[Editorial notes: Personal finance startups in India are finding it hard to scale or even survive. Srikanth Meenakshi, Cofounder & COO of FundsIndia responds to our earlier piece on Why Personal Finance Startups in India do not survive]
I don’t think NextBigWhat’s rather despondent take on the personal finance startup space is justified. There are quite a few healthy startups in place in this area – at FundsIndia.com, we sure count ourselves as one. Apart from us, there is BankBazaar.com and Perfios.com, along with new entrants such as Arthayantra and ScripBox. There are also a host of entities in the insurance business.
Personal Finance: Opportunity and Challenges
The reason for this is that personal finance will always be an attractive domain for startups to venture into. There is no inventory to maintain, supply-chain to worry about, warehouses to upkeep, shipping and delivery to process etc. It is an inherently scalable business that can be run efficiently with technology and a relatively lean staff. In some cases, the revenue model will have a lucrative annuity component (trail revenues in mutual funds, for example) as well, enabling businesses to tide over vagaries of economic cycles.
However, such an opportunity will obviously come with challenges – startups will have to contend with established, much-larger players with deep pockets for marketing spend and a consequent big brand name. Building trust with customers will not be easy. There will be regulatory changes that will be distracting and consume resource and energy. The markets will often be unkind at the most inopportune times.
Are these challenges unbeatable?
However, all these are challenges that can be overcome with hard work, some ingenuity and persistence. In his article, Ashish implies that there are organic, insurmountable difficulties that personal finance startups are faced with. That is not true. Specifically, he refers to two things – the consumer mindset in India, and the regulatory overload.
About, the consumer mind-set, he says,
“There is strong absence of instant gratification – the basic premise on which consumerism works. Managing Personal Finance or NOT doing investments has IMPACT ONLY in long term.”
This is certainly true, not just of the Indian market, but also of overseas markets such as US. Jon Stein, the CEO of Betterment.com, the US based investment advisory startup says, “It’s hard to make mutual funds sexy because they are about deprivation, putting money away for future happiness. What’s sexy is current consumption, buying bling, yachts and fast cars, not socking away money for later in life.”
But this challenge can be overcome with appropriate positioning and proper messaging. People might not care about investing for their own future, but they’ll definitely listen if you talk to them about their children’s future. Insurance companies in India have long figured this out and hence you see a whole lot of products that are specifically targeted towards fulfilling future financial goals for children. Even when it comes to their own long-term future, they are adept at tapping the sense of anxiety people have about having to lead a lesser life-style post retirement. Remember the ‘Sar utha ke jiyo’ ads from HDFC?
This, actually, presents an opportunity for startup companies. Product manufacturers in India, especially mutual funds, do a less than optimal job of positioning their offerings in terms of solutions to people’s needs. Bridging this gap between manufacturers and consumers with advisory services that offer packaged solutions in an innovative and attractive manner has a lot of potential for new ventures.
Regarding regulations, I would second Deven’s comment on the NextBigWhat article – regulations in the past few years have helped more than they have hurt. True, there were many changes, and they were promulgated in an ad-hoc, abrupt manner that was frustrating. But the net effect has definitely been pro-consumer. And, barring a few regulations, they have been pro-small business as well. In fact, I would even go a step beyond and say that there is a need for more regulations, some of which are in the anvil.
For example, one of the biggest competition that personal finance startups face are from banks that do better business not because they offer superior services but because they have access to a readymade pool of customers who keep walking into the branches. There is rampant mis-selling that happens in this area as well. When a customer gets sold a bad insurance policy or a mutual fund that ill-fits their needs, their enthusiasm for the entire product class diminishes. You can forget about getting such people to invest online through an entity that they had not heard before in a similar product!
Now, thanks to CobraPost and other media writings, RBI has finally woken up to this and has issued draft guidelines as to what banks can and cannot do with their “wealth management” arms. While it does not go all the way, it is a significant step forward.
Another example is with the regulation of ponzi schemes. Personal finance startups will never succeed if there are unregulated entities mopping up middle-class money with false promises and fraudulent practices. After years and decades of letting these go unchallenged, MoF and SEBI have finally started moving towards clamping down on these entities.
These regulatory changes will, even in short to medium term, have a positive impact on the personal finance startup space.
Finally, on the trust factor. Going by my personal experience at FundsIndia over the last 4+ years, this concern is overstated. There are LOTs of ways that this concern can be mitigated. People can and do easily distinguish between trustworthy behavior and untrustworthy behavior. Providing prompt customer service, being candid and detailed in your responses, being active in social media, not hesitating to pick up the phone to speak to a client in a difficult situation – all these build trust. Hounding people asking for investments, unsolicited offers to “review” portfolios, being unnecessarily obsequious in communications – these make companies less trust-worthy. People can see the difference easily and their behavior will reflect that. In my experience, you don’t need to be sitting in a person’s living room talking to them to earn their trust. If you provide a useful, reliable service in a professional way, significantly more people will trust you than not.
Way forward in Personal Finance Space in India
Reality is, the personal finance space is ripe for innovation that startups are uniquely positioned to provide. On the one hand you have established players who are stuck in old-world business models with legacy systems. On the other hand you have areas such as advisory services and wealth management that are too fragmented and have consequent poor efficiencies and scalability issues.
Considering these, there is tremendous scope for building multiple large businesses that can be disruptive in different areas of personal finance. It will take hard work and definitely persistence, but the reward on the other side would be immense, not to mention the very meaningful positive impact that could be made on how people manage their finances in India.