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Of the several disruptive technological innovations, the internet has been one of the most revolutionary discoveries creating a major paradigm shift. The emergence of online banking has not only transformed the banking industry but also had a major impact on other related sectors such as investments and portfolio management.
According to the Association of Mutual Funds in India, digital money in the mutual fund industry is growing rapidly. The share went up from 0.5 per cent in 2016 to 14 per cent in August 2019 due to smartphone and internet penetration. Whereas, inflows through physical route have been reducing. SIP accounts have grown three times from April 2016 to August 2019, from 10 million to 27.3 million, which is largely facilitated through easier access and convenience coupled with the ability to enable auto-debit facility from salary accounts digitally.
Let us explore how online banking has affected investments on a larger scale.
Investment decisions have always been viewed as the domain of financial advisers, and in the past, people have relied on their expertise to make proper investment decisions. The language of stocks, bonds, and mutual funds are tough to understand. However, the evolution of the internet has democratised this space and smartphones have made it easier than ever to learn about financial instruments, while being on the move.
Internet banking has enabled investors to keep a real-time track of their investment portfolios, wherein one can invest or trade at the click of a button. They can now get a real-time summary of their investments by simply logging on to their bank account and clicking on the required field.
The days of going to a bank or fund house and standing in queues to manually fill in the forms to start SIP or mutual fund accounts have long disappeared, thanks to digital transaction. Also, the time taken for a transaction has reduced from three days to one to two days, due to regularities such as E-KYC and the adoption of UPI.
Fund houses are increasingly leveraging technology for various processes, enabling them to reduce processing time and providing better levels of customer service. Even banks are leveraging mobile banking especially to grow investments in their products - Digibank by DBS, for example.
There are several apps or online platforms through which one can make easy investments. These apps are not only easy to use but also accessible throughout the day. They are even using technical know-how to improve their existing services.
Easy access to internet banking has also increased investments from tier two and three cities. Gross digital inflows have tripled between April 2018 and June 2019, from Rs 50,000 crore to Rs 1,50,000 crore. Though their share in the overall inflows is still abysmally small, it is expected to rise rapidly over the next few years.
Earlier, third party advisers or banks were the only entities that could help in making investments. The rise of online banking has also led to a surge in the online broker community. Unlike the traditional brokers, online brokers provide services at some of the cheapest commission rates we have ever seen.
The rise of new-age fintech firms is further expected to accelerate the rise of digital platforms, making it easier for customers to transact digitally, while also reducing processing time and costs for fund houses or investment firms.
There is a potential for people to shift their savings from physical assets to investments. For example, from physical gold to gold ETFs. There is also a need for substantial education and awareness that should be given to online investors to help them make informed decisions.
Additionally, there is a need to educate customers, especially in tier two and three cities as a lack of awareness about digital transaction results in them being less comfortable to use these modes. Fund houses also need to make sure that they pay adequate heed to issues related to customer privacy, cyber security and data protection.
The author is Associate Vice President of Financial Services, Aranca