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How the Indian mutual funds industry is losing the customer experience battle, and the customers

Farhan Shaikh

IRCTC – When Indians transacted online for the first time

Back in 2002, the Indian government decided to launch its e-commerce portal, the IRCTC website, which would allow us to book tickets online. To date, it remains the biggest e-commerce player in the country. Not that it provides the best customer experience but comparatively, a better option than the only alternative Indians ever had – to stand in a queue, fill a form, and book railway tickets. Over time, the Indian Railways have upgraded their servers, improved the website experience and continues to witness huge volumes during the Tatkal booking hours every day. Since there are some restrictions on bookings, people have moved (but not completely) to using other new-age apps – PayTM, MakeMyTrip, and others, which provide a much better experience when it comes to ticket bookings.

E-commerce bandwagon – Deep discounts with unmatched customer experience

Let’s take another example, that of the retail industry. While e-commerce has existed in India, in some form or the other since the advent of the internet in the country, it was only the likes of Flipkart and then Amazon that capitulated it to its current status. Of course, one can argue that the rise of e-commerce players in the country has been driven by deep discounts and offers, one cannot deny the fact that they have also created a loyal customer base which now invests in their subscription models or loyalty programs (Amazon Prime, Flipkart First, etc.). These e-commerce players have drastically improved the customer experience and set up very high benchmarks – from highly responsive websites, well-designed mobile apps, the promise of faster delivery (one day/same-day delivery from Amazon) and easy (no questions asked) returns. All of these have created a strong halo around both brands. For many Indians, the mobile apps of Amazon/Flipkart have replaced Google as the go-to search engine for a product – credits to the ever-improving experience that builds the trust.

Uberization of the way we travel

We have a similar story of Ola and Uber revolutionizing the way Indians hired cars for local travel. It is not that they were first in the market – the likes of Meru Cabs were already around. Here again, the industry initially brought the first customers through offers, free rides, and deep discounts – both to the users and their driver-partners. Slowly and steadily, the prices have gone up, incentives have gone down, but their target customers have stayed. A good percentage of Indians still cannot imagine traveling without these startups (if we can call them that in 2020). The customer experience has been so great that it has triggered conversations about car ownership, and whether it even makes sense to have a personal car. There’s no denying that there are issues on the ground and some challenges involving security, but they exist only because people expect more from what has been built so far, and not because there is no other alternative.

When mutual funds houses were stuck in time

Now let’s talk about the mutual fund industry. Traditionally, mutual funds were distributed mainly through three channels: AMCs, which had their distribution centers; banks; and independent financial institutions. The latter two used to earn commission fees, which was charged to investors. There was always the option of going the direct way to avoid paying the commission fees, but that involved either physically going to the AMC’s distribution center or through their website. Over time, some of them did launch their mobile apps, and few also launched trading platforms to invest in various fund houses from one place.

Rise of the mutual fund aggregators – third-party investment platforms

In an ideal setup, just like IRCTC, this would have worked fine. Investing in mutual funds online was much better than doing so offline. However, user expectations changed when companies such as PayTM, Coin (Zerodha), and ET Money kept highlighting the commissions earned by the distributors, focused on direct mutual funds, and continued to provide their platforms for free – not just free, but apps built with modern design keeping the customer at the heart of the experience while engaging with them across social media platforms.

The numbers are staggering

Earlier this year, in February, PayTM Money app crossed USD 660 million of AUM (assets under management).

Zerodha has around 1.5 million active users, while Paytm Money boasts of serving 4.5 million Indians.

For traditional AUMs, these numbers are minuscule, compared to the large industry. AUMs of the Indian mutual funds industry as of January 31, 2020, stood at USD 3 billion[i].

At least that’s the way traditional fund houses defend their legacy architecture and age-old UI across digital touchpoints.

But there’s more to the story

Paytm Money accounted for almost 15% of the folios in the mutual funds industry in 2019[ii] and Paytm Money was only launched in September 2018. Direct mutual funds account for almost 15% of all AUMs, of which Paytm Money enjoys approximately 40% of the market[iii].

Well, from a larger perspective, it looks like a win-win situation for the mutual fund aggregators and the AUMs. Aggregators are growing, selling more mutual funds, helping swell the AUM numbers – everyone is happy.

Well, that holds true till the time comes.

However clichéd it may sound, but in this age, data is the new oil. Companies cannot make rapid progress without understanding their customers, and analyzing their digital footprints. With customers using third-party platforms for investment, traditional AUMs will have no visibility of their customers’ preferences or behaviors on their digital properties. This means that traditional mutual fund companies are having a tough time understanding customer appetite and investment patterns. Most importantly, customers continue to benchmark their experience on traditional AUM properties with those of the new-age aggregators. By the time AUMs realize the importance of customer experience, it might just be too late.

And that fear is not unreal

Remember the Amazon and Flipkart example we saw earlier? What stage have they reached now? Most of the e-commerce players have launched a series of white-label products across different categories – from luggage to clothes, electronics to shoes, and even a mobile phone. Armed with deep customer insights, purchasing patterns, website and mobile app behavior, complete and dropped-off transactions, consideration set, and carts – the list is simply endless. E-commerce portals have now launched dedicated portals to sell limited insights to retailers, but they continue to own the gold mine.

That story is about to be repeated in the Mutual Fund space

In February this year, Zerodha’s founder Nithin Kamath declared the company has applied for an AMC license[iv]. Imagine a few other competitors doing the same thing in the next few months, then the traditional AUMs would be in a difficult position. Unlike the retail and travel industry, which was driven by discounts, offers, and other goodies, the change in the investment and mutual fund industry in particular, has been riding primarily on great customer experience. An independent AMC, built on top of datasets of customer investment patterns can enable new-age companies to completely disrupt the mutual fund industry and not just their distribution patterns.

However, traditional AUMs continue to use their legacy user interface, with a few digital add-ons here and there, to woo customers (or to retain the old ones). Unless they hit refresh button and rethink their customer experience, it would be difficult for traditional mutual fund companies to make customers use their own touch-points. Let’s hope they wake up soon, smell the coffee, and take the first steps!