BFSI Summit & Awards 2020 - Presentation by Dr. Arun Singh

Dr. Arun Singh Chief Economist Dun & Bradstreet India February 2020

Income parity between the highest and lowest earners is huge. The top 1% account for 25% share of the income growth in India INCOME INEQUALITY - ELEPHANT CURVE Growth in Income between 1960-2013

700%

600%

500%

Bottom 50% captured 13% of total growth in income

Middle 40% captured 25% of total growth in income

Top 10% captured 62% of total growth in income

400%

300%

200%

100%

0%

Percentile distribution by income level

Source:WID, D&B Analysis

3

3

FINANCIAL INCLUSION - INDIVIDUALS

A vast majority of the population was excluded from the financial system until 2011. While we have made significant strides towards financial inclusion since then, there is still a need for meaningful access to financial services

% of account holders (adults) at financial institutions

80%

80%

76%

% of dormant accounts

70%

12%

69%

8%

64%

12%

14%

39%

56%

% of active accounts

54%

48%

35%

68%

68%

58%

56%

41%

1 India 20 1 20 7 1

2011 2017

3 2011 2017 South Africa 3

2011 2017

2011 2017

2

4

5

2

4

5

Brazil

Russia

China

Note: Dormant accounts - No deposit and no withdrawal in the past year

Source:World Bank, D&B Analysis

4

4

FINANCIAL INCLUSION - MSMEs

We, at Dun & Bradstreet India, have been closely engaged with MSMEs for several years and the library of responses we have compiled now cover thousands of MSMEs, but the problems they cite have not changed. Access to finance has emerged as the single largest problem. Resolving this can help MSMEs in breaking barriers to scaling up

45%

30%

15%

0%

Access to Finance

Cluster development for building competitiveness

Market access

Others

Source: D&B Analysis

5

5

FINANCIAL INCLUSION - MSMEs

Credit flow to MSMEs from the banking sector needs to increase by 3 times from the current level. Given the various concerns of the banks, this is a huge ask

Figures in Rs tn

69.3

32.6

36.7

8.8

2.1

25.8

Banks

NBFCs, Gov, etc.

Total credit gap

Total demand

Unaddressable demand

Addressable demand

Note: Addressable demand refers to near-term addressable demand

Source: IFC

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6

REASONS FOR LOW RETAIL CREDIT

With low income, lack of collateral and no credit history, a vast majority of the population is struck in a low-level equilibrium trap. Banks have raised concerns over compliance towards documentation, regulatory adherence and financial discipline followed by MSMEs

No credit history

Low ticket size

Volatile income

Inadequate collateral

Personal Front

Inadequate documentation

Lack of financial discipline

Information asymmetry

Inadequate collateral

MSME Front

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India has developed a strong tech ecosystem that can support innovations offering new value propositions.The time for incumbents to partner with Fintech firms is ripe BANKING-FINTECH DEVELOPMENT SPACE

Bank dominance

Partnering

100

Kenya Zambia Zimbabwe

China Germany Japan UK USA

75

India

50

25

Race to the Finish

Tech dominance

Indonesia Mexico Philippines

Bangladesh Nigeria Ethiopia

0

1

2

3

4

5

6

7

Networked Readiness Index – (Readiness sub index)

Source:World Bank,WEF, IFC, D&B Analysis

8

8

Technology adoption can spur growth through various channels. A majority of the ‘new economy’ firms i.e. Fintech firms operate in the ‘innovation’ space DIGITAL DIVIDEND

Pre-Internet

Post-Internet

Transactions, arranged from high to low cost

Efficiency

Inclusion

Innovation

Source:World Bank

9

9

Leveraging technology has helped in building an ecosystem that can profitably serve low-ticket markets that were previously unviable due to high cost and time THE FINTECH DISTRUPTION

Cost

Time

Retail customer onboarding time 6 days

Personal- loan (Time to cash) 2 - 4 days

Small business loans (Time to cash) 3 months

Customer acquisition cost ₹ 1500

Lending cost ₹ 7,000

Transaction cost ₹ 40 - 50

Traditional banking

90.0%

75.0%

98.0%

99.3%

99.0%

99.7%

Less than 24 hours

₹ 1,750

₹ 150

₹ 1

Few Hours

1 Hour

Fintech

Source:Various articles and reports including those of McKinsey, ISPIRIT

10

10

The fintech disruption is being felt across the financial services industry and it is here to stay THE FINTECH DISTRUPTION

Traditional BFSI

Lending & Deposit Minimum Loan tenure & amount

Market Provisioning Capacity to synthesize information

Investment Management Portfolio management fee

Raising Capital

Payment Cheque / DD clearing

Insurance

Motor claim Settlement period

Time to raise funds

6 months

1 year ₹ 30,000

Only few sources

1.35%

7 days

3 days

Smarter, faster machines; New- market platforms

Empowered investors; Process externalisation

Alternative lending; Shifting consumer preferences

Insurance disaggregation; Connected insurance

Cashless world; Emerging Payment rails

Crowdfunding

20 mins

Instant/ Near Real time (mobile payments)

Hundreds of thousands of sources

3 months ₹ 1,000 (P2P lending)

0.5%

35 days

Modern BFSI

Source:Various articles and reports including those ofWEF

11

11

Pace of technology diffusion is improving at an unprecedent rate. The upcoming new economy firms will take just days or even hours to scale up TECHADOPTION

Number of years it took for each technology/ product to gain 50 mn users

68

62

50

46

28

22

18

14 12 12

7

5

4

4

3

2

Source:Various articles

12

12

The amount of data residing with banks is unparallel. Banks need to partner with analytics firms to derive meaningful insights and fill up the whitespace in retail credit DATA INTENSITY

Installed gigabytes per revenue Rs. '000s Cr

Insurance Consumer Software & Internet Utilities Manufacturing Retail and wholesale Pharma & Medical Telecommunications Professional services Healthcare Media Banking

533

468

423

319

299

195

150

143 143

130

117

98

Energy Transportation

91

13

Source: BCG

13

13

Riding on the fintech wave can deliver an incremental GDP over the next 20 years, equivalent to the GDP we have created since independence BENEFITS OF A CASHLESS ECONOMY

GDP growth in the Fintech era vs GDP growth in a cash based economy

GDP ₹ tn

1800

1600

Factors driving growth in a Fintech era  Access to financial products for all  Business transformation, productivity gains and broadening participation  Shared economy  New channels of market access and extended coverage  Higher multiplier effect on jobs

1400

1200

GDP growth in the Fintech era

1000

800

GDP growth in a card economy – Current State

600

GDP growth in a cash economy – what it used to be till 2004

400

200

0

GDP (Cash)

GDP (cards)

GDP (fintech)

Source: MOSPI, D&B Analysis

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SUMMARY

15

ThankYou

16

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