Redefining Distribution: Converge, Digitize & Achieve December 2017 Brochure / report title goes here | Section title goes here Redefining Distribution: Converge, Digitize & Achieve Content Foreword by CII 04 Foreword by Deloitte 05 Regulatory Challenges & Reforms 06 Ethics in Distribution 14 Financial Literacy & Inclusion – Reaching out to Rural Markets 22 Future of Distribution by Digitization 30 Glossary 54 About CII 56 About Deloitte 57 Acknowledgements 58 02 03 Redefining Distribution: Converge, Digitize & Achieve Redefining Distribution: Converge, Digitize & Achieve Foreword by CII Foreword by Deloitte India has a diversified financial sector Serving the truly excluded by the most undergoing rapid expansion, both in efficient service providers presents terms of strong growth of existing a huge opportunity at both ends of financial services firms, and new entities the spectrum. To reach the excluded entering the market. This leads us to segments, organizations will have the crucial role of financial distribution to adapt themselves, and build key ecosystem, in revitalizing growth in an capabilities by focusing on providing inclusive manner. The capability of our financial access, and building financial Keki Mistry financial distribution system is second Kalpesh. J. Mehta awareness (e.g. literacy, skills). Again, Chairman, CII Financial to none, despite its many pertinent leveraging digital technologies in the Distribution Summit 2017 and challenges. Efficiency gains presented by Business as usual will not resolve process, can benefit both providers, Vice Chairman & CEO, HDFC Ltd. the underbanked segments, combined the pressing challenges faced in the and recipients. This is not to understate with those that can be seen in the more distribution of financial services. the need for coordinated action by Over the years, the CII Financial advantaged segments, stretches the These are not permanent paradigms the Government, Corporates and our Distribution Summit has been focusing relevance of our distribution ecosystem, and therefore the rhetoric of financial Communities in building the required on themes related to financial inclusion, beyond rural or urban India, to our distribution, calls on the financial services architecture. Organizations that have the reaching out to rural India and the society as a whole. ecosystem to build new capabilities. ambition to take this path, and can be delivery of smart solutions. With the new disciplined in the process, can emerge as wave of digitization, reaching out to our This brings me to the focus of the Summit For instance, there is a need for adequate the “go-to” platforms in the foreseeable underbanked segments (with no credit & the CII-Deloitte Report which addresses regulations for all stakeholders to future. scores or history), in the hinterlands of some of these key dimensions of experience significant efficiencies, and for On the positive side, financial distributors the country suddenly, seems attainable, financial services distribution including: better supervision of adverse incidents are perfectly capable of restructuring and in fact lucrative. This is encouraging! Regulatory Challenges & Reforms, that frequently occur in the distribution themselves (as they stand to gain) with Ethics in Distribution, Financial Literacy process. Regulators in India are already the emergence of the digital channel as The profile of an Indian investor is & Inclusion – Reaching out to Rural steering efforts in that direction. They are a common platform across products diverse; ranging from being unaware Markets, and The Future of Distribution giving a voice to beneficiaries of financial and the channel is meeting many of their to tech-savvy, when using financial by Digitization. The Report will focus services qua steps taken to prevent mis- requirements, from generating leads to products such as insurance, mutual on critical aspects of these dimensions selling, ensuring better quality of advice, post sales service, and even cross-selling. funds and pension, with a majority in detail, justifying the Summit theme enhancing trainings, and transparency. On the other hand, the real-time insights of addressable investors needing “Redefining Distribution: Converge, Areas of improvement do exist, and a lot provided by digital channels about trustworthy consultative advice on a Digitize & Achieve”. can be learnt from supervisory practices products and themselves, is allowing continuous basis. New FinTech players in other countries. customers to make better quality are entering distribution markets, decisions. with new technology solutions. Their As new participants enter the distribution innovative propositions are very often, network, the role of all players in Our report provides granular insights well addressing the needs of the Indian helping customers make informed into the various dimensions of financial Investor. choices (leading to greater customer services distribution, the evolving confidence), cannot be emphasized environment within distribution, and enough. Appropriateness, integrity, the many opportunities for businesses objectivity, and competence in providing to emerge with impactful, innovative financial advice to customers is key for solutions. We hope our readers can start a true capability building in distribution coherent conversations within their of financial services. The potential of organizations, and with clients to put technology in reducing susceptibility to things that matter to financial services unethical attacks, must also be explored. beneficiaries, at the top of the agenda. 04 05 Redefining Distribution: Converge, Digitize & Achieve Redefining Distribution: Converge, Digitize & Achieve • Protection of customers that are drawn pushed into fee-generating accounts to the complex nature of financial that were not requested. According to products the complaint, the bank’s employees imposed on customers, buying costly • Financial institutions are defined by financial products that they didn’t regulations and offer visibility and equal require or request for3. treatment to their customers • In a recent incident, a senior citizen, • Enabling complaint redressal, and invested his retirement benefits in ensuring customer protection Fixed Deposits with one Private Sector bank. While the bank representative Recent events on regulatory penalties convinced the customer to prematurely imposed on financial service close his fixed deposit accounts, Regulators across the world have imposed and invest in an insurance scheme, penalties on Banks and other financial promising higher returns on maturity, institutions on account of various incidents the customer received lower pertaining to financial product distribution. returns, and on enquiry realized the A careful analysis of these events, representative no longer worked with points us to violations by the financial the Bank4. institutions, particularly in the areas of selling suitable and appropriate products, • Another case emulated from sale of transparency and disclosures. Few notable insurance schemes by a third party. The global such events are detailed below: Direct Selling Agent (DSA) promised the customer loans from a specific NBFC at • A leading private sector Bank was fined very low rates, provided the customer for mis-selling products: A couple in the bought a specific insurance policy. On UK sued a foreign bank for mis-selling receiving the compliant, and conduct of two complex interest rate hedging enquiry, it was noted that the NBFC did products. The products offered were not exist under the said name. not suitable to the risk profile of the Regulatory Challenges customer, and the Bank failed to inform • A customer availed a home loan from the customer of the risks involved a Bank, and additionally took a life in “Credit limit utilization”, thereby insurance policy as a result of cross- incurring financial losses1. selling. The borrower’s unfortunate death, resulted in the Bank contesting • Mis-selling of payment protection and Reforms the claim, stating that no insurance insurance in the UK, has had the biggest documents were submitted by the impact on customers, and further borrower. However on enquiry, it was aggravates the need for stringent realized that though the customer paid regulatory guidelines to prevent Need for regulations on financial The financial distribution channels across the insurance premium, the Bank failed mis-selling of products. The banking product distribution banks, mutual fund houses, insurance to process the insurance. The world of financial services has evolved companies and other NBFCs prioritize industry in the UK began cross-selling over the past few years, with financial differentiation, customer service, PPI products extensively on realizing • Five leading broking companies were institutions exploring new and innovative efficiency, and convenience. the profitability of the product. PPI was served show cause notices from the ways to reach the consumer. Financial sold alongside mortgages, credit cards Securities and Exchange Board of India 2 institutions are quickly adopting smart While the financial industry has migrated and other unsecured loans . (SEBI). Investors who lent money using the exchange platform, incurred large technology, to keep up with the evolving to several innovative distribution • A foreign Bank was fined for forceful losses when the borrowers defaulted landscape of the financial industry. channels, the need for regulatory reforms cross selling: The foreign Bank