net worth individual (HNI) population is expected to grow by 75% from 3.5 lakhs in 2020 to 6.11 lakhs in 2025.
Ultra-high net worth individuals (UHNIs) are predicted to grow by 39% from current 13,637 in 2021 to 19,006 in 2026. Wealth in India is likely to grow by 10% annually and reach US$5.5 trillion by year 2025. New segment of Millennials called digital natives is growing fast. It is interesting to note the emergence of wealthtech players disrupting the market for incumbent players. These wealthtech players are serving a significant customer base of four million most of which are Millennials. Number of investors in wealthtech products is expected grow three-fold to 12 million by 2025. This presents a golden opportunity for incumbent players’ expansion goals.
Today, India is much more integrated with global markets and likewise aligned with geopolitical and regulatory developments than in the past. Over the past two years, that has been demonstrated by how the Indian equity, bond, and commodity markets have witnessed huge volatility due to geopolitical events. However, as global central banks continue to impose interest rate hikes to arrest inflationary pressures, and despite nine continuous months of net Foreign Institutional Investors (FIIs) outflows through to July 2022, Indian equity markets are showing resilience and demonstrating the increasing influence of Domestic Institutional Investors and retail investors participation.
According to a recent survey ‘Millennial Mood Index 2021’ by CASHe, 84% Millennials are more cautious amid the pandemic about savings and 35% youngsters are taking up health and life insurance policies. Millennials are tech-savvy and when it comes to managing finances, they aspire to manage on their own. They also prefer to have a hi-tech banking experience driven by ecosystem integration, mobile apps, goal-based personalized financial management, tools to compare products and digital payment mechanisms for their purchase journey. Moreover, they give a higher preference to gamified dashboards and recommendations over social media, and it is no surprise that 70% of customers of the new fintech platforms in the wealth management space are millennials.
KEY IMPERATIVES FOR LEGACY INDIAN WEALTH MANAGERS-
1. Grow market share amidst the competition driven by overwhelming digital disruption Wealth management players in India would need to be more vigilant in future with respect to their market share since they face a daunting task of transforming themselves to address challenges such as siloed operating model, value propositions out of sync with customer needs which have changed significantly because of shifting demographics in India and increasing customer preference for digital experience. Limitations of wealth management players’ traditional models restrict them from tailoring their product strategies to align with segment-specific characteristics, and consequent inability to offer level of personalization in products to attract key client segments such as millennials.
2. Innovative digital customer acquisition and servicing capabilities the pandemic has amplified and accelerated ongoing digitalization around customer acquisition, servicing and experience, and the business environment over this period exposed the limitations of some wealth managers in India in terms of the maturity of their technology and digital capabilities. Market players with greater degrees of digital readiness were able to engage with customers in very cost-efficient ways, and their wealth manager businesses outshone the competition thanks to capabilities such as digitized account opening, e-KYC, e-signatures, and payment integration, leading to superior customer experience and more effective relationship management.
3. Leverage AI and machine Learning (ML) to boost data & analytics capabilities to unleash the power of hyper- personalization for advisory as well as non-advisory services, such as customer acquisition and servicing As Indian financial markets progressively integrate more deeply with global markets, wealth management players have been forced to enhance their advisory capabilities by introducing AI/ ML into customer acquisition, portfolio recommendations, risk management and identifying investment trends early, allowing them to respond more dynamically before scenarios unfold in financial markets. We are aware of one large global investment bank that is exploring partnerships with robo-advisors to deliver data-driven monitoring for risk and exposure levels without diluting human touch attribute. Other banks have been investing in data and are now able to explore AI/ML initiatives to provide automated portfolio recommendations and tax planning models.
4. Reimagine Technology as business partner Incumbent players in Indian wealth management (banks and large national distributors) have grown over time with fragmented technology platforms and infrastructure, which is fraught with limitations stemming from this mix of large legacy applications and architecture. Such challenges are not easy to address, not least because implementing change is a slow process. Organizations have not been able to leverage the full power of all their data due to siloed nature of IT applications and data systems. Over the years, banks have been investing in digitalization – but the investment has not been balanced across all components of technology capability.
A PATH FORWARD FOR FUTURE TRANSFORMATION-
Wealth management players will need to establish a realistic, long-term transformation roadmap underpinned by the building blocks of a future state model. This transformation roadmap will require a behavioral step change at the executive level to establish an environment which fosters agile innovation while progressing though their change journey. In India, big banks and large brokers offering wealth management products that currently dominate the landscape should consider five building blocks for a future digital operating model that will allow them to remain relevant and compete.
These are targeted at:
• Addressing the shift in wealth customer demographics and gaps in their wealth products strategy
• Differentiating the wealth customer experience through real-time personalized mobile and social connectivity
• Deploying rapid innovation by integrating data, AI/ML and analytics for wealth advisory and services
• Mobilizing the right mix of technology and platforms, with a focus on cloud
• Fostering agile working across Business, Technology & Data teams of within the enterprise
THE FIVE BUILDING BLOCKS OF A TRANSFORMED WEALTH MODEL
1. Governance – this comprises players’ vision, mission, guidance on revenue and profitability and commitments to shareholders. Governance will ensure sponsorship and commitment to setting up and running the model in the best interest of the stakeholders, driving customer-centricity and digital focus within the organization.
2. Wealth customer experiences – the new operating model will place the customer at the forefront to ensure full alignment with their evolving aspirations. Players should focus on building upon customer experiences by prioritizing mobile first, omnichannel engagement and hyper-personalization alongside their products and servicing offering, with a focus on providing life stage and life event-based recommendations.
3. Analytics for wealth – this powers the conversion of data into predictive and meaningful business insights. When you consider the dimensions of the customer experience set out above, a powerful and state-of-the-art analytics capability will be key, driving the hyper-personalization of product recommendations, customer interactions and communications, as well as providing enhanced control in respect of risk and fraud. This capability will need to match the requirements for AI/ML models to drive insights and decisions by provisioning for big data. Players would need to integrate analytics at a specific maturity level to support AI/ML, NLP, AR, VR based programmes that differentiate the customer journeys.
4. Digital innovation – Leveraging a variety of tools and technologies, digital innovation will act as the catalyst to deliver impactful real-time and personalized elements within the customer journey. Organizations must ensure seamless integration and working of the joint products of Business, Technology Analytics and Digital Innovation capabilities as depicted in the above wealth customer journey.
5. Redefined operating models – Spanning Technology, Data, Business, Security and Operations & Functional teams, this model serves to bind together and foster partnerships across different domains within the organization and addresses 18 key priorities.
WEALTH MANAGEMENT OPERATING MODEL: TEAMS
Teams across the five domains will be empowered to work synergistically and in alignment with the organization’s digital and innovation objectives. The adoption of Agile methodologies will allow for superior performance through planning Minimum Viable Products. To conclude, transformation based on these recommended five building blocks will ensure full alignment with market forces such as customer dynamics and fintech competitors, drive trusted digital experience for customers powered by Innovation, Data, and Technology through a collaborative agile organization culture.
By- Vivek Singh Partner at Capco, Arun Vasan Executive Director at Capco and Amit Pande Managing Principal at Capco.
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