Growing adoption of internet and mobile platforms by consumers to research and buy products and services online is likely to aid financial institutions to drive their revenues twice as fast in the next few years in India, consultant McKinsey has said.
While the overall financial industry revenue pool is likely to grow at around 14% per year from $120-130 billion in 2011 to $400-440 billion by 2020, the revenues acquired through online digital medium are likely to witness compounded annual growth of around 20-30%.
The digital revenues would account for nearly one fifth of the overall incremental growth until 2020, Alok Kshirsagar and Ramnath Balasubramanian of McKinsey & Co said in the report.
The digital services revenue pool for financial institutions in India, currently at $8 billion (Rs42,000 crore), is likely to grow eight times to an estimated $60-70 billion by 2020 on the back of rapidly evolving pool of internet-savvy users and easy online access via mobile phones and tablets, they said.
India’s internet penetration with significant buying power is seen as a huge opportunity for financial institutions.
India currently has 122 million internet users that hold a disproportionate 35 to 45% of India’s overall household savings pool. 27 million of these are “digital high-value” consumers the most influential segment, who account for nearly a third of the overall household savings pool of all online users.
“By 2015, while the internet user base is likely to triple to about 350 million due to cheaper phones and internet access and continued telecom investment in technology infrastructure, the number of high-value consumers, mostly in age group of 20-45 years with annual household income of over Rs6 lakh, is likely to grow by 160% to 70 million,” said Kshirsagar, a senior partner at McKinsey.
He said online consumer behaviour is changing fast and financial institutions will have to respond even faster to tap this segment.
“Poor virtual experience, lack of a differentiated product proposition, and customers’ security concerns are some of the factors that deter customers from going ahead with buying process. Recognising and addressing these challenges can help FIs to better serve online customers and capture the digital opportunity. Also they can only create value, lower costs and increase operating profits through innovation and change,” he said.
As per the McKinsey report, at present less than 0.5% of internet users searching for financial services actually progress online through the various stages of research, product selection, purchase and online activation.
Deepak Yohannan, CEO of Myinsuranceclub.com, an online insurance aggregator says that at present only 5% of the total visitors who log in end up buying a life insurance policy online. “One impediment is that very few companies have integrated their buying sites with that of aggregator. So even if a person clicks on buy he is redirected to the company website and has to start the process from scratch. And many customers are lost in this process,” he said.
McKinsey also says it may take time for customers to go fully digital, and suggests lack of differentiation is another reason why customers don’t buy products online.
But financial institutions counter that providing complicated products may turn away customers.
K G Krishnamoorthy Rao, MD & CEO, Future Generali, said the attempt is to provide vanilla products initially so that the consumer is more willing to buy it.