The current state of distribution of financial services in India is shaped by a number of developments. An evolving regulatory framework; increasing customer expectations for personalized and low cost product/service, as well as enhanced customer protection; technological developments being used to target customers better; use of new channels for targeted marketing. However, these developments have been yielding little ground in tapping the rural, aspirational consumer. It is important to be clear-eyed about challenges and opportunities in the financial services industry that will impact the future state of distribution.
The role of regulation in ensuring customer protection and health of the financial system are critical. It is now necessary to implement a responsible regulatory framework in India, unlike before. While the environment itself tends to dictate viable distribution channels, an individual’s cognitive ethical reasoning can be put to test when elements like profit maximization, competing business goals, the influence of volume and incentive payments etc. come into play. In order for financial products distribution businesses to achieve its growth potential, the distributor, as well as the end customer respectively need to become more responsible and aware.
The working age ratio in India (64% in 2016), is projected by the IMF to reach 69% by 2040. Despite this, poor financial and digital literacy is a major impediment in penetrating this favorable demographic dividend in India (a large part of which is rural). The need for a user friendly distribution interface, customized products for this lower income segment, combined with financial / digital literacy initiatives, are critical to tap into this large pool of customers. High costs of current distribution networks are also containing growth. Adopting digital distribution models (i.e. technologies and touchpoints), will allow service providers to bring cost efficiencies into future distribution models.