India’s Wealthtech Opportunity: A Return on Investment Unlike Any Other
India’s Fintech ecosystem and the underlying opportunities have earned global recognition over the last five years. India’s Fintech accolades – from being the highest global Fintech adoption rate, boasting amongst the highest number of startups in the segment to the funding and investments the sector has received over the last several years – has cemented its position as a global Fintech superpower.
While the subsegments of digital payments and digital lending have often earned the status as the foundation of India’s Fintech emergence, another critical subsegment is on the cusp of achieving almost ‘parabolic’ growth and with it, significant opportunities.
The Indian Wealthtech market is poised to grow to over $60 bn1 by FY25, from its current market size of $20 bn. Wealthtech, or simply Wealth Technology, is defined as the implementation of high-end technologies (such as artificial intelligence, machine learning, big data, and advanced analytics) to provide more efficient and effective solutions and tools for investments, to wealth-managers and consumers.
Some of the Wealthtech solutions that have emerged globally, and are starting to be more ubiquitous in the Indian market include:
- Robo-Advisors: Digital platforms and interfaces that provide financial advice and investment management solutions to consumers with limited human involvement. The platforms use advanced software and algorithms based on the customers’ choices and variables (such as risk appetite, investment horizon, expected return, objectives, etc)
- Digital Brokerage: Online platforms and software that provides consumers access to the stock market and investment vehicles, along with comprehensive investment-related information.
- Portfolio Management Tools: Digital platforms that enable consumers to unify their investments and liabilities onto a single platform, for better analysis, convenience, and management.
- B2B Software Services: Business solutions leveraging advanced technologies to customize and create disruptive software and applications for wealth management firms.
The aforementioned are just a few of the various segments and solutions that are at the forefront of this emerging category. While the solutions and services have, in principle, been created and tailor-made for Indian adoption, the opportunities are just now being realized.
An estimated 2% of Indians actively invest, as opposed to developed markets such as the US where over 50% of the households hold investments2. While the lack of awareness has typically been an impediment to this industry, there now exist various growth drivers and behavioral shifts that are poised to push 3X projected market growth for this segment:
- High Awareness and Financial Literacy: Given India’s young demographic and rising education levels, combined with the proliferation and access to high-quality financial information, there has been a surge in the number of young investors buying financial products and solutions, a category historically seen as ‘daunting’ and ‘aspirational’ due to the preexisting (and incorrect) perspective of this segment as being ‘risky’ and ‘capital-intensive’. The higher degree of financial literacy has therefore enabled new investors to understand the associated risks, theories, and solutions for all budgets and objectives.
- Higher Disposable Income: The story of India’s increasing wealth has been well documented for decades now. Rising levels of urbanization, skilling, education, and opportunities have made Indians ‘better off' now than we were twenty years ago. India boasts one of the highest growth rates of disposable incomes in the world at over 30%3 from FY15-FY19. Furthermore, Tier-2 markets and regions in India have seen even higher growth rates in income, education and technology penetration and have created a valuable and underpenetrated target market for these solutions, as things stand. Increasing levels of wealth coupled with higher degrees of financial literacy and awareness have enabled more Indians to enter the market and invest in solutions and products across various time and capital-related horizons.
- Better and Efficient Technologies: Motive without method usually results in inaction. A key driver to the adoption of Wealthtech solutions has been the sophisticated, seamless, and high-end technology solutions and products offered by various domestic and international organizations. These platforms have not only focused and invested in the underlying technologies of sophisticated algorithms and real-time analysis of big data but have invested significantly in the user interface (UI) and user experience design (UX) aspects as well. This factor is (and will continue to be) critical in the widespread adoption, and retention of newer users. It is no surprise then that one of India’s leading Wealthtech companies – Zerodha Broking Ltd. – is not just amongst the top 20 websites visited by Indians daily, but has the highest ‘daily time on site’ at more than 25 minutes amongst all of India’s top 50 websites4.
- Millennialism, Media, and Mania: A key pillar for influence in India has always been films and television. Indians are amongst the highest consumers of movies, television, digital content, and media in the world. So vital are these sources to the fabric of Indian society that national healthcare campaigns, missions, and awareness drives (such as tobacco-awareness, Polio-drives, and Covid-19 awareness) have been built for dissemination via these sources, and in turn, achieved widespread success. In the last few years, the content revolving around investments, trade, and finance has done immensely well, thereby ushering in a movement in consumer behavior. India’s homegrown OTT show – ‘Scam 1992’ was amongst the highest-rated TV shows of the last decade, so much so that a movie – ‘Big Bull’ is also due to launch in 2021, to tap into the frenzy. Additionally, global stories pertaining to ‘GameStop’, ‘AMC Entertainment’, and the cryptocurrency boom over the last few years has driven several millions of consumers, led by a large millennial base, towards financial literacy, investments, trading, and in turn, wealth management.
- COVID-19 Pandemic: While the pandemic brought with it significant economic and business hardships and the inability to survive, it presented several sectoral opportunities for businesses to reconfigure and even thrive. Various digital-led sectors such as gaming, enterprise communication, and tele-health have fared strongly during the pandemic, Wealthtech in India did also see a strong upsurge after the first initial few months. After a significant decline in India’s stock market due to the onset of the pandemic, India’s strong growth prospects, Government reforms, record investments and fund inflows and strong fundamentals, created strong headwinds towards not just recovery, but a stock-market boom, a boom that investors (both retail and institutional) were keen to tap into. New retail investors leveraged various digital platforms such as Zerodha (Kite), Upstox, Sharekhan, ICICI Direct, Groww, Scripbox and Kuvera etc. during the pandemic, most seeing double digital growth in user-base from March to October. Additionally, given the ‘new normal’ of working from home and higher screen times, not just did the user-base grow but so did the average ticket sizes, of investments per user. While we are on the tail-end of the pandemic, consumers continue not just to utilize wealthtech solutions, but often refer family and friends to these. This shift in behavior has been a critical cog, and launchpad, towards mass adoption of these solutions.
These points have touched upon some of the contributing elements towards the Indian wealthtech opportunity. The underlying infrastructure and ecosystem have also witnessed immense growth already, due to the funding the segment in the last few years. In 2019 and 2020, wealthtech witnessed investments of over $100 mn from global and domestic investors across 13 deals5. However, the potential of the segment – which currently has about 4 million wealthtech investors – to grow towards a user-base of 12 million investors, coupled with further innovation, larger average ticket sizes, a more effective network effect and spillover, and newer use-cases and solutions, the sector is poised to attract several times the current investment amounts.
Update: On December 3, 2021, Hon'ble Prime Minister Narendra Modi will inaugurate the Infinity Forum on fintech, which among other things will discuss and come up with actionable insights into how technology can be leveraged by the fintech industry for inclusive growth.
- RedSeer Management Consulting
- Pew Research 2020
- Financial Express 2020
- Alexa Internet Inc.