Consider a turkey that is fed every day. Every single meal would firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race… Something has worked in the past, until …it unexpectedly no longer does, and what we have learnt from the past turns out to be at best irrelevant or false, at worst viciously misleading, Nassim Nicholas Talebwrote in the bestseller Black Swan.
That unpredictability of action – and relevance of well-credentialed business models of the past – engulf the finance and insurance industry today. Online lenders, aggregators and digital platforms have the advantage of consumer database, power of analytics, low-cost model and faster processes.
You may not yet have a bank account or credit score, but Ola, Amazon, Flipkart, Jio and Swiggy have profiled you and financial services providers are using that information to sell insurance, mutual fund, personal loans and many more products.
When you are booking a cab, there is a pop-up saying if you are looking for a Rs 1-lakh cover, you need to pay Rs 149.
In many ways, cab aggregators have more hold on a customer than a bank, because a consumer is more likely to use the cab service and that has high recall value. If somebody bills a wallet with Rs 999 instead of Rs 99, they run analytics and know the DNA of the customers. Financial services providers piggyback on them and market their products.
“That conversion has started happening,” said Vibha Padalkar, MD and CEO, HDFC Life Insurance Company, which is daily selling 2,500 policies through Paytm. “It is a small number, but it can be very staggering.”
HDFC Life is running pilots where they have nudge engines and they track whether one is buying a BP machine or skipping rope or figuring out how to send one’s kids abroad. A pop-up will appear to share further information on it.
“The person thinks that the website is validating what he is trying to do and so after 5th or 6th nudge, we ask, have you thought of buying this policy,” says Padalkar.
Today, Acko is selling trip insurance policies with every ride covering passengers against accidents, missed flights and luggage loss. The general insurance company backed by Infosys founder NR Narayana Murthy’s Catamaran is charging Rs 0.5 to Rs 3 depending on the distance and duration of a ride. Over 50% customers of Ola are opting for trip insurance. Almost 50% claims are for missed flights.
“One of the biggest factors and the biggest gap is consumer ownership and when you acquire a consumer, the brand recall the brand name is low but he knows the intermediary,” said Animesh Das of Acko General Insurance. Acko has reached out to 20 million customers by tying up with Ola. “If the experience is good, you get long-term value from consumers.”
It has tied up with Amazon to sell mobile insurance cover and is looking to extend it to other appliances. Generally, the first financial service product for millennials is a screen protection insurance or an EMI for a laptop.
“Digital aggregator is cheaper than doing it ourselves,” said Bhavesh Gupta, MD, Clix Finance, which has tied up with Airtel, m-swipe and Paisabazaar. “Consumers recognise them and traffic on their website is far more than acquiring it directly. Acquiring directly digitally is 2x expensive than going through aggregators.”
Today makemytrip, cleartrip and yatra.com are doing a good job of selling small insurance along with flight tickets, but are they threats to specialised financial aggregators?
India has 338 lending startups. A report by Boston Consultancy Group shows that digital lending currently contributes to 23% of overall lending market in India, which will grow to 48% by 2023. BCG has estimated that India’s digital lending market represents a $1-trillion opportunity in the next five years.
“Customers won’t go to Amazon looking for health insurance… similarly, customers won’t go to Amazon to buy flight tickets or hotel rooms,” said Tarun Mathur, cofounder and chief business operator, PolicyBazaar. “We will sustain because insurance is our core product and not a by-product of what we’re selling.”
The distribution space that cab or flight aggregators are trying to get into is only to use their own customers for high financial gains.
ONLINE IS LOW COST
For BankBazaar, the consumer phenomenon is being driven by 50 million millennials and 300 million smartphones.
“Technology is allowing us to make real time decisions in a secure customer consent fashion to process decision data in real time,” said Aadil Shetty, MD and CEO, BankBazaar. “What used to happen in eight days with the use of technology has happened in eight seconds.”
Operational cost of managing transactions is lower and that goes into cost savings for the customer. About 99% of buying on internet happens on fixed cost of inventory. Inventory is sold on a cost per click basis, for example Rs 30/click. Now, if companies are able to take these clicks and convert them at a very high efficiency, the cost could be lower than that for a branch or DSA.
“A whole new generation of customers are now online leaving their digital footprints which can be used by digital companies to improve the customer experience with the help of AI and advanced analytics technology,” said Rishi Aurora, managing director, financial services, Accenture. “Online retail players have a large captive audience base, they have a strong modular technology architecture and they have firsthand sources of customer behaviour data patterns they can leverage using analytics to hyperpersonalise products and design seamless user experience.”
BANKS LOSING GROUND
With large parts of the financial services pie moving to online digital platforms, banks are likely to be left with deposits, clearing and large value loans. These new-age platforms have the potential to replace banks that have been the biggest sellers of financial products – insurance or mutual funds. Today, banks dominate the distribution of third-party products, particularly insurance. Life insurance distribution has constituted a major source of fees earned.
“Whether it is Ola, Swiggy or Jio, they have created customers at a far greater pace than any bank, and they have a better understanding,” said Rajiv Ahuja of RBL Bank. “The reason they will get into financial services is because they need revenue models. Barring deposits, clearing and wholesale lending, other services will move to fintechs.”
Traditionally, banks in India have focused on highly credit-worthy segments due to lack of credit history of others. In this process, they end up approving 25-40% of loan applications.
With ecommerce players looking to sell products that can enhance buying experience on their side, banks will either have to adapt or perish the thought of boosting profits with fee income.