ASSIGNMENT TITLE:

INNOVATIONS IN FINANCIAL SERVICE INDUSTRY

(Overview of the impact of innovation and emerging trends in the financial
service industries)

MANAGEMENT OF FINANCIAL SERVICES

COURSE NO. : PSMBTE322

SUBMITTED BY: SUBMITTED TO:

KAVISH GUPTA Dr. AMISHA GUPTA
26-MBA-19
INTRODUCTION

Financial services are the processes by which consumers or businesses acquire financial goods.
Financial services are limited to the activity of financial services firms and their professionals while
financial products are the actual goods, accounts, or investments they provide. For example, a payment
system provider offers a financial service when it accepts and transfers funds between payers and
recipients. A financial advisor manages assets and offers advice on behalf of a client. The advisor does
not directly provide investments or any other product; rather, they facilitate the movement of funds
between savers and the issuers of securities and other instruments.

Financial services make up one of the economy's most important and influential sectors. This sector
provides financial services to people and corporations. It provides the free-flow
of capital and liquidity in the marketplace. When the sector is strong, the economy grows, and
companies in this industry are better able to manage risk. The strength of the financial services sector is
also important to the prosperity of a country's population. If the financial services sector fails, though, it
can drag a country's economy down. This can lead to a recession.
  Financial services make up one of the economy's most important and influential sectors.
 Financial services are a broad range of more specific activities such as banking, investing, and
insurance.
 Financial services are limited to the activity of financial services firms and their professionals
while financial products are the actual goods, accounts, or investments they provide.
Thus, financial services are very important and need constant innovations to cater to the growing needs
of businesses and consumers.

INNOVATIONS IN FINANCIAL SERVICES

Rapidly advancing technologies, evolving customer expectations and a changing regulatory landscape
are opening doors to disruptive innovation in financial services. From crypto-currencies to big data to
peer-to-peer lending, fintech innovations have captured the attention and imagination of customers,
investors and incumbents. It is now becoming obvious that the accelerating pace of technological change
is the most creative force—and also, the most destructive one—in the financial services ecosystem
today.

The recent innovations in financial services have come up in the following areas:

1. INSURANCE

Insurance has been the most basic of needs of individuals and the sector has come a long way from its
initial days, constantly innovating its processes and services and coming up with products necessary
for the current scenario.
The innovations come at different levels: the product, the process and the service provider.

INNOVATION AT PRODUCT LEVEL

 To address the health insurance requirements in this pandemic, IRDA had instructed the
insurers to come up with two COVID specific products- corona Kavach and corona Rakshak.
One covers your bill amount while the other gives you a pre decided amount upon
hospitalisation to take care of the expenses.
 Recently Aditya Birla health insurance has come up with a unique health product which rewards
you for staying fit. Each day you walk 10000 steps you accumulate points which you can
 redeem at the time of renewal. So this way they are trying to bring upon positive reinforcement
in their customers.
 Few general insurance companies like Bharti AXA have come up with ‘Pay as you drive’
feature under which a customer has to pay premium as per the kilometres the car has been
driven.
Another few track your driving style and reward you if you drive safely, within speed limits
and do no rash acceleration or hard braking. These types of features provide greater value to the
customer and encourage good behaviour as they are rewarded for it.
 Few companies have started returning the mortality and premium allocation charges at the end
of ULIP policies along with loyalty additions which increases the IR for the customer.

INNOVATION AT PROCESS LEVEL

 In the wake of pandemic Insurance companies have fast tracked innovations in the processes
and have shifted the entire policy login to issuance process online.
 Earlier the sales manager had to physically meet the prospective client, explain the product and
secure their signatures on multiple forms. Now this entire process can be done online via video
conferencing. To eliminate the need for signatures IRDA has allowed OTP process for client
validation.
 The medical professionals are conducting a tele-medical to confirm the client’s medical history
and present condition instead of physical medicals.
 Underwriting has seen innovation in how they assess the risk. Connected health
platforms represent a data source that can mitigate risk for underwriters. These platforms
leverage data from wearable technologies such as fitness trackers and other sensors and based
on these data underwriters can take a call to accept or deny a proposal or grant the policy with a
loading amount.
 The virtual processes have led to significant cost reduction and speedy policy issuance.

INNOVATION AT SERVICE PROVIDER LEVEL

 Earlier insurance products were produced, distributed and serviced by the insurance company
on its own. Today except for production, the other two activities have been either outsourced
partially or partnered with the aim of reaching greater number of clients and providing better
customer service.
 Companies have entered into strategic alliances with distribution partners which can help
increase the reach of product. Typical partners include bank. With their strong branch network
spanning across the nation, they are ideally suited for distribution.
It is of little surprise then that the top 3 private life insurer companies have bank as a partner-
SBI Life, HDFC Life and ICICI PRUDENTIAL.
 For providing claims related service few companies have outsourced it to TPAs. A Third Party
Administrator is a body that processes insurance claims admissible under the mediclaim policy.
Over the years, the number of insurers, health policies sold, types of health products and the
buyers increased in considerable proportion. Ultimately, it got difficult to keep track of work
which did not result in quality services. Hence to ensure high quality service for clients
insurance companies have tied up with TPAs.
 The latest innovation has seen online web aggregators and brokers rise to prominence. Best
example is policy bazaar. It is an online platform with no branches but has lapped up a
significant market share. It provides all the offerings of all insurance companies under one place
and hence caters to different insurance needs of people like life, health and general which
provide convenience.
 Now other companies like ACKO are following this formula since there is lot of potential in
this sector and if they can provide certain value addition in terms of low price or enhanced
service then they can increase their market share.

2. CAPITAL RAISING

 Traditionally capital raising was facilitated by specialised financial institutions which would
leverage their deep expertise to identify excellent investment opportunities. It was not possible
for a new and growing company to secure large funding without taking the help of financial
institutions like big investment banks.
 Now with the pace new start-ups are coming up, a series of alternative funding platforms have
emerged, providing greater access to capital raising activities to a large number of new
companies and start-ups.
 These alternative fund raising platforms may soon solidify their position as key capital raising
intermediaries for higher risk companies.
 They could help raise capital for low return projects which would not be funded by traditional
financial institutions.
 They could provide a channel for established companies to directly raise capital from their
customer base reducing the cost of capital raising by skipping investment banks.
 They would allow crowd based funding thereby allowing individual retail investors to invest in
projects they are passionate about.
 Two popular platforms for equity crowd funding are SeedInvest and FundersClub.
 Although they may not replace the traditional capital raising structure but they have enough
potential to create their own niche and eat up their market share.

3. INVESTMENT

 Investment for individual retail investor has traditionally been guided by a financial planner.
 Of late, owing to the market crisis and continued period of uncertainty, financial planners have
lost the customer trust. People today want objective advice and are sceptic of taking advice from
another human as human bias or simply own interest can bias the advice.
 Robo-advisors are the latest incarnation of financial advice and portfolio management, with
fully-automated algorithmic portfolio allocations and trade executions. Here the advice is
automated and AI based. They work by crunching complex algorithms to give the best advice to
the investor.
 They ensure there is no bias advice and conflict of interest does not arise.
 It is possible to customise the algorithm according to individual investor based on his risk
appetite. It can take into account various parameters like age, retirement corpus required, risk
appetite, expected future inflows to dish out the best advice.
 It does all of the above at a cheaper fee than a financial advisor.
 Alternative investment funds (AIF) allow retail investors to invest in alternative areas which
were earlier open for only large institutional investors.
 Distribution of all wealth products like mutual funds, ETFs, annuities and insurance products by
one provider has gotten increasingly popularised and is seeing greater acceptance owing to
convenience.
 Disruptive innovation in this sector includes the following characteristics: Lower entry barrier,
customer empowerment, transparency, convenience, personalised, and low cost.
 With the ability to provide superior value additions at low cost, new wealth management
systems would soon outdate the traditional systems.

4. PAYMENTS

 Earlier banks were the sole source making and receiving payments. It started with issuing of
cheques and demand drafts and debit and credit cards were soon added.
 Today the modes of payments have increased with net banking and mobile banking but more
importantly the source of payments is also getting diverse.
 Mobile wallets have emerged as a popular source of payments wherein you can load money into
it and use it to transfer, send or receive money. They are easy and convenient to use.
 More and more companies are entering the payments service sector including Google, Apple,
Samsung and others as they think that it is the next big sector and there is potential for many
innovations.
 Block chain has been the latest innovation in payments sector. It has a decentralised ledger and
allows anyone in the world to transfer money to anyone, anywhere anonymously. Ripple is a
crypto currency which uses the block chain structure for payments. Block chain has created a
disruption in the sector and is finding more and more acceptance.
 Security will see increased prominence with customers carrying their money in their phones and
the provider with best security would be preferred.
 The impact of these innovations will result in people choosing to take up less physical cards
with so many digital wallet options providing greater convenience. Payment process would
become smoother with payment providers trying to improve efficiency of their processes to
become market leaders.
 Disruptive innovation in this sector includes the following characteristics: Smooth experience,
seamless integration with apps, greater acceptability, security, reduced costs and real-time
payments.

5. BANKING

Banking is undoubtedly the most important area under financial services. Innovation in banking is of
most prominence as it is the backbone of financial sector of the country.

 AI driven predictive banking

Banks are now using internal and external data and building predictive profiles of customers in
real time. With rich, accurate and financially viable consumer data, financial institutions know
their customers very well and can assess their repayment capacity and decide on upper limits of
loans to be sanctioned. They are also able to offer advice for the future, while increasing
security and efficiency.
 Card less ATM service
SBI has become the first Indian bank which allows customers to carry out ATM transactions
effortlessly by using their mobile banking app called YONO. Customers can go to the nearest
 SBI ATM and insert their mobile number, one-time PIN (OTP) and the card PIN, and carry out
their transaction. Card less banking allows customers to withdraw cash, pay bills, request for
cheque book, make balance inquiry, and request for a mini statement.
 Digital banks
There has been a rise of digital banks around the world as a lot of transactions are moving to
digital channels and also to combat the high cost of a traditional branch network. From
launching digital-only banks to collecting deposits, to using digital platforms for lending,
investing and speciality services, banks and financial firms are focusing on quality customer
experiences and increased value for customers.
 Empowerment of mobile banking
Mobile banking has been picking up pace for a while now and the banks have made their mobile
apps more powerful by adding almost all of their services on the apps. From applying for loans,
booking a FD to buying insurance products, a customer can do it all without having to visit the
branch or calling someone. This has really added to customer convenience as now they can
perform a wide array of banking activities from the convenience of their home.
 Instant lending
Earlier one had to visit a branch and fill a proposal to apply for a loan irrespective of the
amount. Now based on customer profiles, banks are offering pre-approved instant loans of
varying amounts. The loan takes minutes to be processed and the amount is dispersed within a
few hours. The time taken for getting loan amount has been reduced significantly and customer
convenience has gone high.
 24*7 Fund Transfer – RBI has upgraded the fund transfer process significantly and has
ensured availability of anytime electronic funds transfer with the implementation of 24*7
NEFT. This has greatly empowered the people to access a bouquet of e-payment options
especially after the announcement of implementation of 24*7 RTGS from December 2020.

CONCLUSION

Financial services are the backbone of any economy. It is the presence of financial services that enables
a country to improve its economic condition ensuring there is more production in all the sectors leading
to economic growth. In today’s fast paced world where processes get fast outdate it is imperative that
innovation in financial services occurs continuously to meet the ever changing demands and ensure
smooth flow of funds in the economy promoting investment and providing funds for the desired venture
at an optimum cost to the promoters and with best possible returns to the investors leading to economic
growth.

BIBLIOGRAPHY

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