Emerging Affluent and the Increasing Opportunities in India

Emerging Affluent is a growing consumer class who are accumulating wealth and rapidly improving their personal well-being and meet the financial goals. Normally, these are first generation, upwardly socially mobile that are able to carve out a life for themselves and their children, visible better than that of their parents.

Fast growing economies of Asia, Africa, and Middle East is witnessing rapid growth of this group as compared to the West part of the world. 

Where does India stand?

India is at the most exciting juncture with ‘the unrealised opportunities’ that give India a huge advantage. Some of the opportunities have been talked about in various “India Rising” and “Advantage India” kind of reports but it wouldn’t be inappropriate to revisit some of these:

1.   Urbanisation Growth

A McKinsey report estimates that by 2025, India will have 69 mid-sized cities with a population of more than 1 million and by 2050, ~50% of population would urbanised and this segment will be a significant contributor to the nation’s GDP.

2.   Advantage Population’s age division

India is one of the youngest countries in the whole world with median age of 26.7 years.

The working age demographic in India is large, with 63% of the nation’s population aged between 15-60 years of age.

3. Advantage Indian Millennials

Millennials are normally considered as people born in 1980s and mid 1990s

• Size does matter: As high as 30% of Indian population is fall in the group, called millennials.
• I, Me, myself: ~52% of their disposable income is spent on leisure activities.
• Movie-buffs and the love for Bollywood: 90% of these Indian millennials go for movies atleast once a month
• Wannabe Zuckerbergs, Bezzos, Elon Musks: Over 70% of Indian start ups are started by Indian below the age of 35 years, thanks to the rise of Flipkart, Ola Cabs, Paytm, MakeMyTrip, OYO Rooms, Zomato and many more…

4.   Structural Economic Reforms since 2014 pushing formalization of economy

India has made ‘visible’ structural changes since 2014 after Modi took as the Prime Minister of India fueled by Nandan Nilkeni’s concept of J.A.M : JanDhan, Aadhaar and Mobile trinity, followed by demonetization by the Indian government.

How did this impact? See for yourself…

Over 300 million households have opened new bank accounts since 2014, helped by government’s Pradhan Mantri Jan Dhan Yojna.

By 2025, India’s middle class is expected to double upto 550 mn people, which equivalent to current population of the US, UK, Germany and France combined

Exposure to financial savings has been on the rise, indicating a shift in the savings structure that is beneficial for economic growth. Formalisation the economy and Increased tax base by 26% between FY2017 and FY2018.

5. Technology as force multiplier

• India has over 250 mn monthly active users of Facebook’s buy-out, Whatsapp… this is more than the population of many countries

India is the world’s second largest smartphone market but nearly 1bn Indians still do not own a smartphone

What does this mean for the Emerging Affluent Consumers?

Emerging Affluent consumer segment have money, to spend, to save and to invest. They are improving their living standard by achieving more and more in their careers, businesses and even in their education. That is why, I believe that this consumer class are going to play large role in the market growth.

The intersection of emerging affluent and the Indian demographics reflects the clear opportunities that lies for consumption, banking and wealth management industries. Managing their finances is one of the most critical aspects for this segment and the 2 most used strategies would be:

• Career progression and Salary increase
• Investing in financial products like mutual funds, stocks and bonds etc.

Of course, the latter is linked to the former since as the income increases, more would be the decision making for selecting the right asset class and instrument for investing that can help them to meet their financial goal.

But are they equipped to take the right decisions about investments? I believe, not fully.

The emerging affluent know what they want to achieve with their money, and have identified clear goals to work towards. Being the first-generation rich, saving for children higher education is the top-most financial goal of this segment. The next one of building a house and creating a retirement corpus, due to lack of social security in developing countries like India. So, what are the financial products being used by the segment:

• Savings account
• Term / Fixed Deposits
• Property / Real Estate
• Mutual Funds
• Insurance
• Provident Fund (Employee or Public)
• Stocks

Actually, the products remain the same, it is the mix that changes as the wealth grows.        

Who is solving for bridging the knowledge gap to provide the solution?

A large population of the emerging affluent segment is unable to make the right decision due to lack of knowledge and sometime, lack of trust on who’s providing the information. Sometimes, even the poor or not-so-good first experience pushes them back into the shell and settle with lower than optimum returns, thus extending the period to achieve their financial goals.

If you look at the above mentioned financial products again, you will realise that Banks in India are fully equipped to provide all of these solutions, some as manufacturers and others as distributors.

Digital holds the key !

We are seeing rise of ‘FinTechs’ in India which are trying to solve for some of these issues. Most of them, though are making financial products more visible and accessible, are struggling due to ‘lack of trust’ of the emerging affluent on these not so known platforms.

Banks, on the other hand, are doing both partnering with these fintechs to bring agility to their solutions for the huge CASA customer base or investing into technology to create world class platforms, both for their customers and for their relationship management team. (For example, look at www.axisbank.com/investments to see how the bank has allowed customers to take informed decisions quickly and easily).

At the same time, fintechs with some track record, even in another field, are disrupting the market with 2-pronged strategy:

1. Awesome UX and
2. Unbeatable Pricing.

Zerodha and Paytm Money are the classic example of how they have played these two strategies so well. 

Emerging Affluent are using the digital tools and smartphones more than anyone else to track their money and make payments. This adoption needs to move to the next level of ‘investing’, online wealth management. But how?

Assisted Digital?

One of the Standard Chartered Bank study reflects that,

69% of Indian emerging affluent would invest in financial products but only if they had an on-demand adviser available to assist.

Does this mean ‘robo-advisory’ plus Relationship Managers is the way forward. And that is why, Banks and wealth management boutiques continue to invest into relationship capital human capital to serve this emerging consumer class.

Another insight from the same SC study was t

When investing their money in online financial products, 67% of Indians would accept a high level of risk in exchange for a high level of return.

This clearly reflects that the banks will continue to expand their product baskets from mere TD, Mutual Funds to wider range of products like NCDs, REITs, NDPMS, broking etc. This would mean right asset allocation from the customers and sustainable margins for the distributors

Interesting times ahead for financial institutions, especially banks, product and relationship management teams to partner with their emerging affluent customers to create wealth over the next decade or so.

Disclaimer: The views expressed above are personal and not my employer’s.