Wealth Tech in India: A Shift from Traditional Investment Methods to Digital Platforms

The world of finance is constantly changing and evolving, and the last fe years have been no exception. With the rise of digital stockbrokers and the influx of liquidity by most central banks during the pandemic, global financial markets saw a huge wave of first-time investors. India, too, witnessed a similar trend of an exponential increase in new retail participation in Indian equity markets. The number of Indian DMAT accounts rose by an astonishing 250% from 40 million in March 2020 to 100 million in November 2022. Easy access and lucrative equity market returns in the same period resulted in a shift of preferred asset class of investment for the average Indian investor from gold, real estate and fixed deposits to public equities

But, as the “To the moon” phase ended for most equity markets by early 2022, most investors understood the inherent risks in public markets the hard way. With growing financial literacy levels and diminishing (or negative) equity market returns, retail investors started to recognize the need to diversify their investment portfolios and invest in asset classes other than public equities to grow their wealth and savings above the inflation level

Enter the need for different wealth tech models. According to a Redseer report, the Indian wealth tech market is projected to triple in value to $63 billion by 2025 from around $20 billion in 2020. The report also estimated the number of Indian wealth tech investors to rise from 4 million in FY20 to ~12 million by FY25. Few factors driving this growth include –

1) Rising Disposable Incomes — India has seen a steady rise in disposable incomes in recent years, which has led to more people having the ability to set aside money for investments. According to the Ministry of Statistics and Programme Implementation (MOSPI), National Disposable Income rose ~19% in FY22 over FY21. This trend has been driven by several factors, including economic growth, rising education levels, growth of the middle class and is expected to continue. More money in the hands of the average citizen is a gust of wind behind the sails of the wealth tech industry, as it means more people are now looking for investment options and better financial management

2) Strong Digital Infrastructure — The digital infrastructure in India has played a crucial role in the growth of the fintech industry, and specifically the wealth tech sector. Widespread use of mobile phones and the advent of 5G services, ensuring faster internet speeds and increased data capacity, have made it possible to democratize access to financial products and services to average Indians. Government push with initiatives like UPI, NEFT, RTGS and Jan Dhan Yojana has gradually facilitated this shift. The number of UPI transactions has risen from 130 crore transactions valued at Rs.2 Lakh crore in January 2020 to 780 crore transactions amounting to ~Rs.13 Lakh crore in December 2022, highlighting tremendous adoption of digital infrastructure in India

3) Increasing Financial Literacy Levels — There has been an increasing focus on financial literacy in India, as more people seek to take control of their financial well-being. Easy access to information, rising trend of fin-influencers and government push via awareness programs are a few contributing factors to this trend. People are now becoming more conscious of the importance of financial independence which in turn is benefiting the wealth tech industry

Wealth tech in India has seen significant growth in recent years and has been gaining a lot of attention from venture capital firms. According to Inc42, investment tech firms raised ~$500 million spread across 40 deals in H1 2022. Wealth tech in India is expected to remain a hot investment subsector in coming years where a few business models that could attract further interest from VCs include –

1) Alternative Investments Platforms — These platforms democratize access to alternate investment asset classes like commercial real estate, invoice discounting, asset-backed leasing, P2P lending, revenue-based financing etc. These high-hanging fruits of investment have historically only been available to high-net-worth individuals and institutions due to their high-ticket sizes and complicated paperwork. Platform such as Strata, Grip, Jiraaf and KredX source these investment products, break them into smaller units and distribute them amongst the retail investors

While most of these platforms, specialising in certain categories of products, are slowing shifting focus towards supply of quality borrowers, newer business models are emerging that cater to the demand side i.e., retail investors by allowing them access to all these opportunities from different platforms at one place, helping them to better manage their alternative investments portfolio

2) Financial Planning and Advisory — Financial planning and advisory involve creating a personalized financial plan for an individual that takes into account their current financial situation, future goals, and risk tolerance. Start-ups operate on different business models under this category. While platforms like Dezerv specialise in providing a more personalised expert-driven financial advisory, others like ScripBox have opted for a cheaper alternative of Robo and AI-based advisory. Indian population has historically been accustomed to human interaction while dealing with sensitive matters like financial planning and therefore we are yet to see major traction in Robo-advisory models. Many start-ups have found a middle ground between the two models and offer Robo-advisory with a touch of human consultation to bring down cost to the retail investors

3) Micro Investing / Save Now Pay Later — Micro-investing platforms like Jar and Deciml take tiny amounts of money, usually from rounding up transactions, and invest them into different asset classes, whereas save now pay later companies like EasyPlan and Multipl enable individuals to save money now and use it to pay off debts, plan for major purchases or emergencies later. Both these models create value for investors by eliminating the need for discipline and automating savings. These small savings add up over time to yield returns that beat traditional vehicles such as savings account and fixed deposits

We at Capital A are bullish on the wealth tech space in India. We believe that the growing number of first-time investors and increasing financial literacy levels make it a prime market for wealth tech innovation. If you are founder building in this space — we would love to chat. Please reach out to nishit@capital-a.in