Increasing ease of access to internet is changing consumer behavior. One area which is witnessing the early adoption of services is the financial sector.
Financial institutions in India have a digital financing services revenue opportunity of $8 billion today, this figure is likely to grow eight times to an estimated $60 billion to 70 billion by 2020, said a study done by McKinsey & Company.
Of the 122 million internet users in India, 27 million are high-value consumers who represent a disproportionately high volume of internet use. These customers account for nearly one-third of the overall household savings pool of all online users, influencing the growth of digital financial services in India.
By 2015, the user base is likely to touch 350 million (70 million digital high-value consumers), thanks to cheaper technology and increased investment in 3G and 4G infrastructure, said the report. For financial institutions, the revenue pool will likely grow at 20 to 30 per cent CAGR—$60 billion to 70 billion by 2020. This is twice as fast as financial institutions’overall revenue pools, and estimated to account for approximately 20 per cent of incremental growth until 2020.
“The opportunity in digital financial services is here and now, because online consumer behaviour is changing faster than financial institutions are responding. Consumers are using technology to rapidly change the way they access financial services, and financial institutions will have to respond even faster in order to support and accelerate the behaviour that is already changing,” said Alok Kshirsagar, senior partner at McKinsey.
McKinsey & Company’s report, The digital edge: New opportunities in financial services (November 2012) examines the key trends and usage patterns of India’s millions-strong internet user base to map out how financial institutions must urgently transform their current digital platforms and business models to meet increasingly sophisticated needs.
“These 27 million digital high-value consumers are between 20 to 45 years of age, live in the top eight cities of India, and have an annual household income of Rs 6 lakh or more,” says Kshirsagar. “Even the best performing institutions today are not doing enough to satisfy the rising expectations of digital customers. Winners will develop more compelling and easy to use online and mobile applications, adjust their sales and service practices and incentives, and drive digital as a core priority, rather than just a marketing exercise.”
However, today less than 0.5 per cent of India’s internet users searching for financial services actually progress online through the various stages of research, product selection, purchase, and finally, activation.
According to findings, online services offered by financial institutions are ill-equipped to handle such peaked future demand. Three factors drive customer drop-offs: poor virtual experience, lack of a differentiated product proposition, and customers’ security concerns. Recognising and addressing these issues would help financial institutions to better serve online customers and capture the digital opportunity, as the challenge is not in changing consumer mindsets, but in changing user experience.
Most of the opportunity in this growing revenue pool will come from customer behavior—primarily digital high-value consumers—that is “influenced by digital”. This means customers search and research online, but potentially buy offline; for example, through a branch or sales agent. “Fully digital” consumer journeys, where the search, research and purchase all take place online, will likely account for around $6 billion to 10 billion of the overall revenue pool.
“Several global FIs are seeing dramatic results by rapidly reorienting their models to serve digital high-value customers,” says Ramnath Balasubramanian, partner at McKinsey.
According to findings, online services offered by financial institutions are ill-equipped to handle such peaked future demand. Three factors drive customer drop-offs: poor virtual experience, lack of a differentiated product proposition, and customers’ security concerns. Recognising and addressing these issues would help financial institutions to better serve online customers and capture the digital opportunity, as the challenge is not in changing consumer mindsets, but in changing user experience.