We are now living in the time of highly contagious COVID19 caused by novel Coronavirus infection. Since there is still no vaccine or cure for this the only way being recommended to control the spread of this disease is social distancing. This means everyone is requested to stay at home unless absolutely necessary and avoid social contact as much as possible, leading to most of the businesses requesting their employees to work from home also shutting down all the avenues facilitating any form of social gathering like pubs, nightclubs, theaters etc. Any form of travel is restricted affecting entire travel and hospitality industry. Airports are deserted, Airbnbs are getting cancelled, airlines are under pressure to let go of cancellation fees, Ola and Uber are also seeing significant declines in their daily rides. Schools are colleges have shut down their campuses, with critical courses being run on google hangouts or zoom. Many Edtech platforms have made their courses free so as to reach a wider audience and benefit them. Personal hygiene and cleanliness is at all time high with people washing their hands for at least 20 seconds with soap multiple times a day. Many social media influencers are making videos teaching everyone how to wash their hands properly. I was wandering if they ever make a movie about this pandemic Akshay Kumar may play the role of Dettol Handwash. Kids making fun of Bunty for washing his hands for too long are now following his lead. Bunty is the new hero.
Some of these behavior changes maybe temporary like people may start going on holiday again once the dust settles, however some of these changes will be here to stay. In this post I will be talking about some very obvious and some not so obvious impacts of long term changes in Fintech industry. So brace yourself and pay attention for this post might reveal some key opportunities in time to come.
Payments
In long term I don’t see this impacting digital payment industry very significantly, however this could be a good opportunity to promote contactless payment options like QR Code, NFC, RFID, Tone etc. If your new hygiene conscious self is now worried about touching the cash that may have exchanged unknown number of hands before you, same logic should be extended for exchanging of plastic and entering the PIN on the keypad touched by so many people before you. While many of us may not go to that extent, if one can appeal to the Maya Sarabhai inside the consumer, they can utilize it to gain traction on these payment modes.
This situation of social isolation will also increase online shopping specially daily use perishable items, thus shifting the transactions from offline brick and mortar stores to mobile apps like Grofers, Big Basket, Prime Now etc.
Insurance
While travel insurance might be taking a temporary hit a situation like this reminding whole world of their mortality is a perfect opportunity to sell protection products like health and life. I would be expecting to see a significant boost in sale of insurance products in next few months specially life and health variants. This situation is not only making us sensitive about our personal health but also of the people around us that includes our household staff. We may see the premium go up slightly though.
I would not be surprised if we see some interesting products coming from the industry with affordable premium. We should see insurance companies creating special policies for household staff and promote them through housing societies. Many organizations relying on gig workers like Ola, Uber, Zomato, Swiggy, Dunzo etc may now be more willing to buy insurance cover for their contract workers. It may even be recommended to them as part of their business continuity and disaster planning.
An interesting variant of insurance cover would be to cover for loss of income during such lock-downs offering protection to gig workers and other daily wage operators to protect themselves in case of another such disaster. Even small businesses will be interested in such kind of protection. This needs to be done now and fast when the memory of the disaster is fresh in everyone’s mind. Few years down the line this product may again not find many takers.
Investing and Wealth Management
With markets correcting 30%-40% primarily due to the pandemic we might see entry of new investors. While old investors would be licking their wounds and crying over the loss of wealth, new investors who were sitting on cash will find this an opportunity of cheap entry. As is evident by the following graph shared by Nithin Kamath of Zerodha, new account opening on their platform has seen a significant spike.
Market at so low coupled with Yes Bank disaster customer might be feeling, if his bank FD is also at risk then why not take bigger risk and aim for better returns by investing in Equity rather than sitting on Cash. However the investors who would have lost significant wealth due to this crash may decide to sit quietly for few months in future.
*Please note that I am only talking about retail investors here and not traders or institutions.
Mutual funds may also observe a spike in new to investing customers. Some customers who were relying on their own for equity investment may now be open to seeking an advisor or moving to actively managed funds after this sudden crash.
Banking
One of the most commonly used financial service will continue pushing in the direction they have been for years now i.e. to avoid footfalls in the branches specially for service needs. Social distancing should help their cause further. While Banks have been working on creation single man branches (I personally worked on one project in HDFC Bank called Ultra Small Branch years ago) in rural areas, we may even see banks go for branches with fewer staff in future even in urban centers.
Bank branches have the potential to become the most effective center for selling other financial services products like Insurance, Mutual Funds etc. While many banks have been doing this for years and commission from sales of third party products form a significant part of their revenues, however they have not been exploiting their full potential. With sales of third party products becoming their primary responsibility they may end up becoming more effective. This would require banks to carefully re-brand and re-position their branch network. Most of the Financial Services products are push products, what better way to sell them through a bank branch. This means the composition of a bank branch is going to look considerably different with fewer tellers and more insurance and investing experts.
In my opinion if banks play it right the new stream of wealth management start-ups will find their biggest competition from large banks. The “if” in the beginning of previous sentence is a very big if though. Are banks ready to transform their entire way of working. If they are not, then they should only focus on holding the money and managing the treasury, outsourcing entire sales and services to third parties, wherever digital mode doesn’t work well.
Lending
Short term lenders like SmartCoin, Early Salary may see temporary spike in their loan book with new customers seeking temporary respite from loss of income relying on these short term lenders to fill the gap. On the other hand POS lenders like Bajaj Finance, Home Credit etc may find a significant drop in their transactions due to customers shopping less because of lock-down. Similar drop is expected in Credit Card transactions as well.
So if we refer to the other post on this blog, “phone pe loan” will spike while “loan pe phone” will see temporary drop.
SME lending is another area that will observe spike because most of the small businesses will need loan to support themselves for temporary loss of business due to significant drop in overall commerce.
In the end my theory is that India will emerge stronger once this crisis is over. We are much better placed to tackle this situation because of 1. median age ~26, 2. older population largely socially isolated because of cultural reasons and 3. our hygiene practices like washing our hands often, keeping out of the kitchen unless washed and things like these. Financial power center globally will incline further towards India. So cross your fingers and hope for the best.
Gaurav Tiwari's Blog 