Time For Wealthtech to Stand Up

Early in my career, I had the amazing luck to be working out of the BSE building, the iconic Mumbai landmark with a massive screen and an electronic ticker tape right under it. Sneaking off to the chai tapri outside used to be the high point of most days. You could hear chatter about current news affairs and lament about the state of Mumbai. But every now and then one conversation would intrigue me. The chaiwala would ask his customer who would be looking at the giant screen, what stocks the customer had been buying. And very often, the answer would be, “All this is satta (gambling)”. And we would find this very amusing.

Except that it isn’t amusing anymore.

This aversion to financial markets has meant that in 2020 when Indian equity markets brushed off Covid to rise 16%, the average wealth per adult actually fell 6%. Only 0.87% of households with surplus invest in equity or mutual funds leading to lopsided wealth distribution. The Gini Coefficient (a measure of inequality) has risen from 74.7 in 2000 to 82.3 in 2020, while the share of wealth owned by the top 1% has gone from 33.5% to 40.5%.

When most of the news media was celebrating the Zomato listing, most of their readership/viewership was wondering what the fuss was about.

Sometimes statistics don’t tell the full story. But they do set you thinking.?

There are many reasons why Indians do not invest in financial markets. A lot has been written about the lack of financial education and the mistrust of businesses. But with time and rising gains, the importance of investing should have been explained to the potential Indian investor. But it hasn’t. Why?

Because there isn’t anyone to explain this to the investor.

Consider this: in the United States, there are over 5000 agents or advisors per million households. The same number for India is a mere 437. Even if we focus on households that likely have savings, the number is at best 2500 agents per million.

And in this challenge, lies an opportunity. A conventional thought process would suggest that we need to boost the number of agents/advisors. But this is a different time and a different country. There is both access to and inclination for digital tools. India can leapfrog to a state where the majority of households need to be serviced by technology platforms.

Clearly, this is easier said than executed. To me, the winners will be those who solve for the lack of the human element (unlike the rest of fintech).?

And to attempt that, Indian wealthtech has to:

1. Move beyond transactions: There is an active group of investors who are curious about investing. The current transaction platforms serve this group exceptionally well. The recent SEBI guidance to RTAs is also a game-changer. Now, however, there is a need to focus on delivering advice to those who are not inclined towards investing.
2. Play the role of a fiduciary: Often, the excitement of investing in a new asset class drives customers to digital platforms. However, in dealing with other people’s money, responsibility for where it is directed is paramount. Wealthtech needs to ensure that systems are in place to recommend investments appropriately and post diligence.
3. Understand the user: The key role a human advisor plays is to discover the client’s investing personality. In fact, success on this metric separates an average advisor from a rockstar. How platforms build this personality and use it to serve the user will be interesting to watch.

This quantum leap will define not just the Indian investing industry but India as a whole. Formalisation of savings will make access to capital available to Indian businesses, helping, in turn, the workforce who will then be able to save/invest better: a virtuous cycle.

But above all, this transition will have a real human impact. When you improve the financial situation of a family, you help them live better lives. And for each family that does better, many others thrive. Wealthtech then has a unique power to shape a better India, and as a Spiderman fan recently told me, “with great power comes great responsibility”.

It's time to stand up, and deliver.