An interesting short piece on consumer behavior in financial products.
There are talks of allowing e-commerce players to sell mutual funds, insurance etc. to the people. However, at best people are comparing these financial products on online media not buying them:
Indian e-commerce majors Snapdeal and Flipkart have been thinking of selling financial services on their e-commerce platform. With their vast reach, and the ever-increasing number of consumers that flock to e-commerce sites, this may seenm an obvious business to get into. One of the financial products that e-commerce companies plan to sell through their websites is mutual funds. There was talk some time ago that the market regulator SEBI will soon issue norms allowing e-commerce platforms to sell mutual fund products to boost the mutual funds industry. This may not quite take off.
Currently, investors can buy mutual funds directly from fund houses without paying any commission or through third-party distributors and financial advisers, who charge a fee of up to 1%. In ‘direct plans’, the expense ratio is lower as compared to regular plans, as no fees are to be paid to the distributors. This eventually leads to higher returns for the investors against regular plans involving distributors. Though it is not yet clear as the guidelines are not yet out, e-commerce platforms could be asked to follow a distribution model, where they will be asked to sell only direct plans. This implies that the expense ratio for the plans sold on e-commerce sites will be lower than regular plans. Will this work? Not if one goes by the experience of Google, the tech giant that has been trying to use technology to disrupt the financial services business in the US.
Google has been experimenting with Google Compare which provided consumers an opportunity to compare and then purchase a wide range of financial services products. This has now failed. The website informs the users that the Google compare service will discontinue offering its services from 23 March 2016. Google Compare was launched in March 2015, and is currently available in the US and the UK. The service was earlier called Google Advisor, which was launched around 5 years ago. Google Compare service allowed people to compare financial products like savings accounts, mortgages, car insurance and certificate of deposits (CDs). The idea behind the service was that Google would simply aggregate financial products information together, and then drive the people to buy these services.
The main reason for the failure of the service is that people merely compare financial products on websites, but do not buy them. Going by this consumer behaviour, driving the sale of financial products on e-commerce websites such as Flipkart and Snapdeal would be really challenging. Offline distributors, however, conflicted and inefficient they may be, can breathe easy for now.
Finance has this age old attribute – mistrust. The products have also become complex over the years inviting even more suspect and mistrust.
People are always worried while buying financial products and want to consult someone before buying. That is a different matter that most of the time they lose money after even consulting a someone….