I joined Citibank in 1981. The quote below is from John Reed, former CEO, Citigroup and is now part of Citibank history.
"We are creating something new," he wrote in 1976. "I refer to a fundamentally new business starting with a dedication to the consumer, and to the proposition that we can offer a set of services that will substantially satisfy a family's financial needs under terms and conditions that will earn the shareholders an adequate profit while creating a healthy, positive and straightforward relationship with the customer." Written on vacation, this document became known in Citicorp annals as the ‘Memo from the Beach’.
I became a senior citizen this year so am starting to enjoy my golden years, a permanent vacation, and am writing this memo from Aradhana Apartments in New Delhi which echoes John Reed’s thoughts 31 years later. Banking focused on institutions till John Reed brought in consumer banking. In the mutual fund sector in India, we now can serve everyone profitably and build “Municorns” (Companies that will have a market cap of $100 billion by 2030).
In the near term if we are to change our mindset and do a few things, we could grow the mutual fund AUM to Rs.100 lakh crore by August 15, 2018. This means a 5X growth in one year for the industry. To do this we have to use disruptive thinking and require a massive mindset change. However, AMFI estimates Rs.95 lakh crore by 2025. This is the difference between incremental thinking and disruptive thinking.
The change has to be propelled by the government (MoF), SEBI and RBI. For the industry to think disruptively MoF, SEBI, RBI have to think disruptively. In India NPCI took over a decade to start making a difference. GST took almost 15 years. Who can blame the industry for being incremental thinkers?
By announcing a second consultation paper on revising advisory guidelines, it seems that SEBI has already taken the first step. Advisory market in India has a huge potential. Currently, industry is chasing assets, so focus has always been mostly on the HNIs and corporates. Lately, retail focus is visible, but it is largely incremental in nature. If we really want disruptive results, focus needs to be on the numbers of mutual fund investors and not assets. Flat fee based advisory models that use technology are bound to focus on number of users and this is what I call as disruptive.
Just as NPCI made digital payments possible, an MEP (market expansion platform) can make every account profitable.
So, what should MoF, SEBI and RBI do? First they need to believe that every account can be profitable and then license at least two MEPs by inviting entrepreneurs to apply. The business opportunity is so large that if this is marketed right there will be a feeding frenzy.
I will end with one example of how archaic the current thinking is. Today, to register a mandate to debit your bank account and move money upto a limit you specify by electronic debit to your mutual fund account, can take anywhere from 10 to 21 days, if your paper mandate does not get rejected. If you belong to the class of 50% of Indians who cannot sign, you are excluded. Incremental thinking says that we will probably get to an e-mandate in about six months but it will probably be a complex process. Disruptive thinking would get instant mandate registration done 24x7x365 for all Indians within thirty days. And this is not science fiction. It can be done.
We remain optimistic that India as a nation is moving to disruptive thinking. My wife Anita and I were both part of the PayPal founding team in 1999 and have seen first hand the power of disruptive thinking. PayPal is not a municorn. It has taken 17 years to reach $60 billion+ market cap but the next version of companies like PayPal, even if they do not exist today, will be municorns.
Sanjay Bhargava is the Chairman of Bharosa Advisor, a SEBI registered investment advisory firm.
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
