Banking & Financial Services Consumer Behavior - Deloitte

Banking & Financial Services Consumer Behavior June 2016

Context and objective India has a large ‘underbanked’ population (Estimated at as high as 300 Million currently) RBI and the Government have been pushing Financial Inclusion in India through multiple means, including the Pradhan Mantri Jan Dhan Yojana (PMJDY) Even with the recent phenomenal success of the PMJDY in improving access to financial services, usage by low-income consumers remains a challenge Deloitte undertook a primary research based exercise across select segments (including urban and rural) to identify their on-ground banking and financial payments behavior, their pain points and preferences This report presents the findings of the primary research. It is to be noted that the findings in the report are directly from primary research, and do not include any additional analysis. Moreover, the report stays focused on the behavior, usage and pain points across segments; and does not draw out any insights for any banks or other stakeholders 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited Banking & Financial Services Consumer Behaviour 2

Key insights (1/2) Overall Income & Savings Respondents Profile 25 percent of the respondents have monthly income less than INR 5,000 and 59 percent earn less than INR 10,000 as their monthly income 70 percent of the respondents are able to save less than 20 percent of their monthly income Usage & Awareness Channels used Majority (95 percent of respondents) own bank account However, there is significantly low awareness of wealth management products such as mutual funds ( 78 percent of the respondents unaware) and fixed deposits ( 51 percent of the respondents unaware) Life Insurance and health insurance have a better awareness and the likelihood of usage in near future is quite high, as elicited by respondents In-person branch banking is used by a significant majority for all transactions (except bill payments); Almost all deposits and new account opening are done through branches only For withdrawal activities, in addition to branch visits, ATM has a significant usage ( 50 percent of respondents) Internet/ mobile banking was almost non existent among all types of transactions; except for bill payments ( 8 percent) 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited Banking & Financial Services Consumer Behaviour 3

Key insights (2/2) Overall Mobile & Internet usage Digital modes used 97 percent of the respondents own mobiles: 75 percent own basic and feature phones, while 22 percent own smartphones 20 percent of the respondents access internet: 94 percent access via mobile, Among the internet users, only 12 percent use mobile phones for financial transactions Perceived risk of online transactions (53 percent) and fear of the outcome if the system failed (39 percent) are the largest deterrents towards performing financial transactions via digital mode Lack of awareness – Do not know the concept (39 percent) and Do not know how to use (22 percent) are the other significant factors hindering usage 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited Banking & Financial Services Consumer Behaviour 4

1. Banking & Financial products: Current usage (1/3) Awareness & usage of financial products Majority (95 percent of respondents) use only bank account and there is significantly low awareness of wealth management products such as mutual funds ( 78 percent of the respondents unaware) and fixed deposits ( 51 percent of the respondents unaware) Life Insurance and health insurance is well-known and are most likely to use in future Awareness and usage of financial products ( percent respondents) 95% Using the product Least likely to use the product 78% Most likely to use the product Unaware of the product 63% 51% 46% 46% 45% 42% 32% 29% 22% 18% 10% 11% 6% 3% 1% 1% Bank account 27% 21% 20% 14% 15% 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited Life insurance Health insurance 14% 8% 7% 4% 0% Mutual Funds 20% 19% Auto insurance Fixed Deposits 3% Money lending agent Credit, debit and prepaid cards Banking & Financial Services Consumer Behaviour 5

2. Banking & Financial products: Current usage (2/3) Preferred channel for banking transaction In-person branch banking is used by a significant majority for all transactions (except bill payments); Almost all deposits and new account opening are done through branches only For withdrawal activities, in addition to branch visits, ATM has a significant usage (48 percent of respondents) Internet/ mobile banking was almost non existent among all types of transactions; except for bill payments ( 8 percent) Methods of accessing of bank account for various activities ( percent respondents) 99% 97% Branch Visit ATM Bank correspondent Internet / Mobile Banking Call Centre Door Step Banking Cash deposit machine 84% 62% 48% 30% 5% 1% 4% Deposit 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 2% Withdrawal 1% Opening new account 5% 1% 1% 6% Making remittances 2% 1% 8% 4% 2% 1% Making bill payments Banking & Financial Services Consumer Behaviour 6

2. Banking & Financial products: Current usage (3/3) Awareness & usage of mobile/digital channels of banking 39 percent of respondents use ATM machines but a significant share ( 32 percent) is unaware of the product Significantly low awareness and usage of mobile and online banking ( 72 percent & 80 percent unaware of mobile money and online banking respectively) Awareness and usage of mobile/ digital channels of banking ( percent respondents) Using the product 80% Most likely to use the product Least likely to use the product 72% Unaware of the product 39% 32% 19% 10% 10% 12% 14% 9% 1% Automatic Teller Machine (ATM) 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited Mobile money Online banking Banking & Financial Services Consumer Behaviour 7

3. Internet penetration and online banking Mobile and internet usage habits 97 percent of the respondents own mobiles: 75 percent own basic and feature phones, while 22 percent own smartphones 3% 22% Type of phone ( percent respondents) 75% Basic & feature Smartphone 20 percent of the respondents access internet: 94 percent access via mobile, Among the internet users, only 12 percent use mobile phones for financial transactions Internet users ( percent respondents) 2% 18% 94% 79% Own mobile phone/ tablets Use internet Don’t use internet Access internet via ( percent respondents) 8% 5% 7% Own desktop/PC/ Laptop Cyber cafes Others Use internet for financial transactions 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited Banking & Financial Services Consumer Behaviour 8

4. Current pain points & challenges Challenges of digital modes of money Perceived risk of online transactions (53 percent) and fear of the outcome if the system failed (39 percent) are the largest deterrents towards performing financial transactions via digital mode Lack of awareness – Do not know the concept (39 percent) and Do not know how to use (22 percent) are the other significant factors hindering usage Challenges of digital modes of money ( percent respondents) 53% 39% 39% 36% 28% 22% Lack of awareness Low acceptance Risk of online transactions 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 25% 19% Don’t know how Extra Surcharge Lack of Lack of internet System failure to use smartphones 6% 7% Difficulty in operating the phone Wrong data entry Banking & Financial Services Consumer Behaviour 9

Key implications There is a significant uptake in bank accounts penetration and even their usage over the last few years However, there is a lot that can be improved both in terms of financial products’ penetration and adoption of emerging channels for financial transactions While there is some basic awareness of insurance products, etc. there is little understanding of wealth management products Traditional channels continue to be the channels for banking transactions for majority of the underbanked or not-so-well banked populace Lack of awareness (fear of losing out on money in a digital mode, lack of understanding of product usage) is one of the biggest challenges that constraints potential adoption It is critical to spread financial literacy (educate populace about the advantage of these products) and awareness around security of these products for enabling a noteworthy change in the banking and financial payments behavior of the people 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited Banking & Financial Services Consumer Behaviour 10

Contacts Neeraj Jain Partner neerajjain@deloitte.com 91 9560224446 Saurabh Trehan Partner tsaurabh@deloitte.com 91 99535 99568 2016 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited Banking & Financial Services Consumer Behaviour 11

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Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients.