An overview showing how one can achieve innovation in distributing financial products. Challenges faced in distributing some of the products. Some real life and some examples with changed names used

1. Distribution of Financial Products
Changing trends, buyer behaviour
& some learnings
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2. Disclaimer!
• The views are purely mine. It does not
represent the company/s I work for or have
worked for earlier.
• Examples are for purely academic discussion
and do not intend to act in support or against
the product/s or brands mentioned
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3. Agenda
•Classification of Products
•Two case studies
Break
•Analysis
•Summarize
3

4. Classification
• Savings Products: Future consumption with
current earnings
• Credit Products: Current consumption with
future earnings
4

5. Classification
Requires
consulting Loans Life
Insurance
Easy to Savings A/Cs
Auto Insurance Health
buy Fixed Deposits
Insurance
Pull Push
Products Products 5

6. Classification
Requires
consulting Loans Life
Insurance
Easy to Savings A/Cs
Auto Insurance Health
buy Fixed Deposits
Insurance
Pull Push
Products Products 6

7. Easy to Buy: Pull Products
• Create New Channels
• Redefine Existing Channels
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8. Think different!
• No branch
• No ATM
• No cheque books
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9. The Orange Code:
Rebel with a cause
• ING Bank entered USA in 2000
• Under Arkadi Kuhlmann ING Direct’s simple
mantra was ‘save your money
• Modelled as pure online bank; no brick and
mortar
• 7.7 million customers accounts
• As of March 2011 managed EUR 57 billion funds
and EUR 29 billion in own originated mortgages
• Sold in 2011 to Capital One for USD 9 billion
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10. ‘We the savers’ campaign
Money doesn’t grow on fees!
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11. Finding the gaps
• Why should customers pay all kinds of
fees?
• Is it too much to expect a real person to
pick up the phone when you dial a toll
free number?
• Should you have to jump through hoops
to keep your personal information being
sold to others?
• The McDonald way; simple straightforward
product
– Southwest flew airplanes without assigned
seats
– Ikea sold design-minded furniture without
assembling it--so why not do that with banks? 11

12. Credit Card success
• Started in 1988
• Pioneers in ‘teaser rate’ and ‘balance transfer
option’
• Power of information, technology and testing
and highly customized products
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13. Reasons for success
• For every action taken they capture the
reaction
• Commitment to endless innovation
• Intelligent call routing
• Sell at every opportunity
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14. Esurance.com
• Competing against Goliaths like GEICO and
Progressive
• Completely online sales model
• Appealed to Gen Y who like to do things online
• No face to face interaction
• Convenience, customer service and best rates
were reasons for success
• Sold to Allstate for a Billion Dollars
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15. Redefining Existing Channels
• Turning branches into hangouts
– Children play area
– Yoga classes, ‘movie nights’, wifi internet access
– Plasma screens instead of posters
– Three dimensional ‘mortgage centers’
– Staffers serve coffee while selling products
– Open architecture, warm trustworthy atmosphere
• Encourage people to stay longer
• Find ways to sell other products
• Encourage people to consider branch as some
place to visit more often 15

16. The fine art of finance
• ING branch displays art for HNI customers
• Customers can appreciate art while they bank
• Globally more than 15000 artworks displayed in
900 branches
– Gallery open beyond bank timings
– Senior artists conduct classes
– Not just for investing in art but to create awareness
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17. Classification
Requires
consulting Loans Life
Insurance
Easy to Savings A/Cs
Auto Insurance Health
buy Fixed Deposits
Insurance
Pull Push
Products Products 17

18. Making the Product easier to buy
Requires
consulting Loans Life
Insurance
Easy to Savings A/Cs
Auto Insurance Health
buy Fixed Deposits
Insurance
Pull Push
Products Products 18

19. Gold Loans: Runaway success
•Manappuram
– Revenues 19 crs to 500 crs in 2010 (five years)
– Profits from 3 crs to 120 crs
– AUM of more than 10000 crs
– More than 2500 branches; available next door
– 12 lacs customer base
– More than 18000 tonnes of gold
– Very low default rate
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20. Success decoded
• No credit check required for taking loan
• Rates significantly lower than local pawnbroker
• Loan terms are flexible
• Gold has emotional value
– Customer willing to pay interest on loan rather than
sell the gold!
Win-win for both lender and borrower
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21. Classification
Requires
consulting Loans Life
Insurance
Easy to Savings A/Cs
Auto Insurance Health
buy Fixed Deposits
Insurance
Pull Push
Products Products 21

22. Life Insurance
• I am familiar with the • The dinner table
friendly representative
neighbourhood agent
MetLife
circa 1930
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23. Reason for Not Purchasing Insurance Online
The single largest reason for not purchasing Insurance Online is Consumers
across countries still prefer “Human Contact” when purchasing
Insurance…. Source: David Parry. The Future of European Insurance, available
[online]: www.ReutersBusinessInsight.com 23

24. Classification
Requires
consulting Loans Life
Insurance
TERM
INSURANCE
Easy to Savings A/Cs
Auto Insurance Health
buy Fixed Deposits
Insurance
Pull Push
Products Products 24

25. Classification
Requires
consulting Loans Life
Insurance
Auto/Home/Travel
INSURANCE
Easy to Savings A/Cs
Auto Insurance Health
buy Fixed Deposits
Insurance
Pull Push
Products Products 25

26. Classification
Requires
consulting Loans Life
Insurance
Auto/Home/Travel
INSURANCE
Easy to Savings A/Cs
Auto Insurance Health
buy Fixed Deposits
Insurance
Pull Push
Products Products 26

27. Technology creates new Distribution
channels
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28. Two case studies
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29. Case Study 1
C.T Financial:
Personal Lending
&
Understanding the ROLE OF DISTRIBUTION
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30. CT Financial
BEFORE AFTER
• ‘Aveco’ started as a sub prime •MNC Bank buys Aveco and renamed
lender. CT Financial
• Offered loans at high rates •Branches increased from 83 to 430
– But USP was quick turnaround in less than 2 years
• Internal controls were tight • Opened a branch a day
– First cheque bounce would lead • Rapid hiring
to invoking repossession of • Experience v/s responsibility
vehicles mismatch
– Any default was managed very • Reference check for employee
tightly hiring compromised
– All collections were outsourced •High incentives for top line
but managed well
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31. The result
• Rapid increase in NPAs
• Networth zero: lost 1400 crs
• Made some turnaround in 2009; stopped lending
in 2010; reduced branches to 70
• Trying to sell; no buyer till date!
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32. Domino effect
• Seeing apparent success of CT Financial, many
players like Barclays, Fullerton expanded
rapidly
• They all were not successful
• Only successful player has been HDFC Bank
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33. Learning
• The cornerstone of Personal Lending is
Distribution coupled with Neighbourhood
Lending
• Distribution should take you closer to customer
• Relationship and customer service is critical
• ‘Know your customer’ is non negotiable
• Incentives need to be carefully designed
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34. CASE STUDY 2
D.E Capital:
Truck Financing
&
The Importance of being GLOCAL
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35. D.E Capital
•Bought out Jaishriram
• A global MNC, D.E Capital stuck
on credit parameters!! Finance, one of the leading
truck finance companies in
• One of the world’s largest India
financial services companies
•Established their credit norms
• Believes in credit mechanism on day one
• Would not create an India •Believed that Jaishriram team
centric credit policy was not ‘managing risks’ as
per their global philosophy
• Comparisons with Sundaram
Finance or Shriram Transport
We work in more than 90 were trashed
countries! We can buy them out!
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36. Truck finance customer
• Is a known entity; rather NOT an
unknown!
• Very easy to check credentials
– But very poor documentary evidence
available for credit evaluation
• Many trucks are owner driven; thus
owner is often on the move and
not ‘available’ to meet
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37. Local practices; Global view
Local Practices D.E Capital’s View
– Credit check was through – Credit needs to be
references and field visits supported by
– NPA needs to be seen in documentary evidence
context of customer’s – Default can damage credit
situation rating globally
– Word of mouth in this – Offer the lowest lending
business is critical rates
– Relationship is more – Process is prime;
important than process! relationship will follow
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38. Local practices; Global view
•Did not realize that
– Recovery of asset (repossession) is easy as
customer cannot keep asset idle
• He has to be on the highway!
– Customer needs to build a good track record
if he needs to expand
• Cannot afford to default
– Word of mouth in this business is critical
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39. Local Practices
• Sundaram Finance
– Built business on good relationships; managers know
the client and his family well
– Built business on conservative but consistent credit
policies
• Sriram Transport Finance
– Higher rates of interest but quick approvals
– Very strong collection mechanism
– Used repossessed Trucks to build second hand
finance business; backward integration
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40. D.E Capital’s fallout
• Continued losing top customers due to
insistence on credit process and rigid
documentation
• Was unable to adopt local credit practises
– No one willing to battle global hierarchy!
• Exited the business after 8 years of
acquisition
40

41. Learning
• Marry global processes with local realities
– Look at family credit rather than individual credit
– Look for references from existing customers
– Bank statement may be more useful than IT returns
• Direct sales is key
– High employee cost compensated by lower NPAs
GLOCAL is the way to go
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42. What changes distribution landscape
Technolog
y
Regulatory
Buyer
behaviour/
Social
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43. Disruptive factors
• Social
 The emergence of Banca Takaful was a prime reason
for success of Insurance companies in Islamic
countries
 Widespread mis-selling lead to the death of the
traditional Insurance agent in UK. Only brokers and
banks survive
 The American belief in Individual advisor continues
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44. Disruptive factors
• Technology
– Internet leads to Disintermediation
– Web created a new type of intermediary: The web
broker/ aggregator/ comparator
– Technology enables banker and customer to interact
as and when required
– Opens new avenues for customer satisfaction
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45. Disruptive factors
• Regulatory
 The Glass Stegall Act prevented the evolution of
Bancassurance upto 1999 in USA
 Contrary to USA, Bancassurance flourished in certain
European countries like Spain
 The recent changes by SEBI are a serious threat to
distribution of Mutual Funds through brokers and
advisors
 Korea encouraged payments through electronic
means leading to huge credit card penetration giving
tax concessions
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46. Buyer behaviour..
• Always looking for returns
• The immense popularity of ULIPs
• Why whole life does not sell much
• Housing scams, ponzi schems….many such
examples of the buyer falling for the trap
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47. Buyer behaviour..
• ‘Sabji ke saath dhaniya’ mindset
• ‘Towel ke saath hanuman chalisa free!!
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48. Buyer Behaviour..KILB!
• We hate to quantify risk
• Social structures mitigated insurance needs
• Continued exposure to risk may numb you
against need for protection
– Vikrant’s postulate!
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49. Buyer Behaviour..Gen Y
• Has seen many economic downturns
• Has seen parents and grandparents surviving
beyond 90
• Has seen implications of losing a job
• Rising health costs
• Rising debts
• Technology savvy
• Socially networked
• Believes in peer groups
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50. Learning for Manufacturers
• Create products which suit current generation
– Premium holidays; stand alone critical illness covers
– Reverse mortgages
• Allow customers to ‘do their own thing’
– Highly interactive websites
– Online support
• Explore innovative distribution channels
– Shopassurance
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51. Learning for Manufacturers
• There is a clear trend towards ‘search’
• 70% of customers in developed countries search
for the financial product before buying
• Role of web aggregators
• Keep your focus:
– Customers who don't fit our business model don't fit
our business model, and that's totally O.K.- ING
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52. Emergence of Web Aggregators: UK
example
• More than 25 million people used price comparison sites for
purchase of Insurance in 2010.
• In UK Moneysupermarket.com is the most valued price comparison
site with 38% market share. Some of the other notable sites are
gocompare. com (20%) and confused.com (13%)
• Moneysupermarket.com has on an average more than 3 million
visitors per month.
• The most searched products online were car insurance followed by
auto, travel, credit cards, savings account and Life Insurance.
• Phone sales continue to be almost 25% of the online ‘search’
market wherein the customer searches for information online but
prefers to buy it through a tele sales or face to face channel.
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53. Why not Kolaveri di?
• Viral marketing in financial services is more
often for negative publicity
• Can be disastrous
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54. Conclusions
• Technology creates new opportunities AND
challenges for manufacturers
• Technological advancement is NOT necessarily a
substitute for
– Intermediaries
– Detailed advice
– Reducing costs
• Buyer behaviour changes with socio-economic
changes; Banks and Insurance companies need
to be congnizant of the changes
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55. Conclusions…
• Leaders invent the ‘HOW’
• True leaders are not conquerors; they are
pioneers
• Leaders challenge the paradigm
• People copy fast so you need to constantly
innovate if you want to be on top
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56. The best way to predict the
future is to create it!
Peter Drucker
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