Millennial Archives - International Finance

Millennial-approved banking paves the way for dynamic industry shift

Bharath Kumar — Mon, 14 Jan 2019 08:05:36 +0000

If you were Internet savvy in the late nineties, you would have most probably encountered PayPal, a money transfer service developed by US-based company Confinity. It needed you to have a PayPal account to pay money electronically. It is also likely that you did not use it. However, as Bengaluru-based Deepthi Rajan, Head Technology Upskilling and Communication, Corporate and Investment Banking Technology at Societe Generale notes, “PayPal was the first alternative to traditional banking.”
Now fast forward to the present. On the afternoon of a business trip, a millennial lawyer in Mumbai was at the airport sans her credit card. An accompanying senior colleague paid for her air ticket. To return the money, she asked if he had Google Pay. He didn’t. Two weeks later, she had yet to return the money. “I have to do net banking, set up the third party account, and….” she said, by way of explanation. Google Pay meant she just had to log on to the app on her smart phone, enter a passcode (or fingerprint) to open the app, search for his name and transfer the amount. “It’s convenient because there is no need of a wallet, like Paytm wallet, and the money is directly transferred from my bank to his without the need for an intermediary.” A study by the American Banks Association had one standout of millennials’ banking habits. 71 per cent of those who participated in the study would rather go to the dentist than listen to what banks were saying.
But fintech or Financial Technology, in the hands of disruptive entrepreneurs, has changed banking entirely. It is an innovative use of technology in the design and delivery of financial services be it AI, peer to peer lending, digital payment; just to name a few of its services. In fact, fintech start-ups have attacked every part of banking, from wealth management, trading, retail banking and savings. As of now, they are the front end of banking while the boring part is still the traditional banking system. Rajan illustrates with an example of Bank ‘B’ and fintech company ‘F’. If Bank B has a cumbersome paper-based mortgage process and Fintech F has just the solution – a fully digitised product spanning the entire mortgage process from application to approval, complete with a super easy to use interface. F needs customers – a banking license would be good but customers are essential. B’s API gives F access to B’s customer data.
Soon, B’s customers have a hassle-free experience applying for mortgages and F has access to a well-established customer base. BaaS (Banking-as-a-Service) can often result in point solutions such as personal finance management tool, accounting software, interest calculators or ATM locators being developed by third parties. These solutions can be sold as standalone applications, be part of an app store, or integrated into a product suite, all of which may or may not be owned by the banks. This is apt for the millenials since the above mentioned studies show that at least 23 per cent of them feel that the main barrier to banking was the lack of mobile apps.
“Importantly, Fintech is removing the need for bank branches or any physical infrastructure, just like ATMs removed the need for human beings to act as bank tellers to give people money,” says Vikram Gulati, a MBA (Finance) student from Stern, NYU, “It is enabling a much larger customer base, as people can live and work far away from their actual “branch” and is allowing not only faster services like instant money transfers but also instant investments into mutual funds/fixed deposits. It is also allowing lots more people to have access to credit, as analytics on spending etc. can help drive credit scores (still experimental). Other innovations include buying of insurance online, filing tax returns easily and so on. Millennials would rather use such apps.”
Now, thanks to fintech, banking is perhaps just as easy as hailing an Uber taxi. In the US alone, Facebook has 50 different regulatory licenses that will allow its users to transfer money by the messenger app. In Britain, for some of the millennials, Monzo is close to being a cult. WeChat in China takes it further by allowing the user to not only buy insurance, make payments, invest in funds, but also book doctor’s appointments, donate to charity, and even set up dates.
While fintech companies deliver personalized experience through a deep and focused understanding of the pain points in customers’ banking journey, what does it actually mean for customers and banks? Rajan notes that for customers, it’s a great deal; access to better products, elegant user interfaces and enhanced services. But the downside is that customers must deal with a fragmented set of service providers for different services – loans from one company, investment advice from another, deposits from a third and so on. For the millennial lawyer, that is not much of a big deal. “I can choose,” she says.
But how do the traditional banks deal with fintech? Fintechs with their narrow offerings, minimal regulatory obligations and zero legacy technology infrastructure are an uncomfortable reality unless, as Rajan notes, the traditional banks acquire a fintech (BBVA’s acquisition of Simple) or partner with one (HSBC with Tradeshift). “But many such relationships are largely driven by a zero-sum mentality, where one party wins often at the expense of the other smaller player,” she points out.
Industry experts like Henri Arslanian, who teaches the first fintech university course in Asia, have stressed that as banks try to integrate fintech to bridge the gap between customer experience and what they traditionally offer, the role of the future banker will be very different from the present day.
“The skill sets will be different,” he said in his TedTalk. “There will be designers and programmers rather than traders or compliance officers.” Already, it is estimated that in the next ten years, about 30 per cent of the banking jobs will disappear. A grimmer outlook estimates it as 50 per cent. But, no matter what, fintechs are providing banking to millennials in a way they actually like.
We would, however, like to leave with this reminder by quoting Douglas Adams:
We are stuck with technology when what we really want is just stuff that works. Fintech companies should keep that in mind.

The post Millennial-approved banking paves the way for dynamic industry shift appeared first on International Finance.

Insurance, the next digital sector in the Internet age

Bharath Kumar — Thu, 15 Nov 2018 12:02:02 +0000

More important for many incumbent insurance companies is the sector’s transformation in the age of the Internet.

For a long time, the traditional approach to an insurance business model had been embraced by everyone because it tends to humanise interactions between both customers and agents. As things are, nearly every sector is looking to automate and digitise its business model: from sharing information to customer interaction to business collaboration. Leaving behind an exception: The insurance sector has reflected a slow progress in digital disruption. For this and other purposes, the sector is swiftly warming to the idea of digitisation.

Digitalist Magazine noted that according to IDC, “enabling contextual and meaningful interactions across the customer journey—and across multiple digital channels,” is a chance for insurers to reinforce their core business models. For example: Insurance platform Slice has come to the realisation that by automating its processes—there is a fair possibility to trim down 65% of business cost, reported Forbes. The company has INSURANCE built a wholesome website to bring data to customers. The process is quite simple—one-click to draw any relevant information. As the McKinsey report reads: By and large “Automation can reduce the cost of a claims journey by as much as 30%.” For companies, the symptom to not understand the fundamentals of convenience that customers want is a major obstacle, or worse it becomes increasingly challenging to produce attractive numbers.

It appears that “leading companies are using data and analytics not only to improve their core operations but to launch entirely new business models.” Companies such as MassMutual, Grange Insurance, Nationwide and Safeco are analysing data to comprehend customer lifestyle for the sake of personalising offers and ensuring an interactive experience. As discussed by IDC, a data-rich world is more accurate to assess individual risk against historically established case records because the former solely seeks to understand real-time consumer behaviour patterns and individual choices.

“Insurers of the future will play more of a risk avoidance role and less of a risk mitigation one,” Andrew Rose, CEO of US insurance comparison website Compare.com, said. Such experts’ argument for the sector going digital has been proven exact by real instances. MassMutual is carrying out a data mining exercise on social media to classify customers more sensibly. The outcome will help to position products and services with more relevance to the market.

Overall, modern insurance companies are understanding the new challenges and opportunities that alter the sector’s presence in the market. This points to the digital forefront. This means, insurers can “price and underwrite more accurately, and better identify fraudulent claims,” the report stated. To the question of how they can apply this exercise, the answer is, by using this force they can offer clients more enhanced products. Case in point: “auto insurance that charges by the mile driven.”

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Do Indian millennials trust cryptocurrency?

Bharath Kumar — Wed, 30 May 2018 04:42:21 +0000

Fixed deposits in banks, post office savings, government-sanctioned and historically safe Public Provident Funds (PPF) and conventional real estate have been the safest and most convenient forms of savings and investments in India for several decades now.

Millennials, however, are lured towards the path leading to the latest investment trends, leaving behind the old ones. So, with the advent of new investment opportunities such as cryptocurrency, how are professionally-active millennials investing? What’s their preference in terms of investment and where are they putting aside some money for the proverbial rainy day? And finally, what is their approach when it comes to the adoption of new modes of investments like cryptocurrencies?

Talking to a bunch of millennials from various professional backgrounds like IT, marketing, media, management and sales, a whole new picture came to the fore.

When it comes to the adoption of cryptocurrency, which is unregulated and largely experimental even now, millennials prefer to play it safe.

They consider it as ‘quick money’ and a way of earning what ‘banks offer after one or two years of investment’ in one go. Some of them even acknowledged that they aren’t sure how the process works. They only engage in it because it gives them high returns in the shortest span of time. Cryptocurrencies don’t figure as part of their long-term plan.

For them, cryptocurrencies are a mere tick in the box. When asked how they see cryptocurrency in terms of investment, they disapproved sharply. Surprisingly, even the ones who deal in cryptocurrencies said that they don’t see it as a form of investment, because they can’t entirely trust it. The ones, who did invest in crypto, opined that they did at a time, when they had some excess savings in hand which they considered that they could ‘afford to lose’.

With the rise in knowledge and awareness about cryptocurrency in the country, last year, there has been a definite boom in India’s cryptocurrency space. The Internet and Mobile Association of India (IAMAI) that aims to augment the online and mobile value added services in the country stated that there are around 5-6mn crypto users in the country and the number is growing even more. In a press release of IAMAI published in February stated that 2018 will see a major growth in the number of internet users, which will possibly reach 500mn mark. With the rise in the number of internet users, there are chances that the number of crypto users will also take a positive upturn.

However, India, the cryptocurrency market is in troubled waters. The government is carrying out extensive scrutiny on the legality of crypto transactions and there are chances of a regulatory crackdown on crypto dealings. Citing this as a reason, many millennials are not keen on dealing with cryptocurrencies.

Millennials’ most preferred mode of investment

When it comes to investing their hard-earned money, trust is of paramount importance, which they find with traditional investment avenues:

Banks: Be it a business mogul like Nirav Modi duping Punjab National Bank or banks like Axis bank and Union Bank being charged with penalty for improper regulations or fraud, currently Indian banks are in the news for all the wrong reasons. Yet the whole of India that includes the millennials, position banks as their #1 choice of safest savings for both short-term and long-term investments with a maximum return of 7.2% on an average. Fixed Deposits are their favourite because according to RBI’s rules, bank needs to take insurance of deposits placed by its customers and there is no uncertainty in the investment that yields good and fixed returns in the long run.

Post Office: As per the millennials’ choice,another ‘safeoption for millennials with low risk appetite is the post office. Like banks, post offices are also a favourite mode of investment for the country majorly because it is safe, involves no Tax deducted at source (TDS) and gives a maximum return of 7 percent on an average.

The various Post Office schemes include National Savings Certificates (NSC), National Savings Scheme (NSS), KisanVikas Patra, Monthly Income Scheme and Recurring Deposit Scheme.

For rural India, where plastic money and going cashless haven’t gained momentum like urban India, it is a convenient option for investment as it involves low investment and the poor can open accounts with an amount as low as Rs.20.

Real Estate: The career-inclined millennials don’t stick to one place. From their home location either they shift for higher education or for jobs. As a result, the Indian millennials who are also referred to as ‘renting generation’, reside in rented apartments. But Anuj Puri, Chairman of ANAROCK Property Consultants Private Limited says: “To say that Indian Millennials prefer to rent homes would be a senseless generalisation.”

Indian millennials, consider buying properties and lands a sound option for the long run. When asked why, they replied that in the long run even if they don’t profit by selling, they can utilise it for their own accommodation or rent it and earn good cash. But the millennials who are in their early and mid-twenties doesn’t have the capital to invest in real estate, although they are counting pennies to invest in real estate in their near future.

Giving a brief insight about the same, Anuj said: “Buying a home may or may not make the same kind of investment sense as stock market speculation. However, an Indian Millennial is very apt to consider owning a home as an essential and fundamental basis from which to launch the rest of his or her other life plans.

Also, the regular income of a rented-out second home conveys a much stronger sense of financial stability in India than investments in the stock market. While it is true that like the stock market, the real estate market is also driven largely by sentiment, it is equally true that the real estate market is not nearly as fickle. Furthermore, there is almost never a dearth of demand for rental homes in a country where the largest part of the population can still not afford to buy homes and indeed consists of transient workforces which depend solely on rental accommodation.”

Other modes of investment

After investing in the above three, millennials who have taken interest and keenly observe the market, invest their money in other platforms; they also invest in stock market and mutual funds. But as they have pointed out, it’s not very safe and needs knowledge and constant monitoring.

When it comes to adopting anything new, millennials are always the first in the queue. But their investment trends display an image entirely different from their general open-to-anything-new nature and resort to traditional modes of investment.

The post Do Indian millennials trust cryptocurrency? appeared first on International Finance.

Millennials revamping the Indian residential market

International Finance Desk — Tue, 18 Jul 2017 06:42:31 +0000

By now, it has become quite clear that as a generation, Millennials have a very different take on home ownership than their parents and grandparents did. This trend has been studied extensively in the West, but it has made itself quite obvious in India too. How do Millennials view home purchase differently in general, and in India in particular?

Anuj Puri, Chairman, ANAROCK Property Consultants

Different strokes

In the first place, this is a generation of people who were hands-on with technology from childhood onwards. Social media, Google and the blog universe have been part of their life from the word ‘go’. Millennials also display a much higher ability to adapt and accommodate than the previous generations, which is why co-working has become such a relevant concept in India today.

This very dynamic generation has been defined in many different ways, but we generally consider people who were born between 1980 and 2000 as Millennials. At a generation level, we see that the boundaries between work and pleasure, business and leisure and indeed workplace and residence have become far less distinct than they were before. Home is where the computer and PlayStation are, the workplace is where the free Wi-Fi, recreation area and VC room are. Millennials who have finished college and are professionally active tend to have quite a bit of the ‘digital nomad’ in them.

A renting generation?

The hitherto unprecedented ability and willingness of Millennials to adapt is one of the chief reasons why the market for the rental homes in India is stronger today than ever before. Millennials are not as particular about the status value of their address as they are about the connectivity, conveniences and security of a neighbourhood. They want to be able to get to work and back home quickly and enjoy a decent level of social amenities in the area they live in.

For many of them, buying a home in such an area may be beyond their financial capability, so renting makes complete sense to them. However, even if it is affordable, Millennials as a global breed do not necessarily view buying a home as the best of investment choices and may choose to put their surplus cash into stocks instead.

Apart from the fact that many of them move around quite a lot, an increasing number of Millennials also have the option to work at home, wherever that happens to be. Either way, staying flexible with location can be an important consideration for many Millennials during their active career life. Globally, especially in the highly developed countries, the Millennial Mindset as a factor influencing residential market trends highlights a definite predilection for renting as opposed to buying homes. We are also seeing this trend in India, but it is far less distinct.

The Indian Millennial

There can obviously be no cookie-cutter approach to studying the preferences of an entire generation – and those of their offspring, who basically grow up absorbing the preferences of their parents. The near-impossibility of trying to slot this generation in a neatly-labelled category becomes even more evident when we consider how Millennials actually differ quite a lot from country to country. For instance, different attitudes towards renting or buying homes in different parts of the United States and Europe are readily apparent.

In Asia, the variations are even more distinct, primarily because employability and prosperity levels tend to vary vastly in most cities. India, where the gulf between the earning power and therefore investment appetite of different parts of the population even within the same generation can be vast, is a prime example.

To say that Indian Millennials prefer to rent homes would be a senseless generalization. In this massive sub-continent, people come from different economic and social backgrounds. We do see many common traits of the Millennial generation among Indians who have had the good fortune of a good education – for instance, digital savviness, a willingness to blend their professional and personal lives, and the tendency to travel a lot. However, we also see that parental and societal influences can still hold considerable sway.

Therefore, an Indian Millennial often opts for home ownership where his or her global counterparts may happily live their entire lives in rental homes. In India, no single factor conveys a feeling of security and social integration quite as much as a self-owned home does. Buying a home may or may not make the same kind of investment sense as stock market speculation. However, an Indian Millennial is very apt to consider owning a home as an essential and fundamental basis from which to launch the rest of his or her other life plans.

Other variables

In other words, owning property tends to make a lot more sense to an Indian Millennial. Again, this trend can vary pretty significantly from state to state and even city to city, depending on several factors including:

The affordability of real estate
The average level of education among the local population, which influences purchasing power
The kind of employment opportunities being generated locally, and
The social influences at play

Within the scope of home ownership, an area where we have seen considerable change is the kind of homes that millennials prefer over their forebears:

Super-sized luxury homes are generally out, compact homes with good potential resale value are in
Snob-value addresses are out, local conveniences and connectivity are in
Projects by unknown developers are out, projects by well-known developers are in
Poorly-developed and therefore insecure locations are out, local and in-project security is in
Focus on the lowest ticket size is out, focus on value for money is in
Non-availability of parking spaces is a complete deal-breaker

Some of these requirements may seem natural and logical when one considers them today, but they are actually the result of a generation which lives, works and thinks very differently than the previous ones. While Indian Millennials do continue to traditional influences, they are equally wired into the realities of modern-day India where positives such as technology evolution, vastly improved infrastructure and a significantly revamped job market, as well as negatives like proliferating crime, urban decay and traffic chaos all play a role in the where, when and how of home purchase.

Developers have had no option but read the writing on the fall and fall in line with the more exacting requirements of Indian Millennials. Builders who have stubbornly held on to their ‘traditional’ success formulas and not deciphered these market signals tend to find themselves with few if any takers for their projects. The sea-change the market has undergone and the new influences that drive it are very evident from the kind of features that builders now highlight in their hoardings, product brochures and radio jingles. Indeed, the Millennial Factor has induced a major revolution in the Indian residential real estate space – and it will only keep changing from here on.

Anuj Puri is Chairman of ANAROCK Property Consultants.

ALSO READ: Understanding the intricacies of real estate funding

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