Innovative personal finance products

Brief

• Identify innovative personal finance products in various countries
• Personal finance products such as loans, credit cards etc. customized and productized in ways to appeal to local markets

Approach

1. Trend analysis
   • Demographic trends
   • Market trends
   • Technology trends
   • Regional trends
   • Sociocultural trends
   • Internet and communication trends
2. Market analysis
   • Quantifying above trends
   • Estimating size of markets
3. Identify needs based on trends
4. Survey of existing products
   • Analyze strengths, weaknesses of existing products
   • Identify new products
5. New product ideas
   • Invent new products based on trends
6. Qualify new product ideas
   • Quantify market size for new ideas
   • Identify implementation strategies for new ideas

India: Demographic trends

• Asia is exploding with money
• China, India etc. have a voracious appetite for credit
• People there are very worried about weddings, especially daughters' weddings can be extremely expensive
• Younger population (50% of population below the age of 25)

India: Financial trends

• Booming economy with a growing middle class
• Access to credit is relatively new
• Fraud is a major problem, e.g. loans on homes are based on higher valuations by the appraiser
• There is no credit rating system and the judicial system does not allow companies to easily recover their money from the borrowers
• A high amount of undisclosed income
• Hawala
• Cash-on-delivery (COD)
• Airlines, railways and others are now selling tickets online and it is cheaper than buying through an agent or from the airline. You need a credit card to buy these online.
• Pension funds are still big in India. Not clear if India will go the US route of defined contribution plan (as opposed to defined benefit plan)

Microfinance

Microfinance is a major trend in India

India: Customer service

• If you want to open an account of if you want a loan, someone comes to your house from the bank to get the papers to you
• If you want to exchange currency, someone comes to your house for that too

India: Sociocultural trends

• Movies get financing from the underworld and other unsavory sources

Anecdotes

• There was this article about citibank or someone hiring goons to get an executive woman to pay her credit card bill. She defaulted because she was travelling. She created a big stinker.
• A grocery store in India figured out that its cost of capital was much higher than what their customers were earning in a savings account. They came up with a scheme whereby consumers could give them a deposit and they would give them coupons to shop in their store. The effective interest rate that the consumer was getting was higher than what a bank offered them, however the interest rate was however lower than the cost of capital for the grocery store and they got loyal customers.

Needs

1. Non-traditional ways of evaluating credit worthiness
2. How to give credit to developing markets using different approaches than developed markets
3. Short-term loans
   • High transaction fees but low interest
   • Non-revolving credit card
   • Need money to buy groceries this week, pay back next week or end of month (Payday loan?)
4. Programs to help fund big events such as daughter's weddings
5. Financial advisory services to high net worth individuals
6. Financing for movies
7. Simplified COD
8. Escrow services
9. Loans for individuals with lower credit scores (people who don't appear very credit worthy on paper)
10. A clearing house that could collect cash from people's houses or stores for airline/railways transactions - that would be convenient for people without credit cards