After food and grocery, e-commerce players are now chasing a new business segment – financial products and insurance. Offering these products digitally seems to be the next big opportunity, thanks to more people transacting online.
Everyone is doing it
The first to target this segment was Flipkart, who, after revealing plans in June 2017, sought the Insurance Regulatory and Development Authority’s approval to act as a corporate agent to sell life insurance and general insurance on its platform. Flipkart wants to offer end-to-end transactions such as discovery, payment, delivery and post-sale services, without actually being an underwriter itself.
Then, it incorporated a new company in December for new businesses such as venture capital funding and insurance called Sabin Ventures.
Its largest rival, Amazon, also seems to want to cash in on this latest trend, albeit indirectly, as it is investing in startups offering insurance and financial products digitally. Besides being an investor BankBazaar, Amazon is also reportedly close to investing in online insurance startup Acko to co-create financial products and be its distributor.
It’s not just e-commerce majors
Paytm just set up a separate entity called ‘Paytm Money’ to offer a whole range of wealth management products. It has sought the approval of the Securities and Exchange Board of India to offer a wide range of financial services, that include cross-selling products of Paytm Payments Bank. Paytm is also talking to leading asset management companies to offer Mutual Fund Investments in Direct Mode for users.
MobiKwik has also seen merit in offering financial and insurance products on its platform. It is currently piloting some financial products and is in the process of rolling out a few. According to an Economic Times report, MobiKwik’s plan is to give users credit lines, offer personal loans to those outside the purview of banks, sell insurance to shopkeepers and foray into the segments of auto insurance and cashless mediclaim.
Through its UPI payments arm PhonePe, Flipkart is looking to offer financial products by developing PhonePe into a distinctive business unit around financial services, insurance and wealth. Through this, Flipkart aims to co-create insurance and mutual fund products in partnership with large financial services firms.
But why are financial and insurance products suddenly such a hit with these companies?
An opportunity and a natural progression
In India, more than 90% of insurance is still sold offline through agents. The penetration of financial products online too is very low. Now, with people increasingly transacting online, the scope for growth is large.
The mutual funds market is also rapidly growing, thanks to the stock market doing well. There is a lot more awareness among people, thus opening up a large opportunity for these companies.
According to Madhukar Sinha of India Quotient, it makes perfect sense for these companies to venture into financial products.
“They have customers already coming to them for shopping and payments and now they want to cross-sell insurance and financial products. It’s an expected move. It’s also a money-making business,” he says.
Speaking specifically about payment companies, he says that it is mostly an infrastructural business - where you create an infrastructure, a platform. Then, it is about how you use it.
These companies already have a large customer base and a large distribution network and with things like e-KYC and the upcoming UPI 2.0, the cost of onboarding customers and servicing them has significantly reduced.
According to Sahil Kini, Principal at Aspada Investment Advisors, this will mean that these players can even offer loans at lower ticket sizes, bringing in more financial inclusion.
Echoing what Madhukar says, Sahil says, “I see it as a natural progression. When there’s a wave of something, there’s infrastructure, there are small startups trying to cash in. The bigger players with a larger reach and deeper pockets keep an eye on it, and when they see it’s real, they also decide to enter it.”
And to add to this, these companies are flush with funds, as most of them being backed by bigwigs such as SoftBank and Alibaba.
Will the gamble pay off?
It’s clear that the opportunity is large and there is room for a lot of players. But Sahil says it’s too early to tell.
The gamble will require companies to build new capabilities and businesses. Madhukar says how you build a product and expertise will be key.
However, in order to win the market, companies must crack customer acquisition, underwriting and an efficient collection mechanism.
“They need to be able to consistently acquire customers cheaply. Spending money isn’t the answer. You won’t make money. They also need to be able to assess the risk and creditworthiness of a customer as quickly as possible. And finally, leveraging technology to develop an efficient collection mechanism will make it possible for these companies to scale the business,” he adds.
Given that most of them are still in the ideation or early implementation stage, a lot depends on the strategy each company will take and what they’ll actually end up doing. Will they distribute someone else’s products, or will they build their own products? Only time will tell.